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Enterprise Rating System: the rhomboid structure of the Greek corporate universe

One of the main effects of the deep and prolonged recession of the Greek economy is that the attention of all stakeholders directly or indirectly related to the Greek banking sector has been drawn to the monitoring and thus to the management of the substantial stock of Non Performing Exposures and Loans. However, this task – which is undoubtedly of primary importance – should not result in neglecting the fact that any kind of economic stability and recovery for investments and exports cannot be achieved without the contribution and synergy of the Greek banks.

The question then is how the Greek banks could play their role as financiers of the Greek economy and enterprises, retaining the ability to manage the credit risks that have arisen in the new Greek reality and managing to comply with the supervisory and regulatory rules as formulated in the context of the European Banking Union. Aiming at contributing to this effort, we developed a four grade rating system for enterprises – the Enterprise Rating System (ERS) –, which provides a holistic mapping of the domestic entrepreneurial activity, based on the financial performance derived from the analysis of financial statements.

The implementation of the rating system for enterprises (ERS) to a sample of 3,436 enterprises revealed that in 2015 the structure of the Greek entrepreneurship resembles the shape of a rhomboid. The majority of the enterprises are good (“b”) and medium (“c”) performers with percentages of 36.4% and 40.8% respectively. Outperforming enterprises (“a”) account for only 8.4% whereas underperforming ones (“d”) for 14.3% of our sample.

Profile of the average enterprise per final ERS rating, 2015

Outperformer “a”

  • Outperformance in terms of profitability relative to sales
  • High levels of efficiency with the EBITDA margin amounting to 24.8% and the return on equity to 20.6% on average
  • Low levels of leverage, since its debt only amounts to half of equity
  • High liquidity, with current assets covering around 3.8 times current liabilities

Good performer “b”

  • Lower, but satisfactory level of liquidity, since the current assets amount to 2.5 times the current liabilities
  • More conservative, but satisfactory level of operating profitability, with EBITDA margin at 15.2%
  • Adequate debt service ability, since EBITDA covers financial expenses by 11.4 times
  • Higher debt levels, as liabilities exceed equity by 1.3 times

Medium performer “c”

  • Low levels of efficiency and profitability, since the return on equity is limited to 4.1% and the EBITDA margin to 6.8%
  • High net debt level, which exceeds EBITDA by 13.2 times
  • Low level of debt servicing, since EBITDA covers financial expenses by 3.3 times
  • Satisfactory, but limited liquidity, with current assets covering current liabilities by 1.5 times

Underperformer “d”

  • Obvious financial problems
  • Loss making, with EBITDA margin at -7.6%
  • Inefficient management of equity, with a negative return on equity at -16.1%
  • Liquidity difficulties, since the current liabilities exceed the current assets (current ratio: 0.8 times)
  • Overleveraged, with debt 3.8 times higher than equity and net debt 24.5 times higher than EBITDA

Ilias Lekkos

Group Chief Economist

Paraskevi Vlachou

Economist