Potential Exposure (PE) : HOW TO GET A HANDLE ON YOUR CREDIT RISK
Expected Positive Exposure (EPE) :
Collateralized Debt Obligations (CDOs) crisis
CDS
Potential Future Exposure (PFE)
collateral management : is the function responsible for reducing credit risk in unsecured financial transactions.
MTM(Mark to Market) exposure – Money you lose if the counterparty defaults today
PVCF Potentials : Present Value cash flow potentials
DF : Disproportion factor
IR change - Market Factor
Credit Default Swaps(CDS) :A credit default swap (CDS) is a swap contract in which the protection buyer of the CDS makes a series of payments to the protection seller and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) goes into default.CDS is similar to credit insurance
SAR
Over-the-counter (OTC) or off-exchange trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties.
Books :
Value At Risk Theory and Practice Glyn A. Holton
Settlement risk is the risk that a settlement in a transfer system does not take place as expected.
BookRunner :In investment banking, a bookrunner is usually the main underwriter or lead-manager/arranger/coordinator in equity, debt, or hybrid securities issuances.The bookrunner usually syndicates with other investment banks in order to lower its risk. The bookrunner is listed first among all underwriters participating in the issuance.
Debt instruments is also known as fixed income or bonds
LIBOR is the interest rate that banks charge each other for one-month, three-month, six-month and one-year loans. LIBOR is an acronym for London InterBank Offered Rate. This rate is that which is charged by London banks, and is then published and used as the benchmark for bank rates all over the world.
LIBOR is compiled by the British Bankers Association (BBA), and is published 11 am each day in conjunction with Reuters. It is comprised from a panel of banks representing countries in each currency.
DLE : Derivative load adjustments
EDF : Expected default frequency
EAD : Exposure at default (EAD)
LIED : Loss in the event of default (LIED)
Loan commitment == Sanction letter for loan
ECAI - External credit assessment institutions
CVA - credit value adjustment
DVA - Derivative value adjustment
CDO - Collateralized Debt obligations
CRA - Credit Risk Adjustment
What Does Capital Structure Mean?A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.
A company's proportion of short and long-term debt is considered when analyzing capital structure. When people refer to capital structure they are most likely referring to a firm's debt-to-equity ratio, which provides insight into how risky a company is. Usually a company more heavily financed by debt poses greater risk, as this firm is relatively highly levered
What Does Debt/Equity Ratio Mean?
A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.
Calculated as: Debt/Equity Ratio= Total Liabilities/Owner's Equity
Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation. Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as companies'. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense.
If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing.The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while personal computer companies have a debt/equity of under 0.5.
What Does Debt-To-Capital Ratio Mean?A measurement of a company's financial leverage, calculated as the company's debt divided by its total capital. Debt includes all short-term and long-term obligations. Total capital includes the company's debt and shareholders' equity, which includes common stock, preferred stock, minority interest and net debt.
Calculated as: Debt-To-Capital Ratio = Debt/(Share Holder's Equity + Debt)
Companies can finance their operations through either debt or equity. The debt-to-capital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. This tells investors whether a company is more prone to using debt financing or equity financing. A company with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and increase its default risk.
Because this is a non-GAAP measure, in practice, there are many variations of this ratio. Therefore, it is important to pay close attention when reading what is or isn't included in the ratio on a company's financial statements.
What Does Return On Debt - ROD Mean?1. A measure of a company's performance or net income as related to the amount of debt it has issued.
2. The amount of profit generated for each dollar that a company holds in debt.
3. A necessary factor when using the adjusted present value (APV) discounted cash flow method for valuing levered assets. The APV method is often used in a leveraged buyout as a way of valuing a firm that has a changing capital structure.
Return on debt (ROD) is a complex financial modeling skill and not a commonly used financial reporting factor.
Companies that carry significant amounts of debt relative to capital and/or assets are more at risk during an economic downturn when earnings are likely to decline and credit measures may be tightened.
What Does Swap Ratio Mean?The ratio in which an acquiring company will offer its own shares in exchange for the target company's shares during a merger or acquisition. To calculate the swap ratio, companies analyze financial ratios such as book value, earnings per share, profits after tax and dividends paid, as well as other factors, such as the reasons for the merger or acquisition.
For example, if a company offers a swap ratio of 1:1.5, it will provide one share of its own company for every 1.5 shares of the company being acquired.
This can also be applied as a debt/equity swap, when a company wants investors to trade their bonds with the company being acquired for the acquiring company's own shares.
What Does Debt/Equity Swap Mean?A refinancing deal in which a debt holder gets an equity position in exchange for cancellation of the debt. There are several reasons why a company may want to swap debt for equity. For example, a firm may be in financial trouble and a debt/equity swap could help avoid bankruptcy, or the company may want to change capital structure to take advantage of current stock valuation.
Covenants in the bond indenture may prevent a swap from happening without consent.
Amortization usually refers to spreading an intangible asset's cost over that asset's useful life. For example, a patent on a piece of medical equipment usually has a life of 17 years. The cost involved with creating the medical equipment is spread out over the life of the patent, with each portion being recorded as an expense on the company's income statement.
Depreciation, on the other hand, refers to prorating a tangible asset's cost over that asset's life. For example, an office building can be used for a number of years before it becomes run down and is sold. The cost of the building is spread out over the predicted life of the building, with a portion of the cost being expensed each accounting year.
Depletion refers to the allocation of the cost of natural resources over time. For example, an oil well has a finite life before all of the oil is pumped out. Therefore, the oil well's setup costs are spread out over the predicted life of the oil well.
No comments:
Post a Comment