Issuer reliability scoring models
Our credit analysis models are based on S&P methodology. For each indicator an issuer gets a score from 5 (very low risk) to 1 (very high risk). If there is no data for an indicator, it gets 0 points. Points for all indicators are added up.
Credit analysis model for non-financial issuers
Operating risks are the risks of falling revenue, rising costs and falling profit. Financial risks are the risks that the company will not have enough money for current expenses and debt payments.
- Profit in indicators 6 and 7 is a weighted average over the last 3 years, so anomalies in the latest reporting period do not distort the score.
- Current-year profit in indicators 6 and 7 is adjusted using the ratio from previous years rather than extrapolated linearly — more accurate for seasonal businesses.
- Indicator 3 adds extra points if the main supplier and the issuer share owners.
- In indicator 6, net profit has been replaced with operating profit.
Operating risks
1Sales country risk
Premise: The larger the share of revenue from less risky countries, the more reliable the issuer.
Country risk is taken from the International Country Risk Guide (PRS Group) and depends on a range of political and economic factors. The most reliable countries (USA, Germany, etc.) are rated 1.00, the lowest rating is North Korea's (0.08), and Belarus is rated 0.33. If a company operates in several countries, a revenue-weighted average is used.
Example. If 50% of revenue comes from Belarus (0.33) and 50% from the USA (1.00), the company is rated 0.67, which gives 4 points.
| Weighted average country rating | Points |
|---|---|
| 0.80 to 1.00 | 5 |
| 0.60 to 0.79 | 4 |
| 0.40 to 0.59 | 3 |
| 0.20 to 0.39 | 2 |
| below 0.19 | 1 |
2Industry risk
Premise: The less the issuer's industry is exposed to economic crises, the more reliable the issuer.
Some industries are very resilient in a crisis (e.g. healthcare), others very sensitive (e.g. real estate). Research, mostly on the US market, shows how much each industry's revenue falls in a crisis: on average from 20% (real estate) to 0% (healthcare).
Example. Retailers' revenue falls by only 0.6% on average in a crisis, so a retailer gets 5 points.
| Fall in industry revenue in a crisis | Points |
|---|---|
| below 4% | 5 |
| 4.00% to 7.99% | 4 |
| 8.00% to 11.99% | 3 |
| 12.00% to 15.99% | 2 |
| 16.00% to 20.00% | 1 |
3Supplier concentration
Premise: The less the issuer depends on its main supplier, the more reliable it is.
Losing the main supplier (of raw materials, materials, components) hurts more the larger its share of supplies. The indicator also takes into account the share of these supplies in cost of sales. If the main supplier is the parent company or shares owners with the issuer, 2 points are added.
Example. The main supplier provides 80% of a raw material, and that material is 50% of cost of sales. Concentration: 80% × 50% = 40% of cost of sales, which gives 2 points.
| Main supplier's share of cost of sales | Points |
|---|---|
| below 5% | 5 |
| 5% to 9% | 4 |
| 10% to 24% | 3 |
| 25% to 49% | 2 |
| over 50% | 1 |
4Customer concentration
Premise: The less the issuer depends on its largest customer, the more reliable it is.
Losing a large customer hurts more the larger its share of revenue.
Example. If the largest customer accounts for 15% of revenue, the company gets 3 points.
| Largest customer's share of revenue | Points |
|---|---|
| below 5% | 5 |
| 5% to 9% | 4 |
| 10% to 24% | 3 |
| 25% to 49% | 2 |
| over 50% | 1 |
Financial risks
5Debt to total assets
Premise: The lower total debt relative to total assets, the more reliable the issuer.
The ratio reflects the company's theoretical ability to repay debt by liquidating assets.
Example. Total debt (loans, credits, bonds) is BYN 2.5 million and total assets BYN 10 million. The ratio is 25%, which gives 4 points.
| Debt / assets | Points |
|---|---|
| below 20% | 5 |
| 20% to 39% | 4 |
| 40% to 59% | 3 |
| 60% to 79% | 2 |
| over 80% | 1 |
6Operating profit to debt
Premise: The higher operating profit relative to debt, the more reliable the issuer.
A weighted operating profit over three years is used: current year 50%, previous year 30%, the year before 20%. Profit is treated as the cash flow available to repay debt.
If the current year is not over (e.g. only 9-month statements are available), current-year profit = 9-month profit × (last year's profit / last year's 9-month profit).
Example. Operating profit: current year BYN 1 million, previous year BYN 500 thousand, the year before BYN 750 thousand. Weighted profit: 50% × 1m + 30% × 500k + 20% × 750k = BYN 800 thousand. With debt of BYN 1 million the ratio is 80%, which gives 5 points.
| Operating profit / debt | Points |
|---|---|
| over 60% | 5 |
| 45% to 59% | 4 |
| 30% to 44% | 3 |
| 20% to 29% | 2 |
| below 20% | 1 |
7Operating profit to interest and lease payments
Premise: The higher profit relative to interest and lease payments, the more reliable the issuer.
A weighted “profit from operating activities” under Belarusian accounting standards over three years is used (50% / 30% / 20%); an unfinished year is adjusted as in the previous indicator. Payments are taken as the annual average over the next few years.
Example. Operating profit: BYN 1 million, 1.75 million and 1.5 million; payments of BYN 500 thousand a year. The ratio is 2.65: profit would have to fall 2.65 times before debt service problems start. This gives 3 points.
| Operating profit / interest and lease payments | Points |
|---|---|
| over 10 | 5 |
| 5 to 9.99 | 4 |
| 2.5 to 4.99 | 3 |
| 1 to 2.49 | 2 |
| below 1 | 1 |
8Quick ratio
Premise: The higher the quick ratio, the more reliable the issuer.
Ratio = (short-term receivables + short-term financial investments + cash) / current liabilities. It reflects the company's ability to meet current obligations if it has difficulty selling its products.
Example. Receivables BYN 1 million, financial investments 250 thousand, cash 250 thousand, current liabilities 500 thousand. Ratio: (1,000 + 250 + 250) / 500 = 3, which gives 5 points.
| Quick ratio | Points |
|---|---|
| over 2 | 5 |
| 1.5 to 1.99 | 4 |
| 1 to 1.49 | 3 |
| 0.5 to 1 | 2 |
| below 0.5 | 1 |
9Weighted average debt maturity
Premise: The longer the weighted average debt maturity, the more reliable the issuer.
Calculated as the average maturity across all sources of debt (bonds, bank loans, etc.), weighted by issue or loan amount. A short maturity means the company will have to repay or refinance its debt in the next few years.
| Weighted average maturity | Points |
|---|---|
| over 4 years | 5 |
| 3 to 4 years | 4 |
| 2 to 3 years | 3 |
| 1 to 2 years | 2 |
| under 1 year | 1 |
10Match between revenue currency and debt currency
Premise: The better the revenue currency matches the debt currency, the more reliable the issuer.
The indicator reflects currency risk.
Example. If revenue is 100% in BYN and debt 100% in USD, the match is 0%: if the ruble falls, the company is likely to struggle to service its debt. This gives 1 point.
| Currency match | Points |
|---|---|
| 80% to 100% | 5 |
| 60% to 79% | 4 |
| 40% to 59% | 3 |
| 21% to 39% | 2 |
| below 20% | 1 |
Credit analysis model for leasing companies
The model is based on S&P methodology and was developed with input from financial-sector issuers.
Operating risks
1Diversification of leased assets
Premise: The more types of leased assets, the lower the risk.
The portfolio is split into groups: buildings and structures, machinery and equipment, railway transport, passenger vehicles, trucks, other vehicles, other leased assets. Groups with more than 10% of the portfolio are counted.
| Number of leased asset groups | Points |
|---|---|
| more than 5 | 5 |
| 4 | 4 |
| 3 | 3 |
| 2 | 2 |
| 1 | 1 |
2Supplier concentration
Premise: The less the issuer depends on its main supplier, the more reliable it is.
Losing the main supplier hurts more the larger its share of supplies. If the main supplier is the parent company or shares owners with the issuer, 2 points are added.
| Main supplier's share | Points |
|---|---|
| below 5% | 5 |
| 5% to 9% | 4 |
| 10% to 24% | 3 |
| 25% to 49% | 2 |
| over 50% | 1 |
3Customer concentration
Premise: The less the issuer depends on its largest customer, the more reliable it is.
Losing a large customer hurts more the larger its share of revenue.
Example. If the largest customer accounts for 15% of revenue, the company gets 3 points.
| Largest customer's share of revenue | Points |
|---|---|
| below 5% | 5 |
| 5% to 9% | 4 |
| 10% to 24% | 3 |
| 25% to 49% | 2 |
| over 50% | 1 |
Financial risks
4Equity funding of leasing projects
Premise: The less external capital is raised, the more reliable the issuer.
With borrowed capital the company depends more on lease payments: late payments or defaults under lease contracts can lead to debt service problems.
| Equity share of funding | Points |
|---|---|
| over 80% | 5 |
| 60% to 79% | 4 |
| 40% to 59% | 3 |
| 20% to 49% | 2 |
| below 20% | 1 |
5Operating profit to interest payments
Premise: The higher profit relative to interest payments, the more reliable the issuer.
A weighted “profit from operating activities” under Belarusian accounting standards over three years is used (current year 50%, previous 30%, the year before 20%). An unfinished year is adjusted: 9-month profit × (last year's profit / last year's 9-month profit).
Example. Profit: BYN 1 million, 1.75 million and 1.5 million; interest payments of BYN 500 thousand a year. The ratio is 2.65, which gives 3 points.
| Operating profit / interest payments | Points |
|---|---|
| over 10 | 5 |
| 5 to 9.99 | 4 |
| 2.5 to 4.99 | 3 |
| 1 to 2.49 | 2 |
| below 1 | 1 |
6Quick ratio
Premise: The higher the quick ratio, the more reliable the issuer.
Ratio = (short-term receivables + short-term financial investments + cash) / current liabilities. For leasing companies the thresholds are lower than for the non-financial sector.
| Quick ratio | Points |
|---|---|
| over 1.5 | 5 |
| 1.1 to 1.49 | 4 |
| 0.7 to 0.99 | 3 |
| 0.3 to 0.69 | 2 |
| below 0.29 | 1 |
7Cash gap
Premise: The better the loan repayment schedule matches the lease payment schedule, the more reliable the issuer.
At leasing companies the loan repayment schedule mirrors the client's lease payment schedule: if a lease runs for 1 year, a bank will not lend against that deal for longer than a year. So a short weighted maturity is normal here; what matters is that the company matches lease receipts with loan repayments.
| Cash gap | Points |
|---|---|
| under 180 days | 5 |
| 181 days to 1 year | 4 |
| 1 to 2 years | 3 |
| 2 to 3 years | 2 |
| over 3 years | 1 |
8Match between lease payment currency and debt currency
Premise: The better the lease payment currency matches the debt currency, the more reliable the issuer.
The indicator reflects currency risk.
Example. If lease payments are 100% in BYN and debt 100% in USD, the match is 0%. This gives 1 point.
| Currency match | Points |
|---|---|
| 80% to 100% | 5 |
| 60% to 79% | 4 |
| 40% to 59% | 3 |
| 21% to 39% | 2 |
| below 20% | 1 |
9Share of overdue payments
Premise: The higher the share of late payments, the less reliable the issuer.
With a large share of overdue payments the company receives less of its planned lease income and may struggle to service its debt.
| Share of overdue payments | Points |
|---|---|
| up to 1% | 5 |
| 1% to 2.5% | 4 |
| 2.5% to 4% | 3 |
| 4% to 5% | 2 |
| over 5% | 1 |
Base financial reliability model
The model scores a company in three areas: debt level (2 indicators), cash flows (2 indicators) and liquidity (4 indicators). Each area accounts for 1/3 of the final score.
Indicators are calculated over the last two years: the current year accounts for 2/3 of the value and the previous year for 1/3. Each indicator is scored relative to other companies: if the result is better than 90% of companies, it scores 10 out of 10; better than 80% — 9 points, and so on. The final score is the arithmetic mean of the indicator scores.
Depending on the industry, some indicators may not be calculated: for example, the change in receivables is not used for the financial sector. Scores are produced automatically from financial statements, so analysts cannot influence the result for an individual company.
What a low score on each indicator means:
| Indicator | Area | A low score means |
|---|---|---|
| Liabilities to assets | debt level | A high probability that the company cannot repay its debt even by selling assets if its current financial result turns negative. |
| Operating profit to liabilities | debt level | The company may find it hard to repay debt from current profit; refinancing is likely to be needed. |
| Change in receivables to revenue | cash flows | The company is slow to collect payment for a significant part of the goods sold or services provided. |
| Operating profit to interest payable | cash flows | The company may have trouble paying interest. |
| Working capital ratio (own funds) | liquidity | The company may find it hard to replenish working capital if it cannot refinance short-term liabilities. |
| Current ratio | liquidity | Cash, inventory and receivables may not be enough to cover current liabilities. |
| Quick ratio | liquidity | Cash and receivables may not be enough to cover current liabilities. |
| Cash ratio | liquidity | Cash alone may not be enough to cover current liabilities. |
All collected data and scores are open: Excel file with the data (in Russian). This is not investment advice.