CFI CBCA FINANCIAL ANALYSIS
FOR CREDIT EXAM ASSESSMENTS
& QUIZZES WITH CORRECT
SOLUTIONS A+ GRADED
K
C
LO
YC
D
U
ST
,Course Objectives
-Understand the components that go into financial analysis
-Calculate the key performance ratios that credit professionals use to assess a company's
profitability and efficiency
-Calculate the key financial ratios used to assess a company's liquidity, leverage, and coverage
-Undertake a vertical analysis to determine profitability from the income statement and
proportionality from the balance sheet
-Undertake horizontal analysis to spot trends and analyze their meaning
-Perform industry benchmarking
K
Vertical & Horizontal Analysis
Financial Analysis Overview
C
Financial analysis includes a number of steps to
LO
get a complete picture of the performance of a company. The starting point is the company's
financial statements.
Ratio analysis is great for
YC
understanding the relationship between the income statement and the balance sheet.
Performing Financial Analysis
Financial analysis must be undertaken with
an end-purpose in mind. This will influence how you conduct and interpret your analysis.
D
Credit Analyst
U
-Understand a company's overall financial health and a borrower's credit risk
-A company's ability to service credit obligations and how to mitigate loan loss in a default
scenario
ST
Trend & Ratio Analysis
Basic Ratio Analysis
Adjusting Ratios for Distortion
Complex Adjustments
Financial analysis is frequently conducted within the context of a specific borrowing request.
Lenders must
, overlay the proposed credit facilities and loan terms on top of financial results to see how
financial metrics are impacted.
A credit professional may conduct the analysis using
actual current/historical results, as well as using projected operating results.
There are two forms of financial analysis
Vertical Analysis and Horizontal Analysis
K
Vertical Analysis
C
• Proportional point of view
• Compares line items in a financial statement to a base figure (e.g. express line items as % of
revenue)
LO
• Can be used with the income statement to understand profitability
• Can be used with the balance sheet to understand asset/liability structure
• Helps benchmark externally
• Helps benchmark against internal thresholds which flow through to a risk rating
• Ratios can be compared to industry performance
YC
• Set expectations and see if ratios fall within expectations
• If ratios fall outside of expectations, they will help you ask questions of your client
Horizontal Analysis
• Provides context both within the company's own performance and through comparisons with
D
peer groups
• Looks at trends in financial statements
• Benchmarks trends internally and externally against peers across a time period
U
• Combining with vertical analysis provides more useful information
• Allows for consideration of liquidity, solvency, and leverage ratios
Example: Company A has positive revenue growth of 5% year-over-year
ST
• A good indicator, unless the industry was outperforming it year-over-year
• Raises questions about sustainability, competitive advantage, and strategy
• What is their strategy to improve their competitive advantage?
• What threats have they identified and how are they mitigating them?
Analyzing credit means
identifying risk to repayment capacity. Falling behind industry trends can be indicative of a
company in decline
FOR CREDIT EXAM ASSESSMENTS
& QUIZZES WITH CORRECT
SOLUTIONS A+ GRADED
K
C
LO
YC
D
U
ST
,Course Objectives
-Understand the components that go into financial analysis
-Calculate the key performance ratios that credit professionals use to assess a company's
profitability and efficiency
-Calculate the key financial ratios used to assess a company's liquidity, leverage, and coverage
-Undertake a vertical analysis to determine profitability from the income statement and
proportionality from the balance sheet
-Undertake horizontal analysis to spot trends and analyze their meaning
-Perform industry benchmarking
K
Vertical & Horizontal Analysis
Financial Analysis Overview
C
Financial analysis includes a number of steps to
LO
get a complete picture of the performance of a company. The starting point is the company's
financial statements.
Ratio analysis is great for
YC
understanding the relationship between the income statement and the balance sheet.
Performing Financial Analysis
Financial analysis must be undertaken with
an end-purpose in mind. This will influence how you conduct and interpret your analysis.
D
Credit Analyst
U
-Understand a company's overall financial health and a borrower's credit risk
-A company's ability to service credit obligations and how to mitigate loan loss in a default
scenario
ST
Trend & Ratio Analysis
Basic Ratio Analysis
Adjusting Ratios for Distortion
Complex Adjustments
Financial analysis is frequently conducted within the context of a specific borrowing request.
Lenders must
, overlay the proposed credit facilities and loan terms on top of financial results to see how
financial metrics are impacted.
A credit professional may conduct the analysis using
actual current/historical results, as well as using projected operating results.
There are two forms of financial analysis
Vertical Analysis and Horizontal Analysis
K
Vertical Analysis
C
• Proportional point of view
• Compares line items in a financial statement to a base figure (e.g. express line items as % of
revenue)
LO
• Can be used with the income statement to understand profitability
• Can be used with the balance sheet to understand asset/liability structure
• Helps benchmark externally
• Helps benchmark against internal thresholds which flow through to a risk rating
• Ratios can be compared to industry performance
YC
• Set expectations and see if ratios fall within expectations
• If ratios fall outside of expectations, they will help you ask questions of your client
Horizontal Analysis
• Provides context both within the company's own performance and through comparisons with
D
peer groups
• Looks at trends in financial statements
• Benchmarks trends internally and externally against peers across a time period
U
• Combining with vertical analysis provides more useful information
• Allows for consideration of liquidity, solvency, and leverage ratios
Example: Company A has positive revenue growth of 5% year-over-year
ST
• A good indicator, unless the industry was outperforming it year-over-year
• Raises questions about sustainability, competitive advantage, and strategy
• What is their strategy to improve their competitive advantage?
• What threats have they identified and how are they mitigating them?
Analyzing credit means
identifying risk to repayment capacity. Falling behind industry trends can be indicative of a
company in decline
