CFI CBCA Financial Analysis for Credit
Questions and answers 2025
Course .Objectives .- .CORRECT .ANSWER--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 .- .CORRECT .ANSWER-Financial .Analysis .Overview
Financial .analysis .includes .a .number .of .steps .to .- .CORRECT .ANSWER-get .a
.complete .picture .of .the .performance .of .a .company. .The .starting .point .is .the
.company's .financial .statements.
Ratio .analysis .is .great .for .- .CORRECT .ANSWER-understanding .the .relationship
.between .the .income .statement .and .the .balance .sheet.
Performing .Financial .Analysis .
Financial .analysis .must .be .undertaken .with .- .CORRECT .ANSWER-an .end-purpose
.in .mind. .This .will .influence .how .you .conduct .and .interpret .your .analysis.
Credit .Analyst .- .CORRECT .ANSWER--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 .- .CORRECT .ANSWER-Basic .Ratio .Analysis .
Adjusting .Ratios .for .Distortion .
Complex .Adjustments
Financial .analysis .is .frequently .conducted .within .the .context .of .a .specific
.borrowing .request. .Lenders .must .- .CORRECT .ANSWER-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 .- .CORRECT .ANSWER-actual
.current/historical .results, .as .well .as .using .projected .operating .results.
There .are .two .forms .of .financial .analysis .- .CORRECT .ANSWER-Vertical .Analysis
.and .Horizontal .Analysis
Vertical .Analysis .- .CORRECT .ANSWER-• .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 .- .CORRECT .ANSWER-• .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 .- .CORRECT .ANSWER-identifying .risk .to .repayment
.capacity. .Falling .behind .industry .trends .can .be .indicative .of .a .company .in .decline
Ratio .Analysis .- .CORRECT .ANSWER-Performance .Ratios .
Financial .Ratios
Performance .Ratios
How .profitable .a .company .is .and .how .efficiently .it .is .being .run .- .CORRECT
.ANSWER-Profitability .Ratios .
Efficiency .Ratios
Financial .Ratios
Financial .condition .of .the .company; .liquidity, .solvency, .and .how .operating .cash
.flow .covers .principal .& .interest .obligations .- .CORRECT .ANSWER-Coverage .
Leverage .
Liquidity
Breaking .down .the .income .statement .- .CORRECT .ANSWER-Sales .Revenue
Cost .of .Good .Sold
Gross .Profit
Indirect .Costs
Research .& .Development
Marketing .& .Sales
Sales .Revenue .- .CORRECT .ANSWER-is .the .lifeblood .of .the .income .statement .and
.is .used .in .several .of .the .ratios .seen .throughout .the .module.
Cost .of .Good .Sold .- .CORRECT .ANSWER-relates .to .direct .labor .and .raw .materials
.needed .to .create .the .product .or .service .that .is .being .sold, .as .well .as .depreciation
.on .manufacturing .equipment .used .in .production.
Gross .Profit .- .CORRECT .ANSWER-is .what .remains .to .fund .the .rest .of .the .business'
.indirect .costs, .after .paying .the .costs .that .were .directly .related .to .what .was .sold.
Questions and answers 2025
Course .Objectives .- .CORRECT .ANSWER--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 .- .CORRECT .ANSWER-Financial .Analysis .Overview
Financial .analysis .includes .a .number .of .steps .to .- .CORRECT .ANSWER-get .a
.complete .picture .of .the .performance .of .a .company. .The .starting .point .is .the
.company's .financial .statements.
Ratio .analysis .is .great .for .- .CORRECT .ANSWER-understanding .the .relationship
.between .the .income .statement .and .the .balance .sheet.
Performing .Financial .Analysis .
Financial .analysis .must .be .undertaken .with .- .CORRECT .ANSWER-an .end-purpose
.in .mind. .This .will .influence .how .you .conduct .and .interpret .your .analysis.
Credit .Analyst .- .CORRECT .ANSWER--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 .- .CORRECT .ANSWER-Basic .Ratio .Analysis .
Adjusting .Ratios .for .Distortion .
Complex .Adjustments
Financial .analysis .is .frequently .conducted .within .the .context .of .a .specific
.borrowing .request. .Lenders .must .- .CORRECT .ANSWER-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 .- .CORRECT .ANSWER-actual
.current/historical .results, .as .well .as .using .projected .operating .results.
There .are .two .forms .of .financial .analysis .- .CORRECT .ANSWER-Vertical .Analysis
.and .Horizontal .Analysis
Vertical .Analysis .- .CORRECT .ANSWER-• .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 .- .CORRECT .ANSWER-• .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 .- .CORRECT .ANSWER-identifying .risk .to .repayment
.capacity. .Falling .behind .industry .trends .can .be .indicative .of .a .company .in .decline
Ratio .Analysis .- .CORRECT .ANSWER-Performance .Ratios .
Financial .Ratios
Performance .Ratios
How .profitable .a .company .is .and .how .efficiently .it .is .being .run .- .CORRECT
.ANSWER-Profitability .Ratios .
Efficiency .Ratios
Financial .Ratios
Financial .condition .of .the .company; .liquidity, .solvency, .and .how .operating .cash
.flow .covers .principal .& .interest .obligations .- .CORRECT .ANSWER-Coverage .
Leverage .
Liquidity
Breaking .down .the .income .statement .- .CORRECT .ANSWER-Sales .Revenue
Cost .of .Good .Sold
Gross .Profit
Indirect .Costs
Research .& .Development
Marketing .& .Sales
Sales .Revenue .- .CORRECT .ANSWER-is .the .lifeblood .of .the .income .statement .and
.is .used .in .several .of .the .ratios .seen .throughout .the .module.
Cost .of .Good .Sold .- .CORRECT .ANSWER-relates .to .direct .labor .and .raw .materials
.needed .to .create .the .product .or .service .that .is .being .sold, .as .well .as .depreciation
.on .manufacturing .equipment .used .in .production.
Gross .Profit .- .CORRECT .ANSWER-is .what .remains .to .fund .the .rest .of .the .business'
.indirect .costs, .after .paying .the .costs .that .were .directly .related .to .what .was .sold.
