CBP Financial Analysis and Credit Management 2

Question 1

A company has a current ratio of 0.8. What does this indicate?

Accepted Answer

The company has more current liabilities than current assets

Answer

The company is highly profitable

Answer

The company has strong liquidity

Answer

The company's debt-to-equity ratio is below 1

Question 2

Which credit analysis technique involves projecting a borrower's future cash flows to assess repayment ability?

Accepted Answer

Pro forma analysis

Answer

Trend analysis

Answer

Horizontal analysis

Answer

Dupont analysis

Question 3

In commercial lending, what does EBITDA primarily measure?

Accepted Answer

Operating cash flow before non-cash and financing charges

Answer

Net profit after all deductions

Answer

Total asset turnover efficiency

Answer

Book value of equity

Question 4

A loan covenant requiring a borrower to maintain a minimum debt service coverage ratio (DSCR) of 1.25x is an example of what?

Accepted Answer

An affirmative financial covenant

Answer

A negative pledge clause

Answer

A cross-default provision

Answer

A subordination agreement

Question 5

Which of the following best describes the 'quick ratio'?

Accepted Answer

(Current Assets - Inventory) / Current Liabilities

Answer

Current Assets / Current Liabilities

Answer

Cash / Total Liabilities

Answer

Net Income / Total Assets

Question 6

When analyzing a borrower's credit risk, 'concentration risk' refers to:

Accepted Answer

Excessive exposure to a single borrower, industry, or geography

Answer

The risk that interest rates will rise during the loan term

Answer

The probability of default on a specific loan

Answer

The risk of currency fluctuation in international loans

Question 7

Which financial statement is most useful for evaluating a company's ability to repay a term loan?

Accepted Answer

Statement of cash flows

Answer

Balance sheet

Answer

Income statement

Answer

Statement of changes in equity