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  1. Company Management



    Pick a listed company and conduct the credit risk analysis by using the Five Cs and Altman Zscore. You are encouraged

    to finish it together with one classmate. If not, you can do it on your own. More details

    will be announced in the lecture.


Subject Business Pages 5 Style APA


Credit Risk Analysis


Credit risk analysis is a financial analysis performed by credit analyst to determine the potential of

borrowers in fulfilling their debt obligation. The main aim of credit analysis is to ascertain the credit worthiness

of any potential borrowers and their capacity to comply with the underlying debt obligations. If a borrower

happens to avail the recommended level of the default risk, an analyst may approve the application of credit at

agreed terms and conditions. As a result, credit risk analysis is useful in determining the risk rating that a

borrower may be subjected to as per their ability to receive credit. Credit analysis is performed in consideration

of the Five Cs that is; character, capacity, condition, capital, and collateral. As such, the credit risk analysis of

New Oriented Education and Technology Group Inc. (New Oriental) is analyzed.




The first school of the New Oriental Education and Technology Group Inc. was established by the

executive chairman, Mr. Michael Minhong Yu, in Beijing, China in the year 1993 purposely to provide test

preparation courses for college students TOEFL. New Oriental China was established in the year 2001 to be a

domestic holding company that acted as a sponsor of many schools. From its inception, the company has

facilitated foreign investment through establishment of an offshore company, New Oriental in August 2004 in

the British Virgin Islands. On 2006 January, the change of offshore holding company’s corporate domicile to

Cayman Islands was approved by the shareholders upon registration with Registrar of Companies of the

Cayman Islands making the company to be fully named Cayman Islands Company. Moreover, according to


Yhip and Alagheband (2020), the Five Cs of the credit risk analysis the character of a borrower is instrumental

to financial organizations since it creates confidence and trust based needed to give financial assistance like

loans. As a result, lenders should know the borrowers and guarantors level of integrity before undertaking a

loaning process.


Capacity (Cash Flow)


New Oriental has a consolidated financial data with detailed operational report from May 31 2018,

2019, and 2020. The financial data has also been included in the annual report with a consolidated statement of

the operational data that represents the fiscal years that ended May31, 2016 and 2017. Additionally, Disemadi

(2019) argued that, capacity (Cash Flow) in the credit analysis of an organization depicts the level of cash flow

that can be used to determine whether a lender qualified for a loan. In this regard, the provision of a financial

statement is significant in evaluating borrower’s reliability. Moreover, the total net revenues, total operation

cost and expenses, operating income, income taxes, and the net income of the Net Orient have been illustrated

in the Fig1 below from the year 2016 to 2020.

Fig 1. A consolidated financial data of New Oriental




New Oriental has benefited greatly from reliable demographic trend that involves the demand to have

quality education in China and economic growth. As a result, New Oriental is committed to elevate private

educational services in China through; increasing employment opportunities and education that require specific

qualifications beyond the existing school curriculums, promoting urbanization and population growth with a

disposable income per capita, and the increase in the adoption of technological innovation. However, any

diverse change that may be realized on the economic conditions in China is likely to cause a diverse effect on

the private educational industry in China.

The number of the enrollment of students is depended upon the courses and the ability to maintain the

quality and consistency of the teaching modalities. As such, the future operations are depended upon the

chances to increase both offline and online student enrollment in China. The operating costs and expenses of

this company consisted of the cost of the revenues, marketing and selling expenses and the general and

administrative expenses.




In October 2018, New Oriental initiated a share purchase program with an aggregate value of US$200

million. Under such programs, shares purchase of 952000 ADSs was purchased for about US$56 million on

open market. The same shares weighed an average purchase price of about US$58.78 per ADS. As an

illustration by Bazarbash (2019), the capital of any organization as per the Five Cs of the credit cost analysis is

a reflection the investment and the intended investment programs. As such, capital is an indication that the

company may be ready to take risk of borrowing money. In July 2020 there was a completion in offering of

US$300 million as an aggregate principal that amounted to about 2.125% notes that are to be due in 2025.

US$271.1 million was received after offering 2025 notes after the deduction of commissions, joint book

runners, and approximated offering expenses.




New Oriental has US$25.1 billion of the market capitalization. From the start of the year 2020, the

company gains were 30.98% while as of April 2021 the stock was closed at US$14.74 per every share. The net

revenue as from 2018, 2019, and 2020 was US$2,477.4 million, US$3,096.5 million, and US$3,578.7 million in

that order. Furthermore, revenues are the net refunds, related surcharges, and business taxes. As such, services

from different education program like language trainings, test preparations, and books provision are the sources

of revenue. As well, according to Manurung and Manurung (2019), collateral play an integral role during the

lending agreement by acting as a borrower’s pledge in order to secure a repayable loan. An illustration of the

above operational cost and expenses has been provided in Fig 2.

Fig 2. The illustration of Operating Cost and Expenses


Bazarbash, M. (2019). Fintech in financial inclusion: machine learning applications in assessing credit risk.


Disemadi, H. S. (2019). Risk Management In The Provision Of People’s Business Credit As Implementation Of

Prudential Principles. Diponegoro Law Review, 4(2), 194-208.


Manurung, E. T., & Manurung, E. M. (2019). A new approach of bank credit assessment for SMEs. Academy of

Accounting and Financial Studies Journal, 23(3), 1-13.


Yhip, T. M., & Alagheband, B. M. (2020). Credit Analysis and Credit Management. In The Practice of

Lending (pp. 3-46). Palgrave Macmillan, Cham. https://link.springer.com/chapter/10.1007/978-3-030-





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