About Me
Chartered Financial Analyst (CFA)
1 Ethical and Professional Standards
1-1 Code of Ethics
1-2 Standards of Professional Conduct
1-3 Guidance for Standards I-VII
1-4 Introduction to the Global Investment Performance Standards (GIPS)
1-5 Application of the Code and Standards
2 Quantitative Methods
2-1 Time Value of Money
2-2 Discounted Cash Flow Applications
2-3 Statistical Concepts and Market Returns
2-4 Probability Concepts
2-5 Common Probability Distributions
2-6 Sampling and Estimation
2-7 Hypothesis Testing
2-8 Technical Analysis
3 Economics
3-1 Topics in Demand and Supply Analysis
3-2 The Firm and Market Structures
3-3 Aggregate Output, Prices, and Economic Growth
3-4 Understanding Business Cycles
3-5 Monetary and Fiscal Policy
3-6 International Trade and Capital Flows
3-7 Currency Exchange Rates
4 Financial Statement Analysis
4-1 Financial Reporting Mechanism
4-2 Income Statements, Balance Sheets, and Cash Flow Statements
4-3 Financial Reporting Standards
4-4 Analysis of Financial Statements
4-5 Inventories
4-6 Long-Lived Assets
4-7 Income Taxes
4-8 Non-Current (Long-term) Liabilities
4-9 Financial Reporting Quality
4-10 Financial Analysis Techniques
4-11 Evaluating Financial Reporting Quality
5 Corporate Finance
5-1 Capital Budgeting
5-2 Cost of Capital
5-3 Measures of Leverage
5-4 Dividends and Share Repurchases
5-5 Corporate Governance and ESG Considerations
6 Equity Investments
6-1 Market Organization and Structure
6-2 Security Market Indices
6-3 Overview of Equity Securities
6-4 Industry and Company Analysis
6-5 Equity Valuation: Concepts and Basic Tools
6-6 Equity Valuation: Applications and Processes
7 Fixed Income
7-1 Fixed-Income Securities: Defining Elements
7-2 Fixed-Income Markets: Issuance, Trading, and Funding
7-3 Introduction to the Valuation of Fixed-Income Securities
7-4 Understanding Yield Spreads
7-5 Fundamentals of Credit Analysis
8 Derivatives
8-1 Derivative Markets and Instruments
8-2 Pricing and Valuation of Forward Commitments
8-3 Valuation of Contingent Claims
9 Alternative Investments
9-1 Alternative Investments Overview
9-2 Risk Management Applications of Alternative Investments
9-3 Private Equity Investments
9-4 Real Estate Investments
9-5 Commodities
9-6 Infrastructure Investments
9-7 Hedge Funds
10 Portfolio Management and Wealth Planning
10-1 Portfolio Management: An Overview
10-2 Investment Policy Statement (IPS)
10-3 Asset Allocation
10-4 Basics of Portfolio Planning and Construction
10-5 Risk Management in the Portfolio Context
10-6 Monitoring and Rebalancing
10-7 Global Investment Performance Standards (GIPS)
10-8 Introduction to the Wealth Management Process
7.5 Fundamentals of Credit Analysis Explained

7.5 Fundamentals of Credit Analysis - 7.5 Fundamentals of Credit Analysis

Key Concepts

Credit Risk

Credit Risk is the potential for loss due to a borrower's failure to meet their financial obligations. It is a critical factor in credit analysis, as it determines the likelihood of default and the associated financial impact.

Example: A company issuing bonds faces credit risk if there is a possibility that it may not be able to make interest payments or repay the principal amount when the bonds mature.

Financial Ratios

Financial Ratios are key metrics used to assess a company's financial health and creditworthiness. Common ratios include the Debt-to-Equity Ratio, Interest Coverage Ratio, and Current Ratio, which help analysts understand a company's ability to meet its debt obligations.

Example: A Debt-to-Equity Ratio of 2.0 indicates that for every dollar of equity, the company has $2.00 of debt. A higher ratio may signal higher financial risk.

Credit Ratings

Credit Ratings are assessments provided by credit rating agencies (such as Moody's, Standard & Poor's, and Fitch) that indicate the creditworthiness of a borrower. Ratings range from AAA (highest) to D (default), providing a quick reference for investors.

Example: A company with a credit rating of AA is considered to have a very strong capacity to meet its financial commitments, while a rating of BB indicates a moderate risk of default.

Debt Covenants

Debt Covenants are contractual agreements between a borrower and lender that impose certain restrictions or requirements on the borrower. These covenants are designed to protect the lender's interests and reduce credit risk.

Example: A debt covenant may require a company to maintain a minimum level of liquidity or prohibit the payment of dividends if certain financial ratios fall below specified thresholds.

Cash Flow Analysis

Cash Flow Analysis involves evaluating a company's ability to generate sufficient cash flow to meet its debt obligations. This analysis focuses on operating, investing, and financing cash flows to assess the company's liquidity and solvency.

Example: A company with strong operating cash flow but negative investing cash flow may be expanding its business but needs to ensure it can cover its debt payments from its operational activities.

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