Sign Florida Banking Credit Memo Later

Industry sign banking florida credit memo later

hello friends welcome to the channel of Wallstreetmojo will we are going to discuss a too-tall on credit analysis topic credit analysis in limit terms great analysis is more about identification of what of risk in situation where a potential for landing is observed by the banks both quantitative and qualitative assessment forms a very part of the overall appraisal of the clients in terms of companies and individuals so this in general helps to determine the entity's debt servicing capacity or its ability to repay in this particular Too - tall we are going to look at create analysis from them from beginners point of view now what is created on as a secret analysis is basically a process of drawing conclusions from available data it can be both qualitative and quantitative regarding the credit worthiness of the entity and making recommendations regarding the perceived needs and risk so credit analysis is also concerned with the identification and evaluation and mitigation of the risk associated with an entity's failing to meet financial commitments let's understand the credit analysis process now below is the diagram that shows the overall credit analysis process it starts from proposal then inspection is done and and then then financial secured scrutiny and market review post that scenario there is a presentation of the proposal that is done and it has been pitched the sanction of the assessment after after screening or various things which are important enough the data coalition is done any analysis of various parameters or any any nitty gritties that needs to be followed a credit rating is done presentation for these sanctions and if there are any cancellations and things that needs to be added and all is been done some terms and conditions which needs to be pitched in because if that will be formed that will form a part of it so that any conflict of interest can be avoided and then for a final thing is the approval of the process so what does a credit analyst look for see ever wondered why bankers ask so many questions and make you will so many forms when you apply for a loan don't some of them feel intrusive and repetitive and whole process of submission of various document seems cumbersome you just try to fat them as to what they do with all this data huh and what they are actually trying to assert him it is definitely not only your your your deadly chaja will attract a personality that makes you good potential borrower obviously there is more to that particular story so here will try to gain get an idea about what exactly a credit analyst is looking for so it is bifurcated into the Phi C's the first C is going to be the character now this character this is a part where the general impression the impression of the protective borrower is analyzed the lender forms a very subjective opinion about the trust worthiness of the entity to repay its loan discreet inquiry is a background and experience level market opinion at various other sources can be availed to collect qualitative information and then an opinion can be found whereby he can take a decisions about the character of the entity the second C is called the capacity the capacity over here refers to the ability of the borrower to service the loan from the profit generated by the investments now this is perhaps the most important of the 5 factors the LAN the lenders will will calculate exactly how the repayment is supposed to take place and cash flows from the business from the timing of payment of a repayment and probability of the successful or repayment of the loan and payment of history and such of the factors are considered to arrive at probable capacity of the entities to repay the loan so the first C was character the second was capacity the third is capital the capital is the borrower's own skin of the business this is seen as the proof of the borrower's commitment to the business this is an indicator how much the borrower's is at risk if the business fails and lenders expect a decent contribution from the borrower own asset and personal financial guarantee to establish that they have committed their own funds before asking for the funding so good capital goes on to strengthen trust between the lender and the borrower the next is the collateral or the guarantees the collateral are the form of security that the borrower provides to the lender to of to appropriately loan in case it is not repaid from the returned as established at the time of availing the facility guarantees on the other hand are the documents promising the repayment of the loan from someone else generally from family members or friends if the borrower fails to repay the loan getting adequate collateral or guarantee it has made deemed fit to cover partly or wholly the loan amount bears huge significance so this is a way to mitigate the default risk many times collateral security is also used to offset any distasteful factors that may have come to forefront during the assessment process conditions that describes the purpose of the loan I mean that's the last thing the conditions that lassie condition describes the purpose of the loan as well as the terms under which the facilities sanction purposes can be working capital purchases of additional equipment inventory or for long term investment so the lender considers various factors such as macroeconomic conditions currency positions and industry health before putting forth the condition for the facilities let's analyze the credit analysis case study from the time immemorial immemorial there has been an internal conflict between the entrepreneur business and an N and bankers regarding the quantification of the credit the resentment on the part of the business owner arises when he believes that the bankers might not be fully appreciating his business requirement needs and might be underestimated the real scale of the opportunity that is assessable to him provided he gets sufficient quantum of loan however the credit analysis might be having his own reasons to justify the amount of risk his ready to bear which may include bad experiences with that particular sector or his own assessment of the business requirements many a times there are also internal norms or regulations which forced the analyst to follow a more restrictive de course so the most important point to realize is that banks are in the business of selling money and therefore the risk regulations and restrain a very fundamental the whole process therefore the loan products available to the prospective customers the terms and conditions set for availing the facility and the steps taken by the bank to protect its assets against the default all have a very direct forbearance to the proper assessment of the great so let's have a look at of what does a loan proposal look like the exact nature of the proposals may vary depending on the subsequent glance but the elements are generally the same to put things in a perspective let's consider the example of one sanjay Saleha who is credit to credit it to be or one of the biggest default has in recent history along with being one of the biggest businessman in the world he owns multiple companies some sports franchisee and few bank knows in all major cities who is the clients Exxon jessileah reputed industrialists owning majority share in X Y Z limited and some others second the quantum of credit they need and let X starting a new ally division which would cater to the high and segment of the society credit demands in closer to 25 million needed over the next 6 months third the specific purpose the credit will be employed for X acquiring of new aircrafts and capital for day-to-day operations like fuel cost of a emoluments airport parking charges and etc fourth visa means to service debt obligation which include application and processing fees interest principles and other statutory charges fifth what protections I mean collateral can client provide to in the event of default multiple bungalows in prime locations offered as collateral along with the personal guarantees of mr. Sanjay celaya was one of the most reputed businessman in the world what of the key areas of the business and how are they operated and monitor that is a 0.6 detailed reports will be provided on all key metrics related to the business so the answer to this question helps the credit analyst who understand the broad risk associated with the proposed loan and this question provides the very basic information about the client and helps the analyst to get at very deeper in business understanding in the intrinsic risk associate rule in now credit analyst he obtaining the quantitative data of the clients other thing above the questions the analyst also needs to obtain quantitative data specific to the client the first is borrowers history the First is borrowers history and that is the first is borrowers history a brief background of the company its its capital structure its founder stages of development plans for growth list of customer supplies service providers management structures products and also to information are exhaustively collected to form a very fair and just opion about the company as I can is your market data and basically the specific industry trend over here has been analyzed the size of the market the market share the assessment of the competition competitive advantage marketing public relations and any relevant future trends are studies to create a very holistic expectations of the future moments and needs the third is that we analyze is the financial information that is the third thing now what includes it includes the financial statements that is the best case expected or case worst case I mean tax returns company valuations and appraisal of assets current balance sheets credit references and all other similar documents which can provide an insight into the financial health of the company and a scrutinized in a very great in detail the fourth thing that has been analyzed over here is the schedules and the exhibits now over here certain key documents and such as like agreements with vendors and and customers and insurance policies lease agreements pictures of the products or size should be appended as exhibits to the loan proposal as a proofs of these specifics as judged by the above-mentioned indicators it must be understood that the credit analyst once convinced will act as lance advocate in presenting the application the bank's loans committee and also guiding it through the bank's internal procedures the details obtained are also used to finalized the loan documentation terms rates and any special covenants which needs to be stipulated keeping in mind the business framework of the client as well as the macroeconomic factors now the credit analysis judgment after collecting all the information now the analyst has to make a real judgment regarding the different aspects of the proposal which will be presented to the sanctioning committee the first thing that it includes is the loan okay as a part of the judgment after understanding the need of the client one of the many types of the loans can be tailored to suit the client's need amount the money maturing maturity the loan expected user the proceeds can be fixed depending upon the nature of the industry and creditworthiness of the company the second is company now the market share of the company includes I mean products and services offered major suppliers clients competitors should be analyzed to ascertain its dependency on such factor the third thing of analysis is credit history credit history fast is a very important parameter of or to predict the future so therefore keeping in in line with the conventional wisdoms clients pass credit accounts should be analyzed to check any irregularities or defaults so this also allows the analyst to judge the kind of the client we are dealing with and by checking the number of times late payments were made or what penalties were imposed due to non-compliance with stipulated norms okay the fourth important thing is the analysis of the market see analysis of the of the concerned market is of the utmost importance as this helps us in identifying and evaluating the dependency of the company on external factors market structures size and amount of the concerned clients product and clients product are important factors that analysis the analysts are concerned with the credit errors ratio a company's financial contains the exact picture of what business is going through and this quantitative assessment bears the it bore significance analyst considers various ratios and financial instruments to arrive at this picture what are though what are those particular ratios which the analyst analyzes the first is the liquidity ratios is the first thing that the analyze this ratios deals with the ability of the company to repay its creditors expenses etc so this ratios are used to arrive at the cash generation capacity of the company a profitable company does not imply that it will meet all differential commitments the second type of ratio that is a solubility ratio solubility ratios now this ratios deals with the balance sheet items and are used to charge the future path of the company which may follow the third is solvency ratio solvency ratios I mean basically in this ratios are they specifically used to judge the risk involved in the business this I mean this particular ratios takes into account the picture of the increasing amount of the debts which may be adversely affected by the long-term solvency of the company the fourth type of the ratio that has been used is which they use for analyzing profitability ratios and basically this ratios show the ability of the company to earn unsatisfactory profit over the period of time the fifth type of ratio is the efficiency ratios and this particular ratios provide the insights in the management's ability to earn a return on the capital in the world and the control they have on the expenses sixth type is close enough to cash flow and projected cash flow analysis projected cash flow analysis now cash flow statement is one of the most important instrument available to the credit analysis as I mean this helps to gouge the exact nature of the revenue and the profits flow so this helps them to get a very true picture about the movement of the money in and out of the business the seventh type of analyst analysis of ratio is collateral analysis okay now any security provided should be marketable stable and transferable because this factors are very highly important as failure on any of this France will lead to complete failure of the obligation and the last and the most thing most important is the SWOT analysis if you have heard about it SWOT analysis is strength weakness or fortunately and threats if this is again various objective analysis which is done to align the expectations and current reality with the market condition now the credit rating the credit rating is the quantitative method using a statistical model to assess the credit worthiness based on the information of the borrower most banking information of the borrower most banking institutions have their own rating mechanism this is done to judge under which this category the borrower Falls and this also helps in determining the terms and condition of various model use multiple quantitative and qualitative fields to charge the borrow many bands also use the external rating agencies like Moody's Fitch SNP I started in fluor which is also known as etc to rate the borrowers which then forms a very important basis for consideration of the loan what is the lessons water what is the lesson that we have learned from mr. Sanjay celaya so let's illustrate the whole excess with the help of an example of mr. Sanjay celaya who is a liquor parent and hugely respected industrialist who also happens to own him very few sports franchises and it has a bungalow in the most expensive locals he now wants to start his own airline and has therefore approached you for a loan to finance the same the loan is is from for a migrate of close enough to 1 million so as a credit analyst we have to assess whether or not to go forward with the proposal to begin with will obtain in all the required documents which are needed to understand the business model working plan with other details of new proposal business necessary inspection and inquiries undertaken to validate the veracity of the documents but techno-economic viability can also be used to undertake to get an opinion from the experts in aviation industry about the viability of the plan when finally when we are satisfied with the overall efficacy of the plan we can discuss the securities that will be that will collaterally cover our loan that is partly or fully mr. Sanjay celaya being a very established industrialist holds a very good reputation in the business world and therefore will hold very good recommendations and such a proposal if met all of the aspects can be presented for sanctions comfortability and comfortably and generally enjoys a very good terms from the bank's light as a risk associate with such personalities are always assessed to be less therefore to conclude mr. Sanjay celaya will get a loan of $1,000,000 approved and will go on to start a airline business however the future holds can never be predicted when a loan is sanctioned now let's make the final conclusion on this particular note credit analysis is about making decisions keeping in mind the past present and future as a credit analyst 2 days in life are never the same so the role the role offers a plethora of opportunities to learn and understand different types of business as one engages with the multitude of the clients hang a hailing from different sectors not only is the career monetary rewarding but also helps individual growing along with the providing good opportunities to building one's career thank you