Learning Objectives:

  • Analyse business financial statements for credit assessment.

  • Perform ratio analysis, trend analysis, and common-size analysis.

  • Understand how financial statements are used to assess repayment capacity.

3.1 The Importance of Financial Statement Analysis

Financial statement analysis is central to commercial lending . As the FIN 438 course notes, the focus is “specifically focusing on the analysis of a firm’s financial statements to determine the creditworthiness of a loan request” . The Illinois Bankers Association course covers “Financial Accounting 101 for Lenders” and “Types and Quality of Financial Statements” as core topics . The FFIEC ACCA course requires a “solid foundation in the analysis of business financial statements, basic accounting, and the sources and uses of cash” .

3.2 Analytical Techniques

The Illinois Bankers Association course covers several key analytical techniques :

  • Trend Analysis: Comparing financial data across periods.

  • Common-Size Analysis: Expressing each line item as a percentage of a base figure.

  • Ratio Analysis: Calculating and interpreting key financial ratios.

  • Industry Analysis: Comparing the borrower’s performance to industry benchmarks .

The “Credit Risk Analysis – Financial Statement Analysis” component of the SMU Academy course covers “Financial Performance Analysis, Financial Health Analysis, and Cashflow Statement Analysis” . The FFIEC course emphasises completing a “qualitative and quantitative analysis of a business” .

 
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