What are Credit Analysis Ratios? Credit analysis ratios are tools that assist the credit analysis process. These ratios help analysts and investors determine whether individuals or corporations can meet their financial obligations. Credit analysis involves both qualitative and quantitative aspects. Ratios cover the quantitative part of the analysis. Key ratios can be roughly separated into…
What is Credit Analysis? Credit analysis is a process undertaken by lenders to understand the creditworthiness of a prospective borrower, meaning how capable (and how likely) they are of repaying principal and interest obligations. The borrower, also known as the debtor, could be an individual or a business entity; the former is referred to as…
What are Flash Crashes? Flash crashes refer to a scenario where the price of bonds, stocks, or commodities suddenly plunges but then quickly recovers. It is called a flash, as the market will crash suddenly but then prices will almost immediately rebound. At the end of the day, the net result appears almost as though…
What is a Direct Listing? A direct listing is a process by which a company can go public by selling existing shares instead of offering new ones. Companies that choose to go public using the direct listing method usually have different goals than those that use an initial public offering (IPO). Direct Listing vs. Initial…
What are Poor Credit Warning Signs? Individuals, specifically those who are are struggling with their personal finances, need to watch out for poor credit warning signs. If you have missed out on your financial obligations for a month or more, the events will be reflected in your credit report. Most people are afraid to check…
What is Expected Default Frequency (EDF)? Expected Default Frequency (EDF) is a credit measure that was developed by Moody’s Analytics as part of the KMV model. EDF measures the probability that a company will default on payments within a given period by failing to honor the interest and principal payments, usually within a period of…
What is an Installment Loan? An installment loan refers to both commercial and personal loans that are extended to borrowers and that require regular payments. Each of the regular payments for the loan includes a portion of the principal amount, as well as a portion of the interest on the debt. The amount of each…
What is Altman’s Z-Score Model? Altman’s Z-Score model is a numerical measurement that is used to predict the chances of a business going bankrupt in the next two years. The model was developed by American finance professor Edward Altman in 1968 as a measure of the financial stability of companies. Altman’s Z-score model is considered…
What is a Simple Capital Structure? A simple capital structure is a capital structure that contains no potentially dilutive securities. In other words, a simple capital structure consists only of common stock, nonconvertible debt, and nonconvertible preferred stock. Types of Capital Structure Simple capital structure Complex capital structure As outlined above, a simple capital structure…
