Fundamentals of Credit Analysis

Fundamentals of Credit Analysis for the CFA Level 1 Exam

Welcome to the fascinating world of credit analysis! In this article, we’ll explore the building blocks of credit risk assessment and gain insights into the factors that influence creditworthiness. Ready to embark on a journey to credit enlightenment? Let’s dive in!

Credit Risks

We’re talking credit analysis, and more specifically, corporate bonds in this lesson. You’ll grasp the essence of credit risk, breaking it down into default risk and loss severity, and comprehend their impact on expected loss and recovery rate. You’ll also touch on yield spreads and how they indicate creditworthiness, and finally, learn about credit migration risk, market liquidity risk, and spread risk.

► Don your financial detective hat, and start your intriguing journey into credit analysis here.

Capital Structure and Seniority Rankings

This lesson dives into the complex relationship between credit risk and a company’s capital structure. It unravels how capital structure varies and why, details the difference between secured and unsecured debt, and explains the significance of various seniority rankings. The lesson also sheds light on the priority of claims and bankruptcy reorganization, and how these aspects can impact the credit risk of a bond.

► Ready to unravel the intricacies of credit risk and capital structure? Start exploring here.

Credit Ratings and Ratings Agencies

We’re tackling credit ratings in this lesson, explaining the role of credit rating agencies and how they grade issuers and individual debt issues. You’ll get a glimpse into the concept of ‘notching’ and its interplay with structural subordination. Plus, the lesson unveils the potential pitfalls of relying too heavily on credit ratings, discussing risks like rating changes, latency, unpredictable events, and rating agency errors.

► Keen to dissect the world of credit ratings? Dive in here.

Corporate Credit Analysis

Ever wondered how to tell if a company is creditworthy or just a one-hit-wonder? Enter stage right, the 4 ‘C’s of credit analysis – Capacity, Collateral, Covenants, and Character. By the end of this lesson, you’ll be a pro at judging a company’s ability to satisfy its debt obligations, it’ll be like you’ve got X-ray finance vision.

► Ready to become the Sherlock Holmes of credit analysis? Click here.

Corporate Credit Analysis (Ratios)

Buckle up for a ride down the fast and furious highway of financial ratios, the superheroes of credit analysis! From profit and cash flow metrics to leverage and coverage ratios, we’ve got you covered. By the end of this lesson, you’ll be using these ratios to determine a company’s credit rating with the ease of a seasoned analyst.

► Ready to become a financial ratio wrangler? Saddle up and start your journey here.

Credit Yields and Spreads

Ever wondered what the “spread” is in bond spreads? Well, wonder no more! This lesson pulls back the curtain on credit yields and spreads, highlighting the key factors that impact them. Plus, we’ll show you how to calculate bond price changes based on spread changes. It’s like a backstage pass to the world of corporate debt!

► Got your backstage pass ready? Dive into the world of credit yields and spreads here.

Special Considerations of High Yield Credit Analysis

This lesson will guide you through the winding path of high-yield corporate bonds, a.k.a., the “bad boys” of the bond world. You’ll learn what factors contribute to their low ratings and the special elements you need to consider when analyzing their creditworthiness. By the end of this thrilling journey, you’ll have a solid understanding of the jungle that is high-yield bond analysis.

►Eager to explore the jungle of high-yield bonds? Start your adventure here.

Special Considerations of Sovereign and Non-Sovereign Credit Analysis

In this lesson, we’re heading into the realm of the mighty – sovereign and non-sovereign government debt. We’ll uncover the secrets of sovereign debt analysis and introduce you to municipal bonds. By the end, you’ll have the know-how to analyse the creditworthiness of these entities like a seasoned pro.

►Ready to flex your sovereign and non-sovereign debt analysis muscles? Get started here.