How It All Fits

Terence M. Yhip and Bijan M. D. Alagheband
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Terence M. Yhip: University of the West Indies
Bijan M. D. Alagheband: McMaster University and Hydro One Networks Inc.

Chapter 5 in The Practice of Lending, 2020, pp 183-224 from Springer

Abstract: Abstract This chapter unites the abstract discussion on principles and techniques of the criteria-based approach in a case study using the financial statements of a fictional airline company named AY Intercontinental Airways. Through the case study the reader applies, in one go, the background knowledge to construct a borrower risk rating (BRR) scorecard with the necessary building blocks, create descriptors, apply point-in-cycle adjustment, prepare pro forma financial statements, construct a cash flow model for stress testing “what if” scenarios, apply overrides, and determine the final risk rating. Comparing the BRR based on current financials to the BRRs, the PIT adjustments temper the risk rating as expected. The risk assessor may execute the adjustments in Business Risk, or alternatively in Financial Risk using projected financials.

Keywords: Case study; Pro forma financial statements; PIT adjustment; Cash flow model; Stress testing (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-32197-0_5

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DOI: 10.1007/978-3-030-32197-0_5

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