Credit Analysis

Career Book
Table of Contents
Overview Of Credit Analysis
The 5Cs Framework
Key Ratios
Credit Analyst Salary Details
Roles of Credit Analyst
Top Skills for Credit Analysts
Top Sectors for Credit Analysts
FAQs
Overview Of Credit
Analysis:
Credit analysis is the process or practice to
check the creditworthiness of a borrower
(company or individual) to repay a loan.
Credit analysts perform exhaustive financial
analysis, and ratio analysis, look into
qualitative factors, and check borrower
repayment history, among others, to
understand creditworthiness.

We will now walk you through how to

perform credit analysis using the 5C
framework.
The 5 C’s Framework of
Credit Analysis:

Character – It talks about the many

aspects of the borrower including credit
history, market reputation, a
management strategy for growth,
accounting, tax policy, and prior
treatment of bondholders.

Capacity – Capacity talks about the

competitive position in the industry,
liquidity analysis, leverage analysis,
coverage analysis, and other ratio checks
including profitability
Condition - This refers to the economic and
market conditions that may affect the
borrower's ability to repay the loan. Lenders
consider factors such as the borrower's
industry, competition, and overall economic
climate when assessing the risk of the loan.

Collateral – Analysts check the quality of

collateral provided before sanctioning a loan
and finalizing interest rates

Capital - In this section, analysts check how

much capital the borrower is infusing into the
business or paying as a down payment. Ideally,
it should be a minimum of 20% of the total
borrowing amount which builds trust in the
lender and reduces the burden.
Leverage Ratios
Debt to Equity = Total Debt / Common
Equity

Debt to Tangible Equity = Total Debt /

(Common Equity - Intangible Assets)

Debt to Total Capital = Total Debt / (Total

Debt + Total Equity)

Debt to EBITDA = Debt / EBITDA

Coverage Ratios
EBIT Interest Coverage = EBIT /
Interest Expense

EBITDA Interest Coverage = EBITDA /

Interest Expense

DSCR = Net Operating Income / Total

Debt Service
Liquidity Ratios
Cash Ratio = (Cash & Short Term
Investments) / Current Liabilities

Quick Ratio = (Cash & Short Term

Investments + Receivables) / Current
Liabilities

Current Ratio = Current Assets /

Current Liabilities
Credit Analyst Salary
Details
Entry Level: Entry level Credit Analyst salary ranges from 4
to 8 lacs per annum depending on the qualification,
certification, and skills required for the post. Equally, those
with 0 to 2 years of industry experience are considered in
this category, although freshers are also important for entry-
level jobs where they can learn and advance into higher roles
in the company’s credit analyst area.

Mid Level: At this level, the industry considers candidates

with 3 – 5 years of experience in a credit analyst role; salary
ranges, however, vary depending on the previously drawn
salary; however, as candidates become more familiar with
the industry and the work, the company provides good
salary packages based on their experience and expertise,
with salaries ranging from 10 to 15 lacs per annum. If a
candidate is extraordinary, the organization may promote
them to the manager or team leader.
Senior Level: Senior positions generally consists of senior
managers or AVPs, or Presidents among others. They may
possess 10+ years of experience in credit analysis &
underwriting and have an average salary package
between 25 lacs to 35 lacs, however, salary standards
vary from company to company.
What Are the Roles of a
Credit Analyst?
Analyze Financial data – Financial data plays a key
role in credit analysis. Analysts analyze the financial
statements and financial history of the borrower so
that they can check the borrower’s financial position.

Ratio Analysis & Covenants Check - Analysts also

perform exhaustive ratio analysis to see if borrowers
are following covenants and having a healthy balance
sheet.

Review Credit Limits of Existing Borrowers -Analysts

reviews the current situation of the loan for existing
customers.

Due Diligence –Analysts also perform due diligence

on various loan applications and advice whether the
applicant can be sanctioned the loan or not.
What Are the Top Skills That Are
Valuable for Credit Analysts?

Microsoft Excel – MS Excel is an evergreen tool for

financial data analysis or numerical calculation. IT
provides important features to clean the raw data,
summarize the data, and make the data more
understandable and visual for everyone. Today every
industry requires MS Excel knowledge in the candidate
due to managing the large quantity of numerical data.

Financial Ratio Analysis – Financial ratios are one of

the important parts of credit analysis. There are various
specific ratios for credit analysts that they analyze to
make the decision, and every ratio comes with a
threshold (It is a limit or the industry benchmark that
the company set to analyze and make the resolution).
Knowledge of financial ratios is intensely beneficial, in
credit analysis.
Market research – Analysts must have solid market
research skills to uncover important data for analysis so
that they can make decisions based on their study.
Market research helps analysts become aware of interest
rates, different rates, currency exchange rates, and so on.

Report writing – Today, credit rating companies, banks,

and other financial service companies provide reports to
clients and other customers for them to learn about a
company’s or an individual’s credit rating.

Communication skills – Communication skills are one of

the most important skills to have in any industry. Credit
analysts need to interact with their clients to learn about
their history and other information, so communication
must be excellent so that analysts can effectively
interact with customers.
Presentation skills – Due to a large amount of financial
data presentation in credit analysis, analysts provide data
in many formats, whether it is pie charts, bars, or any
other. Presentation skills are also essential in the credit
analyst profession due to the large amount of data
presented to management and customers.

Basic Accounting skills –Accounting skills help to

analyze all three financial statements inefficiently based
on analysis. Analysts decide whether they should provide
Credit to their clients or not. They should have experience
in accounting and analyzing financial statements
efficiently.
Top Sectors That Are Actively Looking
for Credit Analysts:

1. Banking Sector 7. Investment Companies

2. Asset Management 8. Insurance

3. Research Firms 9. Savings Institutions

4. Securities Firms 10. NBFCs

5. Fund Houses 11. Credit Unions

6. Investment Banking 12. Rating Agencies

FAQs related to entry-level credit
analyst salary
1. Can a non-commerce student become a credit
analyst?
Yes, Non-commerce students can apply for the credit
analyst role with requisite skills such as accounting
skills, financial statements, and financial ratios analysis.
There are various certifications and professional
courses which help to build a career in credit analyst
roles such as Investment Banking Course (CIBR).
Visit www.cfieducation.in for more information

2. Can I go for a credit analyst role after B.com?

Yes, many companies offer credit analyst roles to fresh
graduates who have excellent skills and knowledge.
3. Which companies offer the role of Credit
analyst?

Most banks offer credit analyst roles as they provide

credit to the clients. Moreover, credit rating agencies,
research companies also require credit analysts for
reporting writing and covenants testing.

4. What is the salary range of entry-level credit

analyst jobs?

In India, the salary of a credit analyst depends on years

of experience and the skills/knowledge that candidates
carry in their hands. The entry-level range of salary is 4
lakh to 8 lakh however it depends on company to
company.
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