4. Credit Analysis

f. explain the four Cs (Capacity, Collateral, Covenants, and Character) of traditional credit analysis;

## g. calculate and interpret financial ratios used in credit analysis; ## h. evaluate the credit quality of a corporate bond issuer and a bond of that issuer, given key financial ratios of the issuer and the industry;

What is the goal of credit analysts? Credit analysts want to assess a company’s ability to make timely payments of interest and principal.

What are the 4 C’s of credit analysis? 1. Capacity 2. Industry structure 3. Industry fundamentals 4. Company fundamentals

In regards to credit analysis, what role does “capacity” play? The capacity, or ability to pay, reflects the funds flow from the organization and the generation of cash sufficient to meet the interest and principal repayments.

What is collateral analysis? Collateral analysis involves not only the traditional pledging of assets to secure the debt, but also the quality and value of those un-pledged assets controlled by the issue.

What are borrower covenants? Covenants deal with limitations and restrictions on the borrower’s activities.