Monthly Overview: September 2011
modeFinance Monthly Overview
September 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.
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Monthly Overview: September 2011
How many companies?
In September, 2011modeFinance calculated 829,691 ratings based on 2010 annual financial statements in 90 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
France Belgium United Kingdom Russian Federation Italy Sweden Denmark Norway Germany Finland Others TOTAL
320,277 82,807 75,333 70,336 58,949 50,937 40,512 28,116 22,872 22,001 57,551 829,691
Mean Rating BB B CCC BB B BB B BB BB BB
BB BB
Tab 1 the first 10 countries in terms of number of evaluated ratings in September 2010
Fig 1Distribution of evaluated companies
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Monthly Overview: September 2011
How much is the Total Turnover?
In September, 2011the value of the sum of the Total Turnover of the rated companies is 6,220,804 millionEuros. 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.
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Monthly Overview: September 2011
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.
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Monthly Overview: September 2011
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).
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Monthly Overview: September 2011
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 0,0903.
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Monthly Overview: September 2011
Which company had the best rating in September?
The top ten companies with the best ratings (according to the available data in September 2010) are exhibited in Table 2. The companies were selected from the global database, hence they represent different countries.
Company name
Country
Rating
ADISSEO FRANCE
France
AAA AAA AAA AAA AAA AAA AAA AAA AAA
GAZPROM YURGM TREIDING
Russian Federation
SOCIETE PAR ACTIONS FERMEE L`OREAL
Russian Federation
GAZPROM YURGM DEVELOPMENT
Russian Federation
STANDARD FOOD CORPORATION
Taiwan
ROHM-‐WAKO ELECTRONICS (MALAYSIA) SDN BHD
Malaysia
CASINO COSMOPOL AB
Sweden
NOVO-‐SALAVATSKAYA TETS
Russian Federation
MOSKOVSKAYA OBLASTNAYA ENERGOSETEVAYA KOMPANIYA OTKRYTOE AKTSIONERNOE OBSHCHESTVO PO NALADKE, SOVERSHENSTVOVANIYU EKSPLUATATSII I ORGANIZATSII UPRAVLENIYA ATOMNYKH STANTSII ATOMTEKHENERGO
Russian Federation Russian Federation
AAA
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Monthly Overview: September 2011
The best company in September,2011: modeFinance Credit Report
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Monthly Overview: September 2011
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.
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Monthly Overview: September 2011
Rating scale Rating class
Rating Macro class
The company's capacity to meet its financial commitments is extremely strong. The company shows an excellent economic and financial flow and fund equilibrium
AAA
Healthy
AA
Assessment
The company has very strong creditworthiness. It also has a good capital structure and economic and financial equilibrium. Difference from 'AAA' is slight 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
A
Capital structure and economic equilibrium are considered adequate. The company's capacity to meet its financial commitments could be affected by serious unfavourable events
BBB Equilibrated BB
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 Vulnerable
CCC
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 The company shows signals of high vulnerability. In the event of adverse market and economic conditions, the company's strong disequilibrium could increase
CC Risky
C
The company shows considerable pathological situations. The company's capacity to meet its financial commitments is very low The company has not any longer the capacity to meet its financial commitments
D
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Monthly Overview: September 2011
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.
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Monthly Overview: September 2011
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 September 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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Monthly Overview: September 2011
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