Financial and Credit Analysis Flashcards
7 cards from real CU 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 and Credit Analysis flashcards as text
Which financial ratio best measures a company's ability to meet short-term obligations using only its most liquid assets?
Answer: Cash ratio
The cash ratio uses only cash and cash equivalents divided by current liabilities, making it the most conservative liquidity measure.
A borrower's debt-service coverage ratio (DSCR) is 0.85. What does this indicate?
Answer: The borrower cannot fully cover debt payments from operating income
A DSCR below 1.0 means net operating income is insufficient to cover total debt service obligations.
When analyzing a commercial borrower's global cash flow, which of the following is typically included?
Answer: Cash flows from the business plus all related entities and guarantors
Global cash flow analysis consolidates cash flows from the business, related entities, and personal income of guarantors to assess total repayment capacity.
A company shows a high accounts receivable turnover ratio. What does this most likely indicate?
Answer: The company efficiently collects receivables and has strong credit policies
A high accounts receivable turnover ratio indicates the company collects outstanding balances quickly, reflecting effective credit and collection processes.
Which of the following is considered an off-balance-sheet item that underwriters must evaluate?
Answer: Operating leases under old GAAP
Under older GAAP standards, operating leases were not recorded on the balance sheet, requiring underwriters to adjust financial statements to capture true leverage.
In credit analysis, 'normalized earnings' refers to:
Answer: Earnings adjusted to remove one-time, non-recurring, or unusual items
Normalizing earnings removes extraordinary items, owner perks, and non-recurring events to reflect the business's true recurring earning power.
What does a widening credit spread on a corporate bond typically signal to an underwriter?
Answer: Increased market perception of default risk
A widening spread between a corporate bond yield and a risk-free benchmark indicates markets perceive greater default risk for that issuer.