Save 10% on All AnalystPrep 2024 Study Packages with Coupon Code BLOG10.
- Payment Plans
- Product List
- Partnerships
- Tutoring
- Pricing
- Payment Plans
- Product List
- Partnerships
- Tutoring
- Pricing
- Try Free Trial
- Try Free Trial
Back
CFA® Exam
Level I
- Study Packages
- Video Lessons
- Study Notes
- Mock Exams
- Practice Questions
Level II
- Study Packages
- Video Lessons
- Study Notes
- Mock Exams
- Practice Questions
Level III
- Study Packages
- Video Lessons
- Study Notes
- Practice Questions
- Mock Exams
ESG
- Study Packages
- Study Notes
- Practice Questions
- Mock Exams
Back
FRM® Exam
Exam Details
- About the Exam
- About your Instructor
Part I
- Part I Study Packages
- Video Lessons
- Study Notes
- Mock Exams
- Practice Questions
Part II
- Part II Study Packages
- Video Lessons
- Study Notes
- Mock Exams
- Practice Questions
Back
Actuarial Exams
Exams Details
- About the Exam
- About your Instructor
Exam P
- Study Packages
- Video Lessons
- Study Notes
- Practice Questions
Exam FM
- Study Packages
- Video Lessons
- Study Notes
- Practice Questions
Back
Graduate Admission
GMAT® Focus Exam
- Study Packages
- About the Exam
- Video Lessons
- Practice Questions
- Quantitative Questions
- Verbal Questions
- Data Insight Questions
- Live Tutoring
Executive Assessment®
- Study Packages
- About the Exam
- About your Instructors
- Video Lessons
- EA Practice Questions
- Quantitative Questions
- Data Sufficiency Questions
- Verbal Questions
- Integrated Reasoning Questions
GRE®
- Study Packages
- About the Exam
- Practice Questions
- Video Lessons
fixed-income
06 Sep 2019
Traditionally, many analysts evaluated creditworthiness based on what is called the “Four Cs of credit analysis”.
Capacity
Capacity is the ability of a borrower to service their debt. To be determined, an industry analysis should be conducted. Afterwards the specific issuer has to be examined (company analysis).
- Industry structure: Michael Porter’s 5 competitive forces framework: (1) Threat of entry, (2) Power of suppliers, (3) Power of buyers, (4) Threat of substitutes (5) Rivalry among existing competitors.
- Industry fundamentals: (1) Cyclical or non-cyclical, (2) Growth prospects, (3) Published industry statistics.
- Company fundamentals: (1) Competitive position, (2) Track record/operating history, (3) Management’s strategy and execution, (4) Ratios and ratio analysis
Collateral
Collateral refers to the amount of tangible assets that could be sold to recover the debt owed to bondholders. Patents can be sold to cover liability payments. Goodwill, on the other hand, is not a high-quality asset. Also, low capital expenditures relative to depreciation could imply that management is insufficiently investing in its business. It is important to note that intangible capital may not appear explicitly on the balance sheet but could be valuable.
Covenants
Covenants are meant to protect creditors. They are integral to credit agreements and state what actions management is required to take (positive covenant) and/or prevented from taking unless agreed to by the bondholder (negative covenant). Covenants are described in the bond prospectus.
Character
The character of a borrower is more of a qualitative than quantitative aspect of credit analysis. Judgments about management’s character could be based on the following parameters:
- assessment of the soundness of the management’s strategy;
- the management’s track record in executing past strategies;
- the use of aggressive accounting policies;
- any history of fraud or malfeasance; and
- previous poor treatment of bondholders
Question
Which of the following aspects of credit analysis would most likely be used to decide if a borrower has the ability to make loan payments on time?
- Capacity.
- Collateral.
- Covenants.
Solution
The correct answer is A.
Capacity refers to the ability of a borrower to meet their interest and principal obligations.
Shop CFA® Exam Prep
Offered by AnalystPrep
Level I
Level II
Level III
All Three Levels
Featured
View More
Shop FRM® Exam Prep
FRM Part I
FRM Part II
Learn with Us
Shop Actuarial Exams Prep
Exam P (Probability)
Exam FM (Financial Mathematics)
Shop Graduate Admission Exam Prep
GMAT Focus
Executive Assessment
GRE
Sergio Torrico
2021-07-23
Excelente para el FRM 2Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
diana
2021-07-17
So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts. The fun light-hearted analogies are also a welcome break to some very dry content.I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
Kriti Dhawan
2021-07-16
A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them. Thank you ! Grateful I saw this at the right time for my CFA prep.
nikhil kumar
2021-06-28
Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
Marwan
2021-06-22
Great support throughout the course by the team, did not feel neglected
Benjamin anonymous
2021-05-10
I loved using AnalystPrep for FRM. QBank is huge, videos are great. Would recommend to a friend
Daniel Glyn
2021-03-24
I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
michael walshe
2021-03-18
Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.
Trustpilot rating score: 4.5 of 5, based on 69 reviews.
Related Posts