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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

  1. What is the purpose of a loan-to-value (LTV) ratio in real estate lending?

    Answer: To assess collateral coverage relative to loan amount

    LTV measures the loan amount as a percentage of the property's appraised value, indicating how much equity cushion exists to protect the lender in case of default.

  2. In credit scoring, which factor typically carries the MOST weight in a FICO score calculation?

    Answer: Payment history

    Payment history accounts for approximately 35% of a FICO score, making it the single most influential factor in the calculation.

  3. A bank is reviewing a commercial loan where the borrower's interest coverage ratio is 1.1x. How should the credit analyst interpret this?

    Answer: The borrower barely covers interest expense, indicating elevated risk

    An interest coverage ratio of 1.1x means the borrower earns only 10% more than its interest obligations, leaving very little buffer for earnings deterioration.

  4. Which type of credit facility provides a borrower with the ability to draw, repay, and redraw funds up to a specified limit?

    Answer: Revolving credit facility

    A revolving credit facility allows flexible drawdowns and repayments within the credit limit, making it suitable for working capital needs.

  5. When a bank assigns an internal credit rating to a borrower, what is the primary purpose?

    Answer: To estimate the probability of default and set loan pricing and reserves

    Internal credit ratings estimate the likelihood of default, which drives loan pricing (spread), loss provisioning, and regulatory capital allocation under Basel frameworks.

  6. What does 'working capital' represent on a company's balance sheet?

    Answer: Current assets minus current liabilities

    Working capital (current assets minus current liabilities) measures the short-term operational liquidity available to a business for day-to-day operations.

  7. A 'stressed' or 'sensitivity' analysis in credit underwriting is conducted primarily to:

    Answer: Test how the borrower's financials perform under adverse economic scenarios

    Sensitivity analysis stress-tests key assumptions (revenue decline, margin compression) to assess whether the borrower can still service debt under adverse conditions.