This page contains videos and excel files that address various credit analysis issues related to credit analysis, financial statement analysis, evaluation of banks and financial institutions and modelling of RAROC (Risk Adjusted Return on Capital). The first lesson set addresses credit scoring, financial ratios and business risk rating for corporate and project finance. After completing the videos and exercises you should be able to get financial data and then compute credit scores. The second lesson set deals with financial analysis and computation of the return on invested capital in a complete way. In addition the page includes selected issues associated with performing analysis of banks. The initial file is an excel model that works through how to compute RAROC from industry risks, company risks and the financial profile of a company. In addition, this page includes a collection of data that have been downloaded using the read pdf excel file. The issues in this section concentrate on the finance theory rather than only the excel techniques.


Lesson Set 1: Using Financial Ratios to Create Credit Scores


The videos and files below demonstrate general principles of credit analysis and credit scoring. The initial videos work through some general ideas of how credit analysis should be performed for project finance and corporate finance. In addition to the excel files I have included a file that contains slides the theory of credit analysis.


The files below describe techniques that can be used to create credit scores. The scoring techniques are largely derived largely from criteria published by Standard and Poor's over the past few years. I complain a lot about the way that S&P scoring is in large part based on judgemental business risk and how this business risk is not properly defined.






Lesson Set 2: Financial Statement Analysis for Credit and Valuation


A while ago I had a bad experience where I was supposed to teach financial statement analysis to a group that wanted to learn basic accounting. The group was demanding much more simple slides and basic principles than I had prepared. I stayed up late and prepared the slides and files below. I do think the exercise in going through the fundamentals of interpreting accounting and then walking through things like valuation of derivatives, deferred taxes, deferred credits, and stock options. I have also prepared the videos below that walk through the slides.






Lesson Set 3: Calculation of Return on Risk Adjusted Capital for Banks


The videos and files below demonstrate issues associated with computing the return on risk adjusted capital for banks and financial institutions. To make this calculation you much input the probability of default for loans. There are a lot of lookup and interpolate functions in this file. To compute probability of default, this file uses various different financial ratios and other qualitative judgements. The interpolate lookup function is used both for computing credit scores from financial ratios and also to compute probability of default and loss given default from the credit scores.









Lesson Set 4: Use of Option Pricing Models for Loan Pricing and Probability of Default Calculation










Lesson Set 5: Financial Models and Financial Analysis of Banks


The videos have not yet been created for these models.










This is the financal analysis for large banks. See the financial ratio download page to see how this is done. Link