Credit Analysis

Posted in Finance, Accounting and Economics Terms, Total Reads: 3645

Definition: Credit Analysis

It is done by the current/potential bondholder. It is done to see the credit worthiness of the issuer. Credit analysis is also done by the lender before giving a loan. It can be done by a variety of techniques such as fundamental analysis, trend analysis, etc.

Fundamental analysis includes analyzing various ratios such as

  • Coverage ratios
  • Liquidity ratios
  • Leverage ratios etc.

It is primarily done to determine the “DEFAULT RISK” of the borrower or issuer of bonds. Credit analysis predicts the probability of default. It assesses the credit quality of the counter party. To carry out the analysis, the data is generally taken from the financial statements of the company.

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