Volume 4 — Credit Risk Management © Copyright 2002, CCRO. All rights reserved. 6 − When applicable, the composition and net position of the counterparty’s price risk management assets and liabilities − Return on assets (ROA). • Capital Structure and Liquidity Layout − Assessment of the historical success of the counterparty in tapping the capital markets (debt and equity) − Assessment of bank financing in place, terms thereof and the implications this has on the counterparty’s future liquidity requirements and ongoing viability − Off-balance-sheet liabilities − Funded debt to capital ratio − Funded debt to EBITDA. • Cash Flow Analysis − Operating cash flow and operating cash flow before changes in working capital − Investing cash flow, including future capital expenditures (CapEx) requirements − Financing cash flow, including changes in debt and dividend requirements − Net cash flow and impact on ending cash balance. Industry Outlook Summary and Peer Group Comparison − Counterparty and peer group analysis, industry outlooks (for example Moody’s, Standard and Poor’s, S&P’s Research Insight – Compustat software) − Annual reports and Form 10-K, CERA Research, and Internet − Summary of recent events relating to the counterparty − Merger and acquisition activity − Changes in sources of liquidity − Significant CapEx or investment activity − General business performance updates − Equity analysts’ research reports. Subjective Factors − Tenure/experience level of management − Market share − Competitiveness of product lines − Ability to manage the business within economic business cycles − Size and geographic diversity − Product life cycle − Risk management policy, internal controls, etc. Scoring Model These principles and metrics should be used for formulating an internal scoring model to rate counterparties. Scoring models are meant to capture and analyze the financial condition of a company according to specific financial metrics, which are benchmarked against publicly available data (i.e., credit ratings and underlying financial health grouped by industry settings,