Credit Analysis

AAA

DEFINITION of 'Credit Analysis'

A type of analysis an investor or bond portfolio manager performs on companies or other debt issuing entities encompassing the entity's ability to meet its debt obligations. The credit analysis seeks to identify the appropriate level of default risk associated with investing in that particular entity.

INVESTOPEDIA EXPLAINS 'Credit Analysis'

By identifying companies that are about to experience a change in debt rating, an investor or manager can speculate on that change and possibly make a profit. For example, assume a manager is considering buying junk bonds in a company, if the manager believes that the company's debt rating is about to improve, which is a signal of relatively lower default risk, then the manager can purchase the bond before the rating change takes place, and then sell the bond after the change in rating at a higher price.

RELATED TERMS
  1. Credit Business Fellow - CBF

    A designation for achievers who have proven knowledge in intermediate ...
  2. Judgmental Credit Analysis

    A method of approving or denying credit based on the lender's ...
  3. Yield

    The income return on an investment. This refers to the interest ...
  4. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
  5. Junk Bond

    A colloquial term for a high-yield or non-investment grade bond. ...
  6. Default Risk

    The event in which companies or individuals will be unable to ...
Related Articles
  1. Junk Bonds: Everything You Need To Know
    Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

  2. How To Create A Modern Fixed-Income ...
    Investing Basics

    How To Create A Modern Fixed-Income ...

  3. What does investment grade mean?
    Investing

    What does investment grade mean?

  4. Analyzing A Career In Credit Analysis
    Credit & Loans

    Analyzing A Career In Credit Analysis

Hot Definitions
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  2. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  4. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
Trading Center