Analysis of creditworthiness of business entities

Businesses are in need of debt capital in economic activity. It is not enough that enough money will not be enough for businessmen. Observation of the business life of the economically developed countries shows that most of the business is accounted for by debt capital. As it can be seen, businesses are always attracted to their business projects and plans, and they benefit from its use.

Recognizing the ability to repay loans, debt repayments, each business entity must rely upon the normative acts and regulations approved by the entity for creditworthiness assessment. These criteria are formulated by the Central Bank of the Republic of Uzbekistan, the Ministry of Economy, the Committee on Work with Economic Insolvency and relevant Ministries.

The composition of long-term and short-term loans does not affect the formalities of debt relations. That is, in both cases, it is necessary to carry out the same actions and analytical actions on the analysis of creditworthiness. Generally, long-term, short-term and short-term borrowings of loans and borrowings are defined. However, practice of computing introduces a practice of compiling them into a long and short term group.

Long-term loans are issued for more than a year on financing of long-term assets (such as fixed assets, non-current assets, capital investments, installation equipment, procurement, construction, repair, scientific research).

Short-term loans - replenishment of circulating assets. increase sales and other purposes for up to one year.

It should concentrate on attracting long and short-term loans in businesses, focusing on well-defined and well-defined business plans and investment projects. Until then, however, the financial condition of this entity should be studied.

Special attention should also be paid to the risk assessment in attracting credit resources. Unfortunately, there are no clear methodological guidelines for analytical solutions in practice.

As the most important object in assessing the creditworthiness of an entity issuing a loan application, its paying capacity and coefficient of coefficients are the priority.

Credit resources received by enterprises depend not only on the solvency of the enterprise, but also on the liquidity level of its capital. Therefore, in the analysis, it is required to evaluate the current state of assets, fast and slow-moving assets, non-current assets, their maturity, short and long term liabilities, noncurrent liquidity and liquidity requirements based on accounting balance data. Lately, credit resources have been encountered in a timely and non-repayable manner. Therefore, in the analysis of enterprises' creditworthiness, the following additional issues are recommended in the financial statement analysis: profitability of enterprises; the status of working capital; the size of own funds, their participation in the main and turnover capital; growth rates of products produced and sold; the status of accounts receivable and payable incoming and outgoing payments; availability of cash and securities of enterprises and other aspects.

In assessing the current and future development of the enterprise, the following important aspects are addressed by banks.

Evaluating the Borrower's Activities:

Striving for the development of business: growth dynamics; variability; promising

• -    Changes in demand for products (works, services): characteristics of market, quantity and quality of the market, volume of sales, order of appraisal, plan of sale, stability of demand, commodity turnover, risks.

Changes of the offer: the condition of the competitors, the compliance of the shipment, the risks of the shipment, the price stability, the reasons for the labor force, the availability of the international currency.

• -    Quality classification of products: technology level, product quality, capital and labor capacity.

• -    Competition rate: Competitors, Intensity of competition, Barriers to market access, Market share of competitors.

The aim of the credit analysis is to retrospectively analyze the capabilities of enterprises to increase their money by analyzing their financial status and outcomes for borrowing, borrowing.

In assessing the creditworthiness of enterprises, analysts and experts face the following tasks:

• V    to examine the creditworthiness of enterprises on a periodic basis;

• V    assessment of financial stability of enterprises, assets and capital adequacy;

• V    evaluation of the condition of capital allocation, their turnover;

• V    Evaluating additional indicators, such as the status of past due obligations, changes in the level of financial independence of the enterprises, growth in sales, and the status of liquid assets;

The level and quality of creditworthiness depends on the completeness of information sources and their detailed study. Therefore, structuring and structuring of information learned in the analysis is an important issue. Below are the estimates of enterprises' creditworthiness, the sources of analysis, and their requirements.

The sources of internal and external financial analysis in the assessment of creditworthiness include:

• -    the constituent documents;

• -    Documents confirming the connection with third parties;

• -    Business plan, technical feasibility study;

• -    project estimate documentation;

• -    Primary documentation (assessment of fixed assets, their composition, movement, status of the assets, movement, business rules;

• -    analytical accounting data;

• -    accounting reports;

• -    statistical reports;

• -    tax reports;

• -    Audit reports, audits and audits; - special information on permissible and inaccessible types of activity;

• -    Macroeconomic and special information (state programs, sources for network development, etc.);

• -    information on environmental norms.

There are also significant requirements for the information and content of the sources presented in the analysis. These requirements, when assessing the creditworthiness of the client, will enable the external analyst to prepare a full answer to the questionnaire that will be disseminated to attract credit resources. This will allow preventing various types of credit risks in attracting credit facilities, repaying credit institutions' resources timely and in interest, and increasing their liquidity.

The following is a list of sources that are used to assess the client's creditworthiness.

Documentation: Capital Structure; trends in profit distribution; stockholders structure; internal structure of the corporate client.

• -    Accounting report: Structure and repayment of company property; financial status, solvency and financial stability of the enterprise; Effective use of private and borrowed funds; composition, gravity and proportion of contingent liability liabilities; rate of repayment of obligations to creditors;

• -    profitability of the business, cash flow; the degree of risk of not falling into economic uncertainty.

• - Technical feasibility study, business plan: the spirit of the enterprise; enterprise development strategy; organizational structure quality; quality of supply, asset quality; degree of operational activity; level of technical control;

• -    product market diversification; Justification of demand for attracted funds.

• -    Credit Bureaus: other loans; use of other loans; credit history.

• -    Other banks: other loans, use of other loans; financial assets.

• -    Organizations, competitors: their reputation in the market; market share; competitive intention; network location.

• - The buyers: the reputation among competitors, the amount of sales, the quality of the product, the conditions for the customers to lend.

• -    suppliers: lender's reputation; terms of crediting; product delivery volumes; comparative role.

• -    Other sources (rating agencies, stock market data, etc.): macroeconomic data; network information; special reports; statistical sources.

Description of creditworthiness. The study of credit relations and solvency in the development of business entities is a topical issue. By assessing the creditworthiness of the businesses, banks have managed to reduce their risk by reducing risks, rationalizing their credit resources, and strengthening their financial stability.

Credit eligibility indicators need to be addressed in two ways:

• 1.    From the borrower's point of view, the creditworthiness level is the ability to make a loan agreement with the ability to repay the loans in a timely manner.

• 2.    From the point of view of the Bank, the creditworthiness level shall be taken into account when determining the amount of the loan given to the enterprise.

It is well known that in the conditions of liberalization of the economy the commercialization of business entities, banks' activity occurs. This, in spite of the property form of the collateral, is economically absolutely independent, requiring it to cover its expenses with incomes. As a result of the fact that the activity is financially supported, the inner development of the enterprise's business development is not always sufficient. Therefore, subjects often need extra cash and these needs can be covered by bank loans. Bank loans are a necessary prerequisite for not only the source of financial support of enterprises and organizations, but also their continuing functioning through their targeted, timely and secure provision.

In order for the commercial banks to achieve their goals and ensure their return to the bank, they must check the financial condition of the client for the timely repayment of the loan.

In assessing the creditworthiness, banks should not only assess the past period's customer data, but also forecast their future cash flows. Objective assessment of financial stability and credit risk exposure enables the bank to effectively manage and benefit from credit resources.