FIN320 - One

  1. Credit analysis questions
    Should the bank give the requested loan?

    If the loan is given, will it be repaid together with interest?

    What is the financial institution's remedy if the assumptions about the loan turn out wrong?
  2. Sound business characteristics
    Has adequate liquidity so it can honour short-term obligations easily

    Run efficiently

    Run profitably 

    The proprietor's stake is high (business is not burdened by too much debt)
  3. Credit analysis factors
    Trend (time series) analysis

    Safety buffer

    Stress testing

    Industry analysis

    Economic analysis
  4. Trend (time series) analysis
    If the business was run profitably for some years, then it may not be unreasonable to assume the trend will continue.
  5. Safety buffer
    If the business has a large margin of safety (between actual sales and break-even sales) then some fluctuations in business conditions in the future may not be a cause for worry.
  6. Stress testing
    The business can be subjected to sensitivity testing. 

    If the business continues to remain profitable, then the lender can be reasonable certain that the business can withstand shocks in the future.
  7. Industry analysis
    Trends and prospects for the industry?

    If industry is growing, the firm can be expected to grow.
  8. Economic analysis
    Trends in the domestic and international economies can be used to gauge the possible impact on the business.
  9. Remedies for bad loans

    Charge on assets 


  10. Analysis of Financial Statements
    Cross-sectional techniques (ratio analysis)

    Times series techniques (trend (indexed) statements, trend of financial ratios, variability measures)

    combo of financial statement information and non-financial statement information
  11. Ratio Analysis
    Liquidity ratios

    Profitability ratios

    Efficiency ratios 

    Leverage ratios
  12. Liquidity ratios
    Current ratio

    Quick ratio
  13. Profitability ratios
    Gross profit-sales ratio

    Net profit-sales ratio
  14. Efficiency ratios
    Inventory turnover ratio

    Average collection period
  15. Leverage ratios
    Debt-equity ratio

    Interest coverage ratio
  16. Trend statements
    Expressing items in an indexed form.

    Choose one year as the base, then express the values for each item on the statement for subsequent years relative to their value in the base year.
  17. Project risk analysis
    Sensitivity analysis

    Break even analysis

    Margin of safety 

    Cash break even point
Card Set
FIN320 - One
FIN320 - One