Credit Analysis and Risk Management Metrics Quiz

Study Notes

Financial Analysis and Risk Management

Integrating financial analysis with qualitative analysis, including business and management risk factors, is crucial for credit analysis purposes.
Financial risk parameters include:
Liquidity ratio: Current Ratio
Solvency ratio: Debt Equity Ratio
Leverage ratio: Debt service coverage ratio/interest service coverage ratio
Profitability ratios include:
Return on capital employed
Risk management involves evaluating various risk factors, including:
Customer authentication and verification
Business risk
Financial risk
Management risk

Risk Management Parameters

Management risk parameters include:
Integrity and character of promoters/partners
Technical/financial knowledge and expertise
Managerial competence, commitment, and experience
Succession arrangements
Market reputation and record
Relationship with the bank
Reputation with customers and suppliers is also crucial
Credit record of accomplishment and meeting commitments to lenders and creditors are essential

Risk Evaluation and Assessment

Risk evaluation involves identifying and assessing various risks, including:
Business risk: risks inherent in the operating cycle
Financial risk: uncertainty in cash flows to meet future obligations
Business risk assessment involves evaluating:
Supply risk: continuous availability of raw materials and inputs
Production risk: hurdles/obstacles in manufacturing process
Demand risk: demand for final products and market preference
Collection risk: delay in realization of sale proceeds
Financial risk assessment involves a deeper analysis of financial statements, including:
Compliance with bank parameters
Financial reports in isolation may not present the entire analysis

Description

Test your knowledge on financial analysis integrated with qualitative analysis for credit analysis purposes. Explore topics such as ability to mobilize funds, liquidity and solvency tests, financial risk parameters, and profitability ratios.