Credit Analyst Interview Questions
Below are real examples of the most common questions (and answers) used to hire credit analysts at banks.
Below are real examples of the most common questions (and answers) used to hire credit analysts at banks.
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. So these would have 0-20% debt to capital. Other industries like 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 like debt to capital, debt to EBITDA, and interest coverage. If all of these metrics are within the bank’s parameters it may be possible to lend the money, but will still 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 cannot 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 less capital expenditures (levered). There is also unlevered free cash flow 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 Ratio.
What is the interest coverage ratio?
This is commonly considered EBIT divided by interest expense. This is also referred to as “times interest earned”.
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 either use an exit multiple or the Gordon Growth (growing perpetuity) 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.
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 & answers you may find helpful:
In addition to the above interview guides, we have several other resources that are extremely helpful from becoming a credit analyst.
Our interactive career map is one of our most valuable tools for understanding how various jobs fit in 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!