Financial Statement Analysis for Credit Decisions Course

Lesson 1 • Structure of the Balance Sheet

Examines assets, liabilities, and equity classifications and their credit relevance. Connects balance sheet structure to borrower financial position.

Lesson 2 • The Financial Reporting Framework

Introduces accounting principles and reporting standards that govern financial statements. Establishes the conceptual basis for all subsequent analysis.

Lesson 3 • Statement of Changes in Equity

Analyzes movements in retained earnings, paid-in capital, and reserves. Shows how equity changes signal financial health or risk.

Lesson 4 • Cash Flow Statement Essentials

Explains the three cash flow sections and their derivation methods. Demonstrates why cash flow differs from reported net income.

Lesson 1 • Navigating Financial Statement Notes

Identifies the types of disclosures embedded in footnotes and their analytical value. Grounds analysts in information sources beyond the face statements.

Lesson 2 • Auditor Reports and Opinion Types

Distinguishes unqualified, qualified, adverse, and disclaimer opinions. Connects audit opinion type to credit risk assessment.

Lesson 3 • Accounting Policy Choices and Their Effects

Examines how management's accounting choices affect reported figures. Prepares analysts to adjust for policy differences across borrowers.

Lesson 1 • Profitability Ratios

Evaluates gross, operating, and net margins alongside return metrics. Ties profitability to a borrower's ability to service debt.

Lesson 2 • Efficiency and Activity Ratios

Assesses asset utilisation through turnover and cycle metrics. Reveals operational efficiency that affects cash generation.

Lesson 3 • Ratio Benchmarking and Trend Analysis

Applies cross-sectional and time-series comparison to contextualise ratios. Enables analysts to distinguish cyclical from structural deterioration.

Lesson 4 • Leverage and Solvency Ratios

Measures debt burden and long-term repayment capacity using leverage ratios. Links solvency metrics to structural credit risk.

Lesson 1 • Adjusting Reported Cash Flows

Identifies non-recurring and non-cash items that distort reported cash flows. Produces a normalised operating cash flow figure for credit use.

Lesson 2 • Working Capital Dynamics

Analyses changes in receivables, inventory, and payables as cash flow drivers. Connects working capital cycles to liquidity risk.

Lesson 3 • Debt Service Coverage Analysis

Calculates debt service coverage ratios using adjusted cash flows. Directly measures a borrower's capacity to meet scheduled debt payments.

Lesson 1 • Intercompany and Consolidation Adjustments

Addresses consolidation eliminations and intercompany transactions in group analysis. Ensures credit analysis reflects the true economic entity.

Lesson 2 • Adjusting for Accounting Standard Differences

Reconciles financial statements prepared under different accounting frameworks. Enables consistent comparison across borrowers using different standards.

Lesson 3 • Off-Balance-Sheet Exposure Identification

Locates and quantifies obligations not fully reflected on the balance sheet. Corrects understated leverage in credit analysis.

Lesson 4 • Earnings Quality and Normalisation

Strips non-recurring items and accounting distortions from reported earnings. Produces a sustainable earnings base for coverage analysis.

Lesson 1 • Dimensions of Credit Risk

Defines probability of default, loss given default, and exposure at default. Establishes the conceptual model underlying all credit decisions.

Lesson 2 • Structuring the Credit Recommendation

Guides analysts in synthesising financial and qualitative findings into a credit memo. Produces a clear, defensible credit recommendation.

Lesson 3 • Internal Credit Rating Methodologies

Explains scorecard design, weighting, and calibration for internal ratings. Connects rating outputs to pricing and approval decisions.

Lesson 4 • Qualitative Credit Risk Factors

Evaluates management quality, competitive position, and industry dynamics. Complements quantitative analysis with non-financial risk drivers.

Lesson 1 • Capital-Intensive Sector Analysis

Addresses unique risks in asset-heavy industries including capex cycles and asset values. Adapts leverage and coverage analysis for capital-intensive borrowers.

Lesson 2 • Service and Intangible-Asset Businesses

Analyses credit risk in businesses where value resides in people, brands, or contracts. Identifies unique vulnerabilities absent from traditional asset analysis.

Lesson 3 • Cyclical vs. Defensive Industries

Distinguishes cyclical sensitivity from defensive stability in revenue patterns. Adjusts credit standards and covenant thresholds accordingly.

Lesson 1 • Revenue and Margin Stress Scenarios

Models the impact of revenue decline and margin compression on debt service. Identifies the revenue floor at which a borrower defaults.

Lesson 2 • Integrating Stress Results into Credit Decisions

Translates stress test outputs into credit limit, pricing, and covenant recommendations. Closes the loop between analysis and actionable credit decisions.

Lesson 3 • Stress Testing Fundamentals

Defines stress testing objectives, types, and design principles for credit analysis. Establishes the methodology used throughout the chapter.

Lesson 4 • Collateral and Recovery Analysis

Estimates collateral values under stress and calculates expected recovery rates. Informs loan structuring and loss provisioning decisions.