How do you manage risk in your personal life? Someone who’s detail-oriented, good with numbers, enjoys research and analysis, likes working independently, and is good at financial modeling and financial analysis, with strong Excel skills. What type of person makes a good credit analyst? Terminal value is calculated either using an exit multiple or the perpetual growth method. How do you calculate the terminal value in a DCF valuation? If you are forecasting free cash flows to equity, you use the cost of equity. If you are forecasting free cash flows to the firm, you normally use the Weighted Average Cost of Capital (WACC) as the discount rate. What do you use for the discount rate in a DCF valuation? The most common methods are DCF valuation / financial modeling and relative valuation methods using comparable public companies (“Comps”) and precedent transactions (“Precedents”). The most common credit metrics include debt/equity, debt/capital, debt/EBITDA, interest coverage, fixed charge coverage, and tangible net worth. What are the most common credit metrics banks look at? The interest coverage ratio indicates how easily a company can “cover” it’s interest expense with operating earnings before interest and taxes are subtracted. It is also referred to as the “times interest earned” ratio. This is commonly calculated as EBIT divided by interest expense. The Current Ratio, Return on Equity (ROE), Return on Assets (ROA), Debt/Capital, Debt/Equity, and Interest Coverage ratios. What methods do you use to compare the liquidity, profitability, and credit history of a company? Unlevered free cash flow is used in financial modeling. What is Free Cash Flow?įree cash flow is simply equal to cash from operations minus capital expenditures (levered free cash flow). Quote the current LIBOR rate and talk about the importance of LIBOR as it relates to spreads and pricing of other credit instruments. They can, however, run into conflicts of interest and should not be blindly relied on for assessing a borrower’s risk profile. Rating agencies are supposed to help provide trust and confidence in financial markets by rating borrowers on their creditworthiness of outstanding debt obligations. If all of these metrics are within the bank’s parameters, then it may be possible to lend the money, but the decision will depend on qualitative factors as well. Then look at metrics such as debt to capital, debt to EBITDA, and interest coverage. Determine what assets can be used as collateral, how much cash flow there is, and what the trends of the business are. Review all three financial statements for the past five years and perform a financial analysis. How would you decide if you can lend $100 million to a company? Many analysts also use the debt to equity ratio. Other industries such as banking and insurance can have up to 90% debt to capital ratios. These might have a 0-20% debt to capital ratio. Some industries can sustain very low debt to capital ratios, typically cyclical industries like commodities or early-stage companies like startups. Below are our top credit analyst interview questions. To learn more technical skills, check out CFI’s Credit Analyst Certification program. This guide focuses solely on the technical skills that could be tested in a credit analyst interview.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |