CFI CBCA Financial Analysis for Credit
Questions and Answers (2026/2027) |
Updated Review | A+ Verified
• Course Objectives -✓✓-Understand the components that go into financial
analysis
-Calculate the key performance ratios that credit professionals use to assess a
company's profitability and efficiency
-Calculate the key financial ratios used to assess a company's liquidity, leverage,
and coverage
-Undertake a vertical analysis to determine profitability from the income statement
and proportionality from the balance sheet
-Undertake horizontal analysis to spot trends and analyze their meaning
-Perform industry benchmarking
• Vertical & Horizontal Analysis -✓✓Financial Analysis Overview
• Financial analysis includes a number of steps to -✓✓get a complete picture of
the performance of a company. The starting point is the company's financial
statements.
• Ratio analysis is great for -✓✓understanding the relationship between the
income statement and the balance sheet.
• Performing Financial Analysis
Financial analysis must be undertaken with -✓✓an end-purpose in mind. This will
influence how you conduct and interpret your analysis.
,• Credit Analyst -✓✓-Understand a company's overall financial health and a
borrower's credit risk
-A company's ability to service credit obligations and how to mitigate loan loss in a
default scenario
• Trend & Ratio Analysis -✓✓Basic Ratio Analysis
Adjusting Ratios for Distortion
Complex Adjustments
• Financial analysis is frequently conducted within the context of a specific
borrowing request. Lenders must -✓✓overlay the proposed credit facilities and
loan terms on top of financial results to see how financial metrics are impacted.
• A credit professional may conduct the analysis using -✓✓actual
current/historical results, as well as using projected operating results.
• There are two forms of financial analysis -✓✓Vertical Analysis and Horizontal
Analysis
• Vertical Analysis -✓✓• Proportional point of view
• Compares line items in a financial statement to a base figure (e.g. express line
items as % of revenue)
• Can be used with the income statement to understand profitability
• Can be used with the balance sheet to understand asset/liability structure
• Helps benchmark externally
• Helps benchmark against internal thresholds which flow through to a risk rating
• Ratios can be compared to industry performance
, • Set expectations and see if ratios fall within expectations
• If ratios fall outside of expectations, they will help you ask questions of your
client
• Horizontal Analysis -✓✓• Provides context both within the company's own
performance and through comparisons with peer groups
• Looks at trends in financial statements
• Benchmarks trends internally and externally against peers across a time period
• Combining with vertical analysis provides more useful information
• Allows for consideration of liquidity, solvency, and leverage ratios
Example: Company A has positive revenue growth of 5% year-over-year
• A good indicator, unless the industry was outperforming it year-over-year
• Raises questions about sustainability, competitive advantage, and strategy
• What is their strategy to improve their competitive advantage?
• What threats have they identified and how are they mitigating them?
• Analyzing credit means -✓✓identifying risk to repayment capacity. Falling
behind industry trends can be indicative of a company in decline
• Ratio Analysis -✓✓Performance Ratios
Financial Ratios
• Performance Ratios
How profitable a company is and how efficiently it is being run -✓✓Profitability
Ratios
Efficiency Ratios
Questions and Answers (2026/2027) |
Updated Review | A+ Verified
• Course Objectives -✓✓-Understand the components that go into financial
analysis
-Calculate the key performance ratios that credit professionals use to assess a
company's profitability and efficiency
-Calculate the key financial ratios used to assess a company's liquidity, leverage,
and coverage
-Undertake a vertical analysis to determine profitability from the income statement
and proportionality from the balance sheet
-Undertake horizontal analysis to spot trends and analyze their meaning
-Perform industry benchmarking
• Vertical & Horizontal Analysis -✓✓Financial Analysis Overview
• Financial analysis includes a number of steps to -✓✓get a complete picture of
the performance of a company. The starting point is the company's financial
statements.
• Ratio analysis is great for -✓✓understanding the relationship between the
income statement and the balance sheet.
• Performing Financial Analysis
Financial analysis must be undertaken with -✓✓an end-purpose in mind. This will
influence how you conduct and interpret your analysis.
,• Credit Analyst -✓✓-Understand a company's overall financial health and a
borrower's credit risk
-A company's ability to service credit obligations and how to mitigate loan loss in a
default scenario
• Trend & Ratio Analysis -✓✓Basic Ratio Analysis
Adjusting Ratios for Distortion
Complex Adjustments
• Financial analysis is frequently conducted within the context of a specific
borrowing request. Lenders must -✓✓overlay the proposed credit facilities and
loan terms on top of financial results to see how financial metrics are impacted.
• A credit professional may conduct the analysis using -✓✓actual
current/historical results, as well as using projected operating results.
• There are two forms of financial analysis -✓✓Vertical Analysis and Horizontal
Analysis
• Vertical Analysis -✓✓• Proportional point of view
• Compares line items in a financial statement to a base figure (e.g. express line
items as % of revenue)
• Can be used with the income statement to understand profitability
• Can be used with the balance sheet to understand asset/liability structure
• Helps benchmark externally
• Helps benchmark against internal thresholds which flow through to a risk rating
• Ratios can be compared to industry performance
, • Set expectations and see if ratios fall within expectations
• If ratios fall outside of expectations, they will help you ask questions of your
client
• Horizontal Analysis -✓✓• Provides context both within the company's own
performance and through comparisons with peer groups
• Looks at trends in financial statements
• Benchmarks trends internally and externally against peers across a time period
• Combining with vertical analysis provides more useful information
• Allows for consideration of liquidity, solvency, and leverage ratios
Example: Company A has positive revenue growth of 5% year-over-year
• A good indicator, unless the industry was outperforming it year-over-year
• Raises questions about sustainability, competitive advantage, and strategy
• What is their strategy to improve their competitive advantage?
• What threats have they identified and how are they mitigating them?
• Analyzing credit means -✓✓identifying risk to repayment capacity. Falling
behind industry trends can be indicative of a company in decline
• Ratio Analysis -✓✓Performance Ratios
Financial Ratios
• Performance Ratios
How profitable a company is and how efficiently it is being run -✓✓Profitability
Ratios
Efficiency Ratios
