What Financial Report Readers Should Know about Bond Analysts - dummies

What Financial Report Readers Should Know about Bond Analysts

By Lita Epstein

Bond analysts are most concerned with a company’s liquidity and the company’s ability on financial reports to make its interest payments, repay its debt principal, and pay its bills. They used to have a reputation of doing things with a more cautious eye, but their close relationship to the investment banking side of the house was exposed during the mortgage crisis beginning in 2007.

Many of the mortgage debt instruments they rated proved to be rated incorrectly, leading to huge losses for banks, mutual funds, and pension funds.

Before this fiasco, bond analysts were thought to evaluate financial reports, management quality, the competitive environment, and overall economic conditions more carefully. They tended to err on the side of caution, but now this reputation has been shattered. When it comes to rating corporate bonds, it’s worth looking at their view, but always do your own research.

When you’re looking to buy stock, pay attention to the warnings of bond analysts. You certainly don’t want to invest in a company that can’t meet its financial obligations and may go bankrupt. Use bond analysts’ red flags to help you find the critical information when you read and analyze financial reports yourself.