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

A current ratio below 1.0 means current liabilities exceed current assets, indicating potential short-term liquidity problems.

Question 2

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

Accepted Answer

Pro forma analysis

Answer

Pro forma analysis uses projected financial statements to estimate future cash flows and evaluate a borrower's ability to service debt.

Question 3

In commercial lending, what does EBITDA primarily measure?

Accepted Answer

Operating cash flow before non-cash and financing charges

Answer

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) approximates operating cash flow by excluding non-cash and financing-related charges.

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

An affirmative financial covenant requires the borrower to maintain specific financial metrics, such as a minimum DSCR, throughout the loan term.

Question 5

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

Accepted Answer

(Current Assets - Inventory) / Current Liabilities

Answer

The quick ratio excludes inventory from current assets because inventory is less liquid, providing a stricter measure of short-term liquidity.

(CBP) Certified Banking Professional Practice Test

(CBP) Certified Banking Professional Practice Test

CBP Financial Analysis and Credit Management 2