Understanding Credit Performance for Financial Health Evaluation

Abstract

Purpose: The study of understanding credit performance for understanding financial health is an important area of research and it seeks to analyze the creditworthiness of companies by evaluating their financial health and ability to repay debts.

Approach:  The study is based on a sample drawn from Nifty indices. Nine sectoral indices are chosen along with the company with the highest weightage in the sector. Using different financial ratios, the credit performance is analyzed. The published data of March 2022 was taken for discussion in this paper. To assess the credit performance of the chosen organizations, the study used financial factors like liquidity ratios, profitability ratios, debt ratios, and asset turnover ratios.

Result: The result shows that companies have shown moderate to good credit performance, maintaining either liquidity ratio, ROA, or profit margin

Value: Overall, when credit performance is strong, it instills confidence in lenders and investors, facilitates access to capital, encourages investments, promotes business expansion, and enhances productivity across various sectors. This, in turn, contributes to job creation, increased production, higher consumer spending, and overall economic development of the country. It's important to note that while a good credit performance in these sectors can contribute positively to economic development, it should be accompanied by prudent lending practices, risk management, and regulatory oversight to maintain financial stability and prevent excessive speculation or unsustainable debt levels. However, monitoring and analyzing regularly the financial ratio maintains healthy credit performance and financial status.

Type of Paper: Exploratory Study