Definition of 'Credit Analysis'
A type of analysis an investor /or bond portfolio manager performs on companies /or other debt issuing entities encompassing the organisation's ability to meet its debt obligations. The credit analysis finds to identify the appropriate level of default risk associated with investing in that particular entity.
Expertsmind.com 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 & possibly make a profit. For examp., 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.