Credit Analyst Interview Questions

What are the Most Common Credit Analyst Interview Questions?

This guide outlines the most common credit analyst interview questions and what CFI believes are the best answers to them!

In order to ace your next interview, you’ll need to focus on being well rounded, which includes the following:

1. Technical skills (finance and accounting)
2. Social skills (communication, personality fit, etc)

This guide focuses solely on the technical skills that could be tested in a credit analyst interview. To learn more technical skills, check out CFI’s Credit Analyst Certification program. Below are our top credit analyst interview questions.

What is a reasonable debt/capital ratio?

It completely depends on the industry.  Some industries can sustain very low debt to capital ratios, typically cyclical industries like commodities or early-stage companies like startups. These might have a 0-20% debt to capital ratio.  Other industries such as banking and insurance can have up to 90% debt to capital ratios.

Many analysts also use the debt to equity ratio.

How would you decide if you can lend $100 million to a company?

Review all three financial statements for the past five years and perform a financial analysis.  Determine what assets can be used as collateral, how much cash flow there is, and what the trends of the business are.  Then look at metrics such as debt to capital, debt to EBITDA, and interest coverage.  If all of these metrics are within the bank’s parameters, then it may be possible to lend the money, but the decision will depend on qualitative factors as well.

What do the credit rating agencies do?

Rating agencies are supposed to help provide trust and confidence in financial markets by rating borrowers on their creditworthiness of outstanding debt obligations.  They can, however, run into conflicts of interest and should not be blindly relied on for assessing a borrower’s risk profile.

What is the current LIBOR rate?

Quote the current LIBOR rate and talk about the importance of LIBOR as it relates to spreads and pricing of other credit instruments.

What is free cash flow?

Free cash flow is simply equal to cash from operations minus capital expenditures (levered free cash flow). Unlevered free cash flow is used in financial modeling.

What methods do you use to compare the liquidity, profitability, and credit history of a company?

The Current Ratio, Return on Equity (ROE), Return on Assets (ROA), Debt/Capital, Debt/Equity, and Interest Coverage ratios.

What is the interest coverage ratio?

This is commonly calculated as EBIT divided by interest expense.  It is also referred to as the “times interest earned” ratio.  The interest coverage ratio indicates how easily a company can “cover” its interest expense with operating earnings before interest and taxes are subtracted.

What are the most common credit metrics banks look at?

The most common credit metrics include debt/equity, debt/capital, debt/EBITDA, interest coverage, fixed charge coverage, and tangible net worth.

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”).

What do you use for the discount rate in a DCF valuation?

If you are forecasting free cash flows to the firm, you normally use the Weighted Average Cost of Capital (WACC) as the discount rate.  If you are forecasting free cash flows to equity, you use the cost of equity.

How do you calculate the terminal value in a DCF valuation?

Terminal value is calculated either using an exit multiple or the perpetual growth method.

What type of person makes a good credit analyst?

Someone who’s detail-oriented, good with numbers, enjoys research and analysis, likes working independently, and is good at financial modeling and financial analysis, with strong Excel skills.

How do you manage risk in your personal life?

This is where you get to show some personality and demonstrate your ability to think about risk, plus be a good communicator.  There is no right or wrong answer to this question, but you could say something about how you evaluate tradeoffs (upside vs downside), how you put hedges in place to reduce losses, purchase insurance, or you can use a wide range of other examples.

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More Interview Guides

If you’re looking for more practice, there can be a lot of overlap between interview questions for credit analysts and other areas of corporate finance.

Interview questions and answers you may find helpful:

• Investment banking
• Equity research
• Economics
• Behavioral interview questions
• Accounting
• Finance

Other Career Prep Resources

In addition to the above credit analyst interview questions, we have developed an entire program for becoming a certified credit analyst.

Our interactive career map is one of our most valuable tools for understanding how various jobs fit into the overall corporate finance universe.

Additionally, we offer several free courses for financial analysts, which will teach you all the technical skills you need to ace an interview!