• What is CRA’s

Agencies or institutions that analyse stocks or other investment products and issue a credit rating that
highlights the credit worthiness of a company/investment product are called CRAs. CRAs have been
responsible for providing opinions, after an in-depth analysis, on entities for the larger part of the
past century.
CRAs in India are regulated by the SEBI. The top CRAs in India are as listed below:

o Credit Rating Information Services of India Limited (CRISIL)

o ICRA Limited (ICRA)
o Credit Analysis & Research Limited (CARE)
o India Ratings & Research Pvt. Ltd.
o Small & Medium Enterprises Rating Agency of India (SMERA)
o Brickwork Ratings (BWR)

• Explain the Process of Credit Analysis?

o Proposal
o Inspection
o Financial scrutiny
o Market Review
o Presentation of proposal
o Sanction for Assessment
o Data collection
o Analysis of various parameters
o Credit rating
o Presentation for sanction
o Terms & conditions established
o Proposal Approved

• How do you value a company?

- Three statement model
- DCF model
The Discounted Cash Flow (DCF) valuation model determines the company’s present value by
adjusting future cash flows to the time value of money
Step #1 – Projections of the Financial Statements
Step #2 – Calculating Free Cash Flow to Firm
Step 3- Calculating the Discount Rate
Step 4 – Calculating the Terminal Value
Step 5 – Present Value Calculations
Step 6- Adjustments
Step 7 – Sensitivity Analysis

- Merger Model(M&A)
- Initial Public offering model (IPO)
- Leveraged Buyout Model (LBO) Model
- Sum of the parts Model
- Consolidation Model
- Budget Model
- Forecasting Model
- Option pricing Model

• What is IRR(Internal Rate of return)

IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a
discounted cash flow analysis.
 IRR is ideal for analysing capital budgeting projects to understand and compare potential rates of
annual return over time.

• IRR vs. Return on Investment (ROI)

ROI tells an investor about the total growth, start to finish, of the investment. It is not an
annual rate of return.

• What are the 5Cs of Credit Analysis

• Character – This is a subjective opinion about the trustworthiness of the entity to repay the
loan.
• Capacity – Most important of the 5 factors, Capacity relates to the ability of the borrower to
service the loan from the profits generated by his investments.
• Capital – This means how much the borrower has contributed to the project (own skin in the
game)
• Collateral (or Guarantees) – Security that the borrower provides to the lender to
appropriate the loan in case it is not repaid from the returns as established at the time of
availing the facility.
• Conditions – Purpose of the loan as well as the terms under which the facility is sanctioned.

• What Is a Good Interest Coverage Ratio?

The interest coverage ratio measures a company's ability to handle its outstanding debt
The ratio is calculated by dividing EBIT by the company's interest expense—the higher the ratio, the
more poised it is to pay its debts.
Listed below are some of the main metrics used to assess the default risk of borrowers

• How would you know whether you should lend to a company?

There are many things that I would look at. Firstly, look at all four financial statements for
the last 5 years and analyze how the company has been doing financially. Then look at the
total assets and find out which assets can be used as collateral. And I will also get to know
how the firm has been utilizing its assets. Thereafter, look at the cash inflow and outflow
and would see whether the cash flow is enough to pay off the total debt plus interest
expense. Also, validate the metrics like debt to capital ratio, debt to equity ratio , interest
coverage ratio, debt to EBITDA. Validate all the metrics of the company are as per the
parameters of the bank Finally, look at other qualitative factors that may reveal something
completely different than the financial figures.

• What is the difference between a debenture and a bond?

 • What is DSCR?

DSCR = Net Operating Income/Total Debt Service

DSCR ratio gives an idea of whether the company is capable of covering its debt-related obligations
with the net operating income it generates.
If DSCR<1, it means that the net operating income generated by the company is not enough to
cover all the debt-related obligations of the company.
If DSCR>1, it means that the company is generating enough operating income to cover all its debt-
related obligations.

• What are the types of Credit Facilities for Companies?

There are two types of credit facilities : Short term loans, mainly for working capital needs.
Short Term loans include overdraft, letter of credit, factoring, export credit, and more.
Long-term loans are required for Capex or acquisition. It includes bank loans, notes,
mezzanine loans , securitization, and bridge loans .