CCM Data Analysis & Decision Making 3

Question 1

In a credit risk model, a confusion matrix shows 90 true positives, 10 false negatives, 15 false positives, and 85 true negatives. What is the model's precision?

Accepted Answer

85.7%

Answer

Precision = True Positives / (True Positives + False Positives) = 90 / (90 + 15) = 85.7%.

Question 2

A credit manager uses a decision tree model to approve or deny credit. The model's primary advantage in a credit context is:

Accepted Answer

It provides interpretable, rule-based outputs that can be explained to applicants

Answer

Decision trees produce human-readable if-then rules, which are valuable for regulatory compliance and explaining credit decisions to applicants.

Question 3

Which metric is most useful for assessing the efficiency of a company's collection efforts relative to its credit sales?

Accepted Answer

Collection effectiveness index (CEI)

Answer

The Collection Effectiveness Index measures what percentage of receivables that could have been collected in a period were actually collected.

Question 4

When analyzing a customer's financial statements, a credit manager observes that inventory turnover has dropped significantly while receivables turnover remains stable. This most likely indicates:

Accepted Answer

Potential product obsolescence or weakening sales demand

Answer

A declining inventory turnover with stable receivables turnover suggests the company is struggling to sell inventory, signaling possible obsolescence or demand issues.

Question 5

A credit department tracks the percentage of invoices disputed by customers. This metric is best classified as:

Accepted Answer

A lagging indicator of customer satisfaction and invoice accuracy

Answer

Dispute rates are lagging indicators reflecting past invoice accuracy, billing process quality, and customer satisfaction after delivery.

(CCM) Certified Credit Manager Practice Test

(CCM) Certified Credit Manager Practice Test

CCM Data Analysis & Decision Making 3