http://valuationacademy.com How do Credit Analysts use financial models? — Valuation Academy

How do Credit Analysts use financial models?

Credit Analysts focuses on the ability of a company to service its current or prospective debt. If the company already has debt on its books, the analyst will use financial models to determine if the company has the required cash flow to maintain its payments. If the company fails such metrics, than it may be in violation of the loan agreement covenants and may trigger a renegotiation of credit terms. If the company is looking to take on more debt, the credit analyst will consider among other things, the financial health of the company. The analyst main objective is to determine if the borrower can satisfy, in full, the scheduled interest payments and principal payments. The credit analyst uses financial models to test certain key credit metrics to aid in the decision process.