Financial Analysis Flashcards

A borrower earns $4,000 gross per month and has $1,200 in monthly debt payments, including a proposed car payment. What is the debt-to-income (DTI) ratio?

Answer: 30%

DTI equals total monthly debt divided by gross monthly income, so $1,200 / $4,000 = 30%.

A borrower's proposed auto payment is $500 and gross monthly income is $3,125. What is the payment-to-income (PTI) ratio?

Answer: 16%

PTI is the vehicle payment divided by gross monthly income: $500 / $3,125 = 16%.

A vehicle is valued at $20,000 and the amount financed is $24,000. What is the loan-to-value (LTV) ratio?

Answer: 120%

LTV equals amount financed divided by collateral value: $24,000 / $20,000 = 120%.

Which situation best describes negative equity in an auto loan?

Answer: The loan balance is higher than the vehicle's market value

Negative equity, or being 'upside down,' means the borrower owes more than the vehicle is worth.

An indirect auto lender buys a $15,000 retail installment contract from a dealer for $13,500. What is the dealer discount as a percentage of the contract amount?

Answer: 10%

The discount is $1,500, and $1,500 / $15,000 = 10% of the contract amount.

Which financial statement shows a company's assets, liabilities, and equity at a single point in time?

Answer: Balance sheet

The balance sheet is a snapshot of financial position on a specific date.

Under the CECL standard (ASC 326), how must lenders estimate credit losses on loans?

Answer: Expected lifetime losses from the time the loan is originated

CECL requires lenders to record expected credit losses over the full contractual life at origination.