How to answer this Technical interview question about Financial Ratios for Mid-Level Lending Analyst?

What key financial ratios do you analyze when evaluating a loan application?

Lending Analyst

Technical

Asked at

Citi

Difficulty :

Medium

Explanation

This question assesses your understanding of financial analysis and how you use ratios to evaluate loan applications. Recruiters are looking for candidates who can identify and interpret key ratios to assess creditworthiness and risk. A strong answer will include specific ratios, their relevance, and how they influence lending decisions. Avoid generic responses or failing to explain the significance of each ratio.

Answer Example

When evaluating a loan application, I focus on key financial ratios such as the debt-to-income (DTI) ratio, current ratio, and debt service coverage ratio (DSCR). The DTI ratio helps assess a borrower’s debt burden relative to their income, while the current ratio evaluates liquidity for businesses by comparing assets to liabilities. DSCR measures the ability to cover debt obligations with operating income. For instance, I recently approved a business loan with a DSCR of 1.5, indicating a strong ability to meet debt obligations. These ratios provide a comprehensive view of financial health and repayment capability.

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