Credit Analysis
Credit analysis is the process of evaluating a borrower’s ability to repay debt obligations, assessing the risk associated with lending money to individuals, businesses, or governments. The analysis involves reviewing financial statements, credit history, income, and other factors to determine the borrower’s creditworthiness. Lenders use credit analysis to decide whether to extend credit, what terms to offer, and at what interest rate.
Example
A bank performing credit analysis on a company will review its financial statements, profit margins, debt levels, and cash flow to assess the risk of lending to the business.
Key points
• Credit analysis evaluates a borrower’s ability to repay debt and assesses lending risk.
• Lenders review financial statements, credit history, and income to determine creditworthiness.
• The outcome influences loan approval, interest rates, and terms of borrowing.
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