Security analysis. Part VII

Part VII of "Security Analysis" by Benjamin Graham and David Dodd focuses on the financial analysis of corporate bonds. The authors highlight the importance of analyzing bonds as a separate class of securities with its unique characteristics and risk factors.

The first chapter of Part VII focuses on the different types of corporate bonds and their risks. The authors explain the concept of bond indenture and the provisions it contains such as the maturity date, interest rate, and call and put provisions. The authors also discuss the difference between secured and unsecured bonds, convertible bonds, and the risks associated with high-yield or junk bonds.

The second chapter covers the financial analysis of corporate bonds. The authors suggest that analyzing bonds involves examining the same financial statement ratios as for equities, but with a few additional considerations specific to bonds. These include the bond's yield to maturity, credit rating, and bond coverage ratios. The authors provide a detailed explanation of these metrics and how to interpret them in the context of bond analysis.

The third chapter discusses the valuation of corporate bonds. The authors provide a comprehensive approach to valuing bonds, including the calculation of present value, yield to maturity, and price changes in response to interest rate changes. The authors also discuss the concept of yield spread and its significance in bond valuation.

The final chapter of Part VII discusses the use of bond ratings and credit analysis. The authors explain the different rating agencies and the criteria they use to rate bonds. They also discuss the limitations of bond ratings and the importance of conducting a comprehensive credit analysis to supplement the rating agency's evaluation.

Overall, Part VII of "Security Analysis" provides a comprehensive overview of the financial analysis of corporate bonds. The authors stress the importance of treating bonds as a separate class of securities and understanding the unique risks and characteristics of this asset class. The chapters provide detailed explanations and practical examples to guide investors in analyzing, valuing, and rating corporate bonds.