modeFinance Monthly Overview: November 2011

Monthly Overview: November 2011

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modeFinance Monthly Overview

November 2011

In order to give a financial and economic overview of miscellaneous companies from different countries, modeFinance analysts executed a monthly study regarding the calculated ratings.





How many companies? In November, 2011modeFinance calculated 947,655ratings based on 2010 annual financial statements in 66 countries across the world. In the table of ratings by country (Tab.1), the first 10 countries with the number of the ratings which are evaluated by modeFinance using MORE rating technology (please see the details here) are presented.

Country Number of evaluated ratings Mean Rating

Ukraine 285,624 B Portugal 244,126 B Spain 88,667 B United States of America 67,949 BBB France 51,783 BB Italy 42,887 B United Kingdom 40,547 B Germany 39,255 BB Colombia 24,400 BBB Ireland 13,960 B Others 48,457 BB TOTAL 947,655 BB

Tab 1 the first 10 countries in terms of number of evaluated ratings in November 2010

Fig 1Distribution of evaluated companies





How much is the Total Turnover?

In November, 2011the value of the sum of the Total Turnover of the rated companies is 2,715,662 million Euros. The distribution of the Total Turnover for the rated companies is shown if the following graph.

The evolution of ROI and ROE?

On the evaluated companies, a statistical study of the distribution of ROI and ROE during the observed years (2008-‐2009-‐20010) is executed.

1

10

100

1,000

10,000

100,000

1,000,000

Turnover < 5'000 (th Euro)

5'000 < Turnover < 50'000 (th Euro)

Turnover > 50'000 (th Euro)

Number of companies

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

2008 2009 2010

ROE

ROI





The evolution of the debts?

Using the Leverage Ratio it is possible to understand the evolution of total debts during the years.

How many companies with profits or losses?

In the following graph it is possible to understand the evolution of Profit&Loss during the years in our study.

0% 20% 40% 60% 80% 100%

2008

2009

2010

0,0-‐2,0

2,0-‐5,0

>5,0

<0,0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010

P/L >= 0

P/L < 0





And what about the corporate credit rating?

To understand the trends in ratings over the years, the comparison among 2008, 2009 and 2010 performances are exhibited in the following graph. Thanks to the comparison among years it is possible to observe the trends in the ratings within the years. The first figure shows the distribution of the three years’ rating results; in addition to this the aggregated classes of ratings can be observed in the second figure. (The aggregated classes are Healthy, Equilibrated, Vulnerable and Risky-‐ please see the Appendix).

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

AAA AA A BBB BB B CCC CC C D

Ra`ng 2008

Ra`ng 2009

Ra`ng 2010

Healty (AAA-‐AA-‐A)

Equilibrate (BBB-‐BB)

Vulnerable (B-‐CCC)

Risky (CC-‐C-‐D)

Ra`ng 2008 18.8% 37.1% 28.1% 16.0%

Ra`ng 2009 16.8% 35.8% 29.8% 17.6%

Ra`ng 2010 18.4% 35.5% 28.2% 18.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%





And what about probability of default?

It is interesting to check the evolution of the mean probability of default evaluated on every companies with 2010 data. This month the modeFinance Risk Index is 0,1075.

0

0.02

0.04

0.06

0.08

0.1

0.12

modeFinance Risk Index

modeFinance Risk Index





Which company had the best rating in November?

The top ten companies with the best ratings (according to the available data in November 2010) are exhibited in Table 2. The companies were selected from the global database, hence they represent different countries.

Company name Country Rating

ASAHI KASEI REFORME K.K. Japan AAA CTC TECHNOLOGY CORPORATION Japan AAA ADIDAS UKRAINA Ukraine AAA SAINT -‐ GOBAIN MONDEGO, S.A. Portugal AAA VENSYS ELEKTROTECHNIK GMBH Germany AAA BEIERSDORF PORTUGUESA, LDA. Portugal AAA RIGLI UKRAINA Ukraine AAA SIAM CELLULOSE CO LTD Thailand AAA KIIVRIANTA Ukraine AAA EASTERN SEA LAEMCHABANG TERMINAL CO LTD Thailand AAA





The best company in November, 2011: modeFinance Credit Report





APPENDIX

MORE rating guide General vision A credit rating is an opinion of the general creditworthiness of an obligor (issuer rating), or the

creditworthiness of an obligor in respect of a specific debt security, or other financial obligation (issue rating), based on relevant risk factors.

The Multi Objective Rating Evaluation (MORE) model is essentially used to assess the level of distress of industrial companies by using data included in financial statements.

The basic idea of the model is to analyze a set of financial and economic ratios in a predictive corporate

bankruptcy model with the purpose of creating a fundamental credit rating model for each industrial sector.

Results of the model are obtained by applying newly developed numerical methodologies, drawing together financial theory, data mining and engineering design methodologies. The heart of MORE is a multi

dimensional and multi objective algorithm that produces a classification of each company, by taking into account any attributes (such as sector and country) characterizing a firm.

The model gives the opportunity to assign a rating to a company even without considering a complete data analysis and allows to process quality information. It induces a better understanding of a company’s

strength and weakness thanks to sophisticated data mining tools and taking into account the analysts’ knowledge.

The MORE rating vision is to look at the fundamental economics of the company. The main idea is to evaluate the rating observing every aspect of the economical and financial behavior of the company: better

is the equilibrium between the different aspects, better will be the final rating.

This is done studying, evaluating and aggregating the most important sections of the financial and economic behavior of a company as: profitability, liquidity, solvency, interest coverage and efficiency.





Rating scale

Rating class Rating Macro class Assessment

AAA

The company's capacity to meet its financial commitments is extremely strong. The company shows an excellent economic and financial flow and fund equilibrium

AA

The company has very strong creditworthiness. It also has a good capital structure and economic and financial equilibrium. Difference from 'AAA' is slight

A

Healthy

The company has a high solvency. The company is however more susceptible to the adverse effects of changes in circumstances and economic conditions than companies in higher rated categories

BBB

Capital structure and economic equilibrium are considered adequate. The company's capacity to meet its financial commitments could be affected by serious unfavourable events

BB

Equilibrated A company rated 'BB' is more vulnerable than companies rated 'BBB'. Furthermore the company faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions

B

The company presents vulnerable signals with regard to its fundamentals. Adverse business, financial, or economic conditions will be likely to impair the company's capacity or willingness to meet its financial commitments

CCC

Vulnerable A company rated 'CCC' has a dangerous disequilibrium on the capital structure and on its economic and financial fundamentals. Adverse market events and an inadequate management could affect with high probability the company's solvency

CC

The company shows signals of high vulnerability. In the event of adverse market and economic conditions, the company's strong disequilibrium could increase

C The company shows considerable pathological situations. The company's capacity to meet its financial commitments is very low

D

Risky

The company has not any longer the capacity to meet its financial commitments





Fundamental Credit Rating Ratios

Solvency ratios Leverage ratio Measures the level of total liabilities of the company in

comparison with equity Assets to debt Indicates company’s solvency. The company shows a level of

deficit when the value of this ratio is under one unit Financial ratios

Fixed Assets coverage ratio Only for holdings. It measures the capital structure i.e. whether a company covers the fixed assets with long term capital.

Liquidity ratios Current ratio The current ratio measures whether a company has sufficient

short-‐term assets to cover its short-‐term liabilities. Quick ratio The quick ratio compares current liabilities only to those assets

that can be readily turned into cash. Profitability and economic ratios

Return on Investment (ROI) It measures the profitability of company investments without regard to the way the investment is financed.

Return on Equity(ROE) It measures the profitability of the equity. Asset turnover It indicates the investments turnover with regard to sales. The

level assumed from the ratio depends on the sector in which the company operates.

Profit margin It indicates the profitability of the sales. Interest coverage ratio

Interest Paid coverage Indicate the ability of the company to cover interest expenses through the economic margins (Gross profit and EBIT) and through the cash flow from operating activities.





mF Credit Limit mF Credit limit is the estimation of the amount of maximum credit that is possible to assign on a commercial relationship with the analyzed company with an outlook of one year.

modeFinance used the following values associated with the company analyzed while computing the credit limit:

• Size; • Years in Business; • Average number of suppliers; • Liquidity of the company and the comparison with its sector;; • The funds dedicated to be paid to suppliers; • The likelihood that a company November pay its debts in the next 12 months (MORE

Ratings).

The credit limit in this report is merely a suggested value of commercial credit limit calculated on the basis of annual public data. This value should be reviewed by paying attention at the Confidence Level value and by using other information such as other business information, news... etc; and private information such as

the relationship with client, history of payments, guarantees andthe knowledge of the sector.

Probability of default and Confidence Level In addition to the MORE rating, modeFinance also estimates the probability of default and provides a level of confidence. The probability of default is the degree of certainty (in quantitative terms) that the company

will go into default.

As the probability of default is strongly affected by the economic climate the company is operating in, companies in the same MORE class will not necessarily have the same probability of default.

The MORE model can produce a MORE rating even if there is missing data by using an associated confidence level:

The level of confidence does not indicate financial confidence in the company. It is a reflection of the

variations in availability of financial data across Europe due to filing regulations and suggests the degree of financial detail the MORE rating is able to take into account for each company.

For companies with fully populated records a confidence level of 100% would be applied: companies where no financial data is provided, 0%. This puts the MORE rating in a context for the user and aids

interpretation.





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modeFinance Monthly Overview: November 2011

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