Credit Analysis (the study and analysis of risk inherent in a financial transaction) is an indispensable part of the lending and leasing business. Financial Analysis is a major part of that credit analysis. A successful credit analyst is normally a fairly well-heeled financial analyst, but being a good financial analyst is not synonymous with being a good credit analyst. The difference is judgment based on the experience of the analyst.

Financial or statement analysis, as a part of credit analysis, must be accompanied by the whys and wherefores of change, the effects of change, and the implications of projected change. Credit analysis is not rigid in its approach; it is flexible. View credit analysis as a systematic approach to decision-making, putting pieces of a puzzle together, weighing the “pros" and “cons" of a transaction, and being both subjective and objective.

Credit decisions are made by relying on personal judgment and experience, absent of perfect information, but should only be made with the benefit of sufficient information to render an informed decision. Credit analysis is not an intellectualized or scientific game. The credit analyst must live with his/her decisions. They must watch the outgrowth of their decisions daily, making adjustments as needed, and in some cases reversing positions substantially or completely.

(posted on Linkedin)