A contribution to the determination of company value in the credit analysis process

Abstract

The basic principles of valuation theory and credit risk assessment were presented together with tools of appraisal used to calculate net operating profit. Net operating profit was obtained after adjusting taxes to a cash basis, capital invested in business operations, free cash flow, weighted average cost of capital, return on invested capital and economic value added EVA®. This demonstrated how the relation of these variables could contribute to qualify the decision making in the process of credit analysis. A summarized guide of the credit analysis was included for all professionals making credit decisions in both financial and non financial companies. Practical application in a case study was made to demonstrate the contribution of corporate valuation to credit risk analysis.