Financial Analysis and Credit Management Flashcards
7 cards from real CBP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Analysis and Credit Management flashcards as text
A company has a current ratio of 0.8. What does this indicate?
Answer: The company has more current liabilities than current assets
A current ratio below 1.0 means current liabilities exceed current assets, indicating potential short-term liquidity problems.
Which credit analysis technique involves projecting a borrower's future cash flows to assess repayment ability?
Answer: Pro forma analysis
Pro forma analysis uses projected financial statements to estimate future cash flows and evaluate a borrower's ability to service debt.
In commercial lending, what does EBITDA primarily measure?
Answer: Operating cash flow before non-cash and financing charges
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) approximates operating cash flow by excluding non-cash and financing-related charges.
A loan covenant requiring a borrower to maintain a minimum debt service coverage ratio (DSCR) of 1.25x is an example of what?
Answer: An affirmative financial covenant
An affirmative financial covenant requires the borrower to maintain specific financial metrics, such as a minimum DSCR, throughout the loan term.
Which of the following best describes the 'quick ratio'?
Answer: (Current Assets - Inventory) / Current Liabilities
The quick ratio excludes inventory from current assets because inventory is less liquid, providing a stricter measure of short-term liquidity.
When analyzing a borrower's credit risk, 'concentration risk' refers to:
Answer: Excessive exposure to a single borrower, industry, or geography
Concentration risk arises when a lender has disproportionate exposure to one borrower, sector, or region, increasing vulnerability to correlated losses.
Which financial statement is most useful for evaluating a company's ability to repay a term loan?
Answer: Statement of cash flows
The statement of cash flows shows actual cash generated from operations, which is the primary source of loan repayment, making it the most critical document for credit analysis.