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 credit analyst notices a company's accounts receivable has grown significantly faster than its revenue. This pattern most likely indicates:
Answer: Potential revenue recognition issues or deteriorating collection performance
Receivables growing faster than revenue suggests the company may be booking revenue before cash is collected, extending lenient credit terms, or facing collection problems.
What is the 'Five Cs of Credit' framework used to evaluate?
Answer: A borrower's creditworthiness across character, capacity, capital, collateral, and conditions
The Five Cs (Character, Capacity, Capital, Collateral, Conditions) provide a comprehensive framework for assessing a borrower's ability and willingness to repay a loan.
A 'cross-default' clause in a loan agreement means:
Answer: Default on one debt obligation triggers default on the loan containing the clause
A cross-default provision protects lenders by declaring a loan in default if the borrower defaults on any other material debt obligation, preventing selective default.
In financial statement analysis, 'off-balance sheet' items are important because they:
Answer: Represent obligations or risks not directly visible on the balance sheet but affecting creditworthiness
Off-balance sheet items such as operating leases, letters of credit, and contingent liabilities represent real financial exposures that must be considered in a complete credit analysis.
Which type of analysis compares a company's financial ratios against industry peers or benchmarks?
Answer: Cross-sectional (comparative) analysis
Cross-sectional analysis benchmarks a company's ratios against competitors or industry averages to assess relative performance and identify strengths or weaknesses.
When a loan is classified as 'substandard' under regulatory guidelines, it means:
Answer: The loan has well-defined weaknesses that jeopardize repayment but loss is not yet certain
A 'substandard' classification indicates the loan has well-defined credit weaknesses making full repayment doubtful, but definitive loss has not yet been determined.
The DuPont analysis breaks down Return on Equity (ROE) into which three components?
Answer: Net profit margin, asset turnover, and financial leverage
DuPont analysis decomposes ROE into net profit margin (profitability), asset turnover (efficiency), and equity multiplier (financial leverage) to identify the drivers of shareholder returns.