CFI CBCA Financial Analysis for Credit EXAM WITH ANSWERS

CFI CBCA Financial Analysis for Credit
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EXAM WITH ANSWERS |\ |\




Course Objectives - CORRECT ANSWERS ✔✔-Understand
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the components that go into financial analysis
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-Calculate the key performance ratios that credit
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professionals use to assess a company's profitability and
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efficiency |\




-Calculate the key financial ratios used to assess a
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company's liquidity, leverage, and coverage
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-Undertake a vertical analysis to determine profitability
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from the income statement and proportionality from the
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balance sheet |\ |\




-Undertake horizontal analysis to spot trends and analyze
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their meaning
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-Perform industry benchmarking
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Vertical & Horizontal Analysis - CORRECT ANSWERS
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✔✔Financial Analysis Overview |\ |\




Financial analysis includes a number of steps to -
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CORRECT ANSWERS ✔✔get a complete picture of the
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performance of a company. The starting point is the
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company's financial statements. |\ |\

,Ratio analysis is great for - CORRECT ANSWERS
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✔✔understanding the relationship between the income |\ |\ |\ |\ |\ |\



statement and the balance sheet. |\ |\ |\ |\




Performing Financial Analysis |\ |\ |\




Financial analysis must be undertaken with - CORRECT
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ANSWERS ✔✔an end-purpose in mind. This will influence
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how you conduct and interpret your analysis.
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Credit Analyst - CORRECT ANSWERS ✔✔-Understand a
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company's overall financial health and a borrower's credit
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risk
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-A company's ability to service credit obligations and how
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to mitigate loan loss in a default scenario
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Trend & Ratio Analysis - CORRECT ANSWERS ✔✔Basic
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Ratio Analysis |\ |\




Adjusting Ratios for Distortion |\ |\ |\ |\




Complex Adjustments |\




Financial analysis is frequently conducted within the
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context of a specific borrowing request. Lenders must -
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CORRECT ANSWERS ✔✔overlay the proposed credit
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,facilities and loan terms on top of financial results to see
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how financial metrics are impacted.
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A credit professional may conduct the analysis using -
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CORRECT ANSWERS ✔✔actual current/historical results,
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as well as using projected operating results.
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There are two forms of financial analysis - CORRECT
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ANSWERS ✔✔Vertical Analysis and Horizontal Analysis |\ |\ |\ |\ |\




Vertical Analysis - CORRECT ANSWERS ✔✔• Proportional
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point of view |\ |\ |\




• Compares line items in a financial statement to a base
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figure (e.g. express line items as % of revenue)
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• Can be used with the income statement to understand
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profitability |\




• Can be used with the balance sheet to understand
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asset/liability structure |\ |\




• Helps benchmark externally
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• Helps benchmark against internal thresholds which flow
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through to a risk rating
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• Ratios can be compared to industry performance
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• Set expectations and see if ratios fall within
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expectations |\

, • If ratios fall outside of expectations, they will help you
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ask questions of your client
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Horizontal Analysis - CORRECT ANSWERS ✔✔• Provides |\ |\ |\ |\ |\ |\ |\



context both within the company's own performance and
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through comparisons with peer groups
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• Looks at trends in financial statements
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• Benchmarks trends internally and externally against
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peers across a time period
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• Combining with vertical analysis provides more useful
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information |\




• Allows for consideration of liquidity, solvency, and
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leverage ratios |\




Example: Company A has positive revenue growth of 5%
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year-over-year |\




• A good indicator, unless the industry was outperforming
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it year-over-year
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• Raises questions about sustainability, competitive
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advantage, and strategy |\ |\ |\




• What is their strategy to improve their competitive
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advantage? |\




• What threats have they identified and how are they
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mitigating them? |\