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Commercial Banking and Credit Analysis > 5 Cs > Flashcards

5 Cs Flashcards

(68 cards)

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1
Q

What are the 5 Cs of Credit

A

character
capacity
conditions
capital
collateral \

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2
Q

What do you need to eval character

A

history and operations
managements team

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3
Q

Consid for assess operations

A

needs to be current and future

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4
Q

Consids for company history

A

How long have they been in business and has the growth been organic or through acquisition
How have they done in different parts of the business cycle?

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5
Q

Consids for assessing current operaitons

A

Do we understand the processes?
Quality of its info and reporting systems

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6
Q

What are some ways a company can grow when considering future operations

A

organic
M&A
extention of existing or new markets
extension of existing or new products or services

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7
Q

What do we look at when assessing management

A

Past performance
Is there a clear and consistent business plan
Have risk mitigation strats been setup
their reputation
Experience and skills

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8
Q

What to eval when assessing capacity

A

cashflow sources
cashflow use
drivers of sus profit and growth

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9
Q

What are examples of working capital

A

inventory
accounts receiveable

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10
Q

When analyzing a cashflow state, how are cashflows typically grouped

A

operating activities/cashflows
investmenting acts/CFs
financingn activities/CFs

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11
Q

What are some examples of potentially problematic trends in operating activites on the cashflow state and why

A

Increasing receivables aka are the customers taking longer to pay might mean lax credit policies
Increasing payables aka is the company taking longer to pay its sup[pliers might mean cashflow dificulties

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12
Q

What is an investing activity on the cashflow statement that may be problematic and why

A

Positive cashflow may mean selling assets to sustain operations

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13
Q

What is evaled when assessing drivers of prof and growth

A

historic, current, and future drivers
financial ratios

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14
Q

What are the financial ratios used for assessing drivers prof and grow

A

coverage ratios
prof ratios
leverage ratios
efficiency ratios
liquidity ratios

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15
Q

What do coverage ratios demonstrate

A

ability to cover its debt financing payments

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16
Q

What might a low debt service coverage ratio indicate

A

diff paying its interest and principal payments

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17
Q

debt service coverage ratio formula

A

operating profit (EBIT) / interest + prin repayments
OR
net income after tax but before interest and D/A

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18
Q

What do leverage ratios demonstrate

A

degree to which the company is financing operations through debt vs equity

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19
Q

What might a high debt to equity ratio indicate

A

diff paying for its debt service

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20
Q

Debt to Equity Ratio formula

A

total liabilities / total shareholder eqiuty

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21
Q

debt to asset ratio

A

total liabilities / total assets

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22
Q

Funded debt to EBITDA

A

interest bearing debt / EBITDA

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23
Q

What are some prof ratios

A

Gross margin
operating margin
net prof margin

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24
Q

What does EBIT stand for

A

earnings before interest and tax

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25
Whats another term for EBIT
Operating income
26
Gross margin ratio formula
Gross prof / revenues
27
Operating margin ratio formula
Operating Income (EBIT) / revenues
28
Net profit margin ratio formula
Net income (profit) / revenues
29
Are higher numbers for prof ratios better
yes
30
What do efficiency ratios demonstrate
how well a company is utilizing its assets
31
Asset turnover ratio formula
revenues / total assets
32
Inventory turnover ratio
cost of goods sold / average inventory
33
Receivable turnover ratio
revenues / average accounts receivable
34
Are higher efficiency ratios better
yes
35
What should be observed and compared for efficiency ratios
are they trending up or down how do they compare to industry averages
36
What do liquidity ratios demonstrate
ability to pay short term debts
37
Current ratio
currents assets / current liabilities
38
Is a higher current ratio better
yes
39
What is another name for current ratio
working capital ratio
40
What does capital look at
Working capital leverage other capital sources
41
What is working capital referring to
the quality of the capital and the management
42
What are some examples of working capital
accounts receivable accounts payable inventory
43
In Capital, what are some consids for leverage
How well would they be able to handle a downturn Are the owners significantly invested What are the maturity dates of its interest bearing debt
44
Generally, what does the term funded debt referr to
debt that is interest bearing
45
What are some other sources of capital
Can they raise funds public or private assets that arent used in the business but could be sold ability to access new debt
46
What are some consids for colateral
Marketable - would others want it Ascertainable - Easy to price the asset stable - is the value stable transferable - can ownership transfer easily
47
What does Conditions look at
Industry attractiveness competitive advantage Specific loan conditions
48
What are some frameworks of assessing an industry in Conditions
Porters 6 Forces PEST analysis
49
What is Porters 6 forces
50
What does Intensity of industry rivalry mean in porters 6 forces
How many competitors are there? Is the amount growing?
51
What does Threat of potential entrants mean in porters 6 forces
What are the barriers to entry? Are there any new entrants we know of?
52
What does Bargaining power of buyers mean in porters 6 forces
Is there a large or small customer base? Do buyers have power over influence how the business in run
53
What does Bargaining power of suppliers mean in porters 6 forces
Are there many or few suppliers
54
What does Threat of substitute goods/services mean in porters 6 forces
Industry gamechangers to be aware of? Are there other subsitutes that might meet customer needs?
55
What does Power of complementary goods/service providers mean in porters 6 forces
What complements add value to the product If complements are weak and unattractive they could threaten growth and prof
56
What is a PEST analysis + environ and legal
57
What does Political mean in PEST+EL analysis
Future legislation that could affect industry or the business
58
What does Economic mean in PEST+EL analysis
Whats the current economic forcast? Where are we in the business cycle?
59
What does Social mean in PEST+EL analysis
social or demographic trends that could impact
60
What does Technological mean in PEST+EL analysis
Lots of innovations coming out? Is constant R&D a require for success in the industry
61
What does Environmental mean in PEST+EL analysis
How are environ concerns and regs going to affect the industry
62
What questions are we asking when doing a competitive position analysis
Has the comp managing risk of threats? * Do they understand their own strengths and weaknesses? * What are the critical success factors required for the company’s own sustainability?
63
What is common analysis for assessing competitive position
SWOT analysis Internal factors: Strengths and weaknesses External factors: Opportunities and Threats
64
What are considered lower risk loan conditions
Demand loan full package of covenants Asset backed collateral monthly repayment
65
What are considered higher risk loan conditions
Term loans basic convenants Unsecured collateral Bullet payment at maturity
66
What is the point of assessing Porters 6 forces
analyze industry attractiveness
67
What is the point of doing a PESTEL analysis
assess general business conditions
68
What is the point of a SWOT analysis
assess the competitive position of the company

Commercial Banking and Credit Analysis (3 decks)

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