If you have a large number of clients in a particular industry, consider the monitoring example below, especially if an industry is potentially concerning. Tracking over time provides a high level view of changes to an industry’s credit-worthiness. A side benefit is that it could align sales efforts with the strongest long-term players in this industry.
The following are tracked and color-coded to allow for comparison between peer companies (See Retail industry example below):
- Stock prices
- Quarterly revenues/earnings
- Significant company news affecting credit quality
- Moody’s / S&P / Fitch credit rating changes
- Bond prices *
* Very low credit quality companies are termed distressed. These companies are unstable due to over-leveraged financials, inadequate cash flow and deteriorating credit ratings. For bond prices, they usually trade considerably below the $100 par value to due to uncertainty regarding bond repayment at maturity. A drop in bond prices reflects the market’s reduced confidence in the company’s credit quality.
All of these companies are publicly traded. Of course, the lack of financial reporting presents challenges for monitoring private companies. Bear in mind, some larger private companies may have issued debt (see Corporate Bond Market – understanding how it works … http://crediglobe.com/corporate-bond-market-understanding-how-it-works/) which will allow for this approach to monitor an industry less the stock price. Under SEC rules, companies with registered securities, either equity or debt, are required to file quarterly and annual financial statements.