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The learning outcomes are as follows: to be able to evaluate early warning signs/red flags through financial statement analysis; to be able to analyse company’s credit or debt servicing using a thorough process of fundamental analysis; to be able to analyse and decode the financial health of an organization through different financial tools applicable according to the industry such as default probability and financial ratios; and to be able to synthesize credit rating framework and role of credit rating agencies in the bond market.

In late January 2019, the allegation by an online investigative portal about the misuse of the Dewan Housing Finance Corporation Ltd. (DHFL) money by its promoter for buying asset abroad was the start of the fall of the non-banking finance company giant. This was followed by a series of downgrade by credit rating agencies on its debt and eventual default on its interest payment on 4 June 2019 which upset multiple portfolio investors and the regulators. Investors became sceptical about the regulator’s policy and inefficiencies of credit rating agencies in predicting the default along with asset management houses which were expected to guard investors’ interest. One investor, Shikhar Pachori, decided to scrutinize all hidden information on DHFL to investigate if DHFL crisis arises because of unknown factors which was not in control of management or if it a clear negligence on the part of all involved parties. The case tries to emphasize the aspect of Asset-Liability Management and process of credit analysis while looking for red flags which aids in identifying any stress in company’s financial or any potential default by company.

This case can be used in the advance level of post-graduate finance course or MBA program for elective/specialization courses such as Financial Statement Analysis, Financial Institutions and Market and Fixed Income.

Teaching notes are available for educators only.

CSS 1: Accounting and Finance

With the development of inclusive financial business in China in recent years, this case describes the credit risk control of “mobile credit”, a smart online credit platform launched by Shanghai Mobanker Co. Ltd. (referred to as “Mobanker”, previously named as “Shanghai Mobanker Financial Information Service Co., Ltd.”) which provides technical services for inclusive finance industry.

In January 2011, during the World Economic Forum's annual meeting in Davos, Switzerland, Jason Sterling, a hedge fund manager, was conducting online research to see if he could trade on any newsworthy information emerging from the summit. Sterling's fund traded primarily in sovereign debt, and he needed to figure out if European leaders would be able to come up with a viable solution to the crisis or whether the debt crisis would lead to the default of several European nations. He knew that if a solution was not found in the coming weeks, the sovereign debt markets could be thrown into turmoil.

Fixed Income markets, Financial Markets and Institutions.

This case can be used in a postgraduate finance course such as an MBA and executive program for courses such as Fixed Income Markets and Financial Markets and Institutions.

In late August 2015, the sudden downgrade and eventual default of Amtek AUTO Ltd (Amtek) on its debentures upset mutual fund investors and regulators. Questions were raised about the credit rating agencies and their lack of timely action as well as about the independent credit analysis followed by fund houses to protect the interests of investors. One such investor, Suresh Nair, decided to gather all possible available information on Amtek to determine whether it was sheer negligence on the part of all parties involved or if Amtek was in fact in a situation of sudden distress. The case seeks to highlight the credit analysis process, while looking out for red flags to identify potential default or financial stress in a company.

To understand the credit analysis process through a fundamental analysis process. To analyze and interpret the financial position of the company through various financial ratios. Identifying “red flags” while evaluating a potential credit that pose as “risks” to credit assessment. Understanding the role and relevance of credit rating agencies in the bond market.

Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

CSS 1: Accounting and Finance

The case is presented as descriptive in nature and primarily involves exploratory research.

Ashraf, a young graduate from Bangalore, India, started a chain of lifestyle shops, his family business in Khartoum, Sudan. To modernize the shops, Ashraf approached a small finance bank for financial assistance. However, after submitting the required documents and with a good credit score, he was denied a loan. The bank officials had mentioned that the loan automation software did not approve the application. Hence, the bank personnel said that they could not do anything further. Disappointed, Ashraf sought the help of his professor, John, to understand why the software rejected his application. Professor John explained to Ashraf the advantages and disadvantages of automation. In the process, Ashraf understood the significance and compelling need to address “Algorithm Bias,” a situation in which specific attributes of an algorithm cause unfair outcomes. The case place students in Ashraf’s position to help them understand the advantages and issues of applying automation through artificial intelligence.

The case suits graduate-level courses like business analytics, financial analytics and business intelligence.

Through the case, the students will be able to: Understand the role of algorithms in business and society. Understand the causes, effects and methods of reducing algorithm bias. Demonstrate the ability to detect algorithm bias. Define policies to mitigate algorithm bias.

At the end of 2011, one of the largest food retailers in Brazil, Grupo Pão de Açúcar, or GPA (a subsidiary of Companhia Brasileira De Distribuição, or CBD), was reviewing its accounts payable terms with suppliers in search of additional value. Manager of analytics Maria Cristina Santos was examining the trade credit terms GPA had with Oalem Ltda, a family-owned melon grower located in northeastern Brazil. Oalem, like most small family businesses, was financed with bank loans and equity that was held predominantly by the family. The case examines how accounts payable (trade credit) terms should be set or negotiated between a large retailer and a small supplier, especially when the bargaining power between the two may not be equal. The case demonstrates that trade credit terms can be as important as the terms of more traditional forms of financing.

After analyzing and discussing the case, students should be able to:

• Determine when it is efficient or value-increasing for one nonfinancial firm to borrow from another nonfinancial firm through trade credit, as opposed to borrowing from financial institutions (e.g., banks) or financial markets

• Understand how competition or relative bargaining power can influence feasible and optimal trade credit terms

• Explain why trade credit can be a cheaper form of financing than the alternative forms of financing available to small family businesses like Oalem Ltda

Determine when it is efficient or value-increasing for one nonfinancial firm to borrow from another nonfinancial firm through trade credit, as opposed to borrowing from financial institutions (e.g., banks) or financial markets

Understand how competition or relative bargaining power can influence feasible and optimal trade credit terms

Explain why trade credit can be a cheaper form of financing than the alternative forms of financing available to small family businesses like Oalem Ltda

In 1989, the Walt Disney Company financed its major European theme park and real estate development using a variety of financing tools and techniques that, when bundled together, amounted to a project financing. The case recounts the details of this financing and invites students to evaluate the financing from various standpoints, including those of the Walt Disney Company, the government of France, European equity investors, and European banks. The resulting opinion about the attractiveness of the project ultimately hinges on beliefs about European market demand for an American-style theme park. The case may be used to exercise students' skills in valuation analysis, to illustrate techniques for financing major real-property projects, and to explore the creation and transfer of wealth in such projects.

In April 2012, JPMorgan Chase & Company was struggling with large losses that had the potential to damage the reputation of the company, of its Chairman, Jamie Dimon, and of its Chief Investment Officer, Ina Drew. The losses arose from large credit derivative trades in the London office that Dimon described as “bad strategy … badly executed … poorly monitored”.

In October 2008, in the midst of a financial crisis, Anthony Keating, investment manager at the Boston private bank Billingsley, Blaylock, and Montgomery, was searching for an investment strategy to recommend to his high-net-worth clients. Traditional investments in the equity markets were being decimated, and Keating’s clients would be looking to him for ideas. Inspired by the success of Paulson and Co., Keating began to explore the possibility of entering a trade that would profit as homeowners defaulted on their mortgages. The more Keating learned about the trade, the more he realized that he needed to know about mortgage-backed securities and credit default swaps. The case provides instructors with a chance to introduce these financial instruments, while at the same time providing lessons applicable to students interested in value investing or real estate finance.

After reading and analyzing the case, students will be able to:

• Explain how home mortgages are securitized into financial instruments that are traded in public markets

• Describe how credit default swaps can be used to speculate on the value of an underlying financial instrument

• Identify potential mispricing across related financial instruments

• Understand the potential risks and rewards of various financial investment strategies that look to capitalize on defaults on subprime mortgages

Explain how home mortgages are securitized into financial instruments that are traded in public markets

Describe how credit default swaps can be used to speculate on the value of an underlying financial instrument

Identify potential mispricing across related financial instruments

Understand the potential risks and rewards of various financial investment strategies that look to capitalize on defaults on subprime mortgages

Alice Monroe was an admissions officer at the Kellogg School of Management at Northwestern University. It was early January 2017 and Alice had enrolled in Northwestern's 403(b) retirement plan two months earlier. After spending a considerable amount of time examining the mutual funds available through the university's retirement plan, Alice had picked two to invest in: a large-cap equity growth fund and a mid-cap equity fund. (See the related case "Selecting Mutual Funds for Retirement Accounts (A).") Her initial allocations were 50% of her investment dollars in each fund.

Upon further reflection, however, she realized these initial allocations were somewhat simplistic. She recalled, from an investments class she had taken at college, the topic of modern portfolio theory, which held that by adding more funds to her portfolio she might be able to achieve greater diversification and thereby reduce the overall risk of her portfolio and/or achieve a higher expected return. Alice now was considering adding an intermediate-term bond fund and a real estate fund to her retirement account.

She hoped to use modern portfolio theory to prove that these new funds would indeed help her diversify her portfolio. If they did, she would also reassess her portfolio weights to determine the optimal allocation.