Learn More About The Credit Standards Index

NetLogic photo
The NetLogic Microsystems corporate
office in Mountain View, CA. NetLogic
has a CSI score of 1.20.

The Credit Standards Index (CSI) is comprehensive analysis and ranking of over 2,100 publicly-traded companies designed to provide information on the credit standards, financial strength and overall stability of companies that engage in trade credit listed on U.S. stock exchanges. Standards form the basis of credit risk management decision making.

The CSI, now in its third year, clearly shows that organizations with the highest standards tend to be more profitable, more financially secure and the most stable of all companies. Conversely, organizations with lower credit standards tend to be less profitable, less financially secure and the least stable of all companies.

The CSI also provides a one-of-a-kind financial analysis of 70 distinct industry groups organized precisely by their Standard Industrial Classification or SIC code. Financial ratios and industry benchmark data derived from the CSI industry groups are the most precise and accurate found anywhere. The CSI includes data from public companies in industries such as communications equipment, food processing, semiconductors, software technology, utilities and 65 others.

Global companies are well-represented in the CSI as the index includes 322 companies based in 42 different countries and territories around the world that have a stock exchange listing on either the NYSE or the Nasdaq. Data gathered from these companies, which are often the largest in their respective nations, lends a global influence and credibility to the CSI rankings and benchmarks.

Companies indexed and ranked in the CSI generally have a minimum market capitalization of $100 million and a trade accounts receivable that is at least 4% of revenue. 13% of the companies included in the CSI are based outside the United States. The credit standards of each company are defined by the following five equally weighted standards-based criteria:

CSI Scoring Factors

Bad debt allowance (BDA) - BDA is a standards measurement that provides insight into the credit and risk standards and management acuity level of a company. The BDA is a key indicator of how a company manages risk. It is directly affected by managerial components such as credit policy, accounting and control practices as well as corporate culture. BDA is also an expense item that directly impacts profitability. As a result, seventy percent of companies in the CSI have bad debt allowances below the 4.0 percent average.

Days' sales outstanding (DSO) - DSO is an effeciency ratio that measures the average number of days in a given period for a company to turn its accounts receivable into cash. Companies that are efficient in collecting their own money are generally efficient in other important areas as well. DSO remains the most accurate and widely used method for calculating A/R performance. Fifty-five percent of companies in the CSI have a DSO below the 57.65 days average. Thirty-three percent have a DSO of less than 45 days.

Net cash from operations as a percent of revenue - Since the improvements made to cash flow reporting in 1987, few forms of financial data provide as much value in assessing the viability, managerial capacity and credit standards of a company more than operating cash. When compared directly with total revenue and then measured against the appropriate industry benchmarks, operating cash gives insight into the legitimacy of a company's revenue and its ability to turn revenue into cash. The CSI benchmark for ops cash as a percent of revenue is 13.5, however, 40 percent of companies in the index have a higher ops cash to revenue percentage.

Current ratio - Current assets divided by current liabilities is a liquidity ratio long used by banks and creditors in determining credit worthiness. It is still relevant today despite the ongoing efforts by some in the accounting rules-making world to cloud the distinction between current and non-current. The working capital of a company represents the margin of current assets over current liabilities. The CSI benchmark for current ratio is 2.56:1, however, current ratios for companies in many industries are trending down. Still, 47 percent of the companies in the CSI have current ratios higher than 2.00:1.

Total assets divided by total liabilities - Also known as debts-to-assets, this balance sheet ratio is particularly well suited for measuring credit standards because it encompasses the entire balance sheet with the exception of equity, which is susceptible to speculation and manipulation. This ratio is critical because it reveals the degree to which debt, mainly long term debt, will impact the long-term prospects or solvency of a company. Typically, an inverse relationship exists between cash and debt. The CSI benchmark for total assets divided by total liabilities is .50:1, liabilities to assets. Fifty-two percent of the 2,053 companies in the CSI have a debts-to-assets ratio of .50:1 or lower. General Motors and Ford have debts-to-assets ratios that exceed 1.00:1.

The index offers practitioners in credit, accounting, finance and many other areas of business and academia the following:

  • Identification and understanding in real terms of the factors that constitute credit standards
  • Accurate and unbiased aggregate and industry benchmarks
  • Accurate and unbiased company benchmarks for over 2,100 global companies
  • Credit scoring for public companies with a minimum market capitalization of $100 million
  • Comprehensive industry groupings based on SIC codes
  • First ever ranking of companies and industries based on credit standards

The Credit Standards Index of 2,062 publicly-traded companies takes benchmarking, statistical analysis, industry data and company data to a new level of accuracy and dependability.