The magnitude of the business volume transacted has an impact on the company risk. Larger companies are perceived to be less risky than smaller ones.<\/p>\n\n\n\n
The predictability of the return also influences the perception of risk. The more predictable the return, the lower the assumed risk. <\/p>\n\n\n\n
Also, a high dependence of the company on its management, on its top executives and on a few key employees leads to a higher risk perception. <\/p>\n\n\n\n
The less diversified the company is in the market, the higher the risk. <\/p>\n\n\n\n
Opinions obviously differ on the question of internationalization of sales. While some positively acknowledge an international business in their risk assessment, others penalize globally networked dependencies with a higher risk allocation. The same applies to involvement in globally networked supply chains.<\/p>\n\n\n\n
Dependence on certain suppliers naturally increases risk.<\/p>\n\n\n\n
If a company generates better earnings than the industry average, it receives a risk discount, otherwise a risk premium. Similarly, how cyclical the company’s business is plays a role. Most evaluators add value if there is no cyclicality. <\/p>\n\n\n\n
Companies with a low dependence on technical progress are assumed to have a lower risk than companies with a high dependence on technical progress.<\/p>\n\n\n\n
Last but not least, entrepreneurial personality is a credit rating driver. Charismatic entrepreneurial personalities with strategic vision who maintain a participative management style contribute to a lower risk assessment.<\/p>\n\n\n\n
Example: If the company in the previous example is twice as risky as the market average, the company risk is 9.8%.<\/p>\n\n\n\n
The discount rate is the sum of the base rate and the company risk.<\/p>\n\n\n\n
Example: The interest rate to be applied for discounting future earnings is 0.1%+9.8% = 9.9% for the company from the previous examples.<\/p>\n\n\n\n