1. Explain me what Is a Good Debt-to-Equity Ratio?
You should definitely have a good, solid answer ready for this question, since the debt-to-equity (D/E) ratio is a key, if not the primary, financial ratio considered in evaluating a company's ability to handle its debt financing obligations. The D/E ratio indicates a company's total debt in relation to its total equity, and it reveals what percentage of a company's financing is being provided by debt and what percentage by equity. Your answer should show you understand the ratio and know that, generally speaking, ratios lower than 1.0 indicate a more financially sound firm, while ratios higher than 1.0 indicate an increasing level of credit risk.
Beyond that, it should be noted that average D/E ratios vary significantly between sectors and industries. A more solid credit risk analysis includes an examination of the current state of the industry and the company's position within the industry, as well as consideration of other key financial ratios such as the interest coverage ratio or current ratio.
2. Do you know what is 'Macroeconomics'?
Macroeconomics is a branch of the economics field that studies how the aggregate economy behaves. In macroeconomics, a variety of economy-wide phenomena is thoroughly examined such as, inflation, price levels, rate of growth, national income, gross domestic product and changes in unemployment.
It focuses on trends in the economy and how the economy moves as a whole.
3. Tell me what is 'Gross Domestic Product - GDP'?
Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well. GDP includes all private and public consumption, government outlays, investments and exports minus imports that occur within a defined territory. Put simply, GDP is a broad measurement of a nation's overall economic activity.
4. Do you know what is the 'Prime Rate'?
The prime rate is the interest rate that commercial banks charge their most credit-worthy customers. Generally, a bank's best customers consist of large corporations. The prime interest rate, or prime lending rate, is largely determined by the federal funds rate, which is the overnight rate that banks use to lend to one another; the prime rate is also important for individual borrowers, as the prime rate directly affects the lending rates available for a mortgage, small business loan or personal loan.
5. Do you know what is a 'Municipal Bond'?
A municipal bond is a debt security issued by a state, municipality or county to finance its capital expenditures, including the construction of highways, bridges or schools. Municipal bonds are exempt from federal taxes and from most state and local taxes, making them especially attractive to people in high income tax brackets.
6. Tell me what is 'Interest Rate'?
Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include, cash, consumer goods, large assets, such as a vehicle or building. Interest is essentially a rental, or leasing charge to the borrower, for the asset's use. In the case of a large asset, like a vehicle or building, the interest rate is sometimes known as the "lease rate". When the borrower is a low-risk party, they will usually be charged a low interest rate; if the borrower is considered high risk, the interest rate that they are charged will be higher.
7. Explain me what are 'Profitability Ratios'?
Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or relative to the same ratio from a previous period indicates that the company is doing well.
8. Tell me what is a 'Market Index'?
A market index is an aggregate value produced by combining several stocks or other investment vehicles together and expressing their total values against a base value from a specific date. Market indexes are intended to represent an entire stock market and thus track the market's changes over time.
9. Tell me are you familiar with this company?
Every work environment has a unique culture. Furthermore, each financial company will have its own way of completing important tasks. If you want to be immediately effective in your prospective position, it helps to understand what you are jumping into. As such, the hiring manager wants to gauge your background knowledge. Whether you gathered your own information or had the help of a recruiter, now is the time to give a snapshot of what you already know.
10. Explain your programming and modeling experience?
Credit analysts should have modeling skills. It pays to be proficient in MATLAB, SAS, C++, Moody's KMV, VB/VBA, and SQL. Individuals with systems development expertise are sure to get snatched up.
11. Explain me how do you value a company?
The most common methods are DCF valuation / financial modeling and relative valuation methods using comparable public companies (“Comps”) and precedent transactions (“Precedents”).
12. Tell me what Are the Most Important Characteristics of a Credit Analyst?
This question will allow your interviewer to discover the ways in which you will perform the tasks at hand. Although you can feel free to relay information about your best qualities, you should always include some information about your analytical skills in your answer. After all, it will be your duty to study your clients and customers as well as the market in order to determine whether the extension of credit is feasible. “I feel that analytical skills, the ability to communicate effectively and solid decision-making skills are all very important to be a successful credit analyst” is a great answer. Be sure to elaborate a little on each characteristic.
13. Do you know what is Free Cash Flow?
Free cash is equal to cash from operation less capital expenditures.
14. Explain me about your technical expertise in credit analysis?
This is when you need to bring up your specific skills in credit analysis, risk and valuation. A quantitative background is a great thing to have. Show that you also have a strong understanding of VAR, CVaR, PFE and portfolio analysis tools.
15. Tell me are you a capable of sound financial analysis?
It is only logical that a credit analyst should be proficient with financial analysis. As a result, some credit analyst interview questions and answers will revolve around your financial capabilities. You be expected to have a working knowledge of cash flow, market shares, income growth, calculating debt to income ratios and more. Brush up on these skills before your interview appointment to make sure you are adequately prepared for this question.
16. Tell me what is 'Debt Security'?
Debt security refers to a debt instrument, such as a government bond, corporate bond, certificate of deposit (CD), municipal bond or preferred stock, that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount borrowed), interest rate, and maturity and renewal date. It also includes collateralized securities, such as collateralized debt obligations (CDOs), collateralized mortgage obligations (CMOs), mortgage-backed securities issued by the Government National Mortgage Association (GNMAs) and zero-coupon securities.
17. Explain me what is 'Currency'?
Currency is a generally accepted form of money, including coins and paper notes, which is issued by a government and circulated within an economy. Used as a medium of exchange for goods and services, currency is the basis for trade.
18. Explain me what is a 'Derivative'?
A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.
19. Do you know what is a 'Dividend'?
A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.
20. Explain me what is 'Debt Security'?
Debt security refers to a debt instrument, such as a government bond, corporate bond, certificate of deposit (CD), municipal bond or preferred stock, that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount borrowed), interest rate, and maturity and renewal date. It also includes collateralized securities, such as collateralized debt obligations (CDOs), collateralized mortgage obligations (CMOs), mortgage-backed securities issued by the Government National Mortgage Association (GNMAs) and zero-coupon securities.
A security is marginable if it can be traded on margin through a brokerage or other financial institution. Securities with high liquidity and market capitalization are more likely to be marginable. Other securities, such as stocks priced below $5/share, are not marginable.
The rules governing which securities are marginable and which are not are set out in Regulation T and Regulation U of the Federal Reserve. Self-regulatory organizations such as the NYSE and FINRA are also involved in the regulatory process. Although individual brokers can adopt their own requirements, they must be at least as strict as those prescribed by law.
22. Do you know what is 'Value'?
The monetary, material or assessed worth of an asset, good or service. In accounting, value describes what something is worth in terms of something else. For example, the value of a loaf of bread might be $3; the $3 for the loaf of bread would represent the generally accepted worth of the bread.
In economics, value describes the merit of the benefits of ownership. The benefits of ownership include utility, the pleasure or satisfaction gained by consumption of a particular good or service; and power, the ability of a good or service to be exchanged for other goods, services or money.
23. Explain me what is 'Fiscal Policy'?
Government spending policies that influence macroeconomic conditions. Through fiscal policy, regulators attempt to improve unemployment rates, control inflation, stabilize business cycles and influence interest rates in an effort to control the economy. Fiscal policy is largely based on the ideas of British economist John Maynard Keynes (1883–1946), who believed governments could change economic performance by adjusting tax rates and government spending.
24. Explain me are you skilled in financial analysis?
Financial analysis is part of the job. Analysts must understand things like financial and cash-flow statements, market share, management accounts, income growth, etc. They are required to generate financial ratios to understand a customer's financial situation.
25. Tell me what are the steps and processes you follow for considering credit to a customer?
The analyst's job is to analyze customers, as well as the market. The analyst must know how safe the playing habits of the client are. The analyst studies customer records and meets customers regarding various issues.
