Practice Test Geeks(CU) Certified Underwriter Practice Test
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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

  1. Which depreciation method results in the highest net income in the early years of an asset's life?

    Answer: Straight-line

    Straight-line depreciation spreads costs evenly, producing lower early depreciation expense and therefore higher net income compared to accelerated methods.

  2. A borrower's EBITDA is $500,000 and total debt is $3,000,000. What is the debt-to-EBITDA ratio, and how would a typical underwriter interpret it?

    Answer: 6.0x — high leverage, potentially concerning

    A debt-to-EBITDA of 6.0x ($3,000,000 / $500,000) is considered high leverage and raises repayment risk concerns for most lenders.

  3. Which component of the Five C's of Credit evaluates the borrower's track record and reliability in meeting past obligations?

    Answer: Character

    Character refers to the borrower's credit history, reputation, and demonstrated willingness to repay debts as agreed.

  4. An underwriter notices that a company's inventory days outstanding has increased significantly year-over-year. What is the most likely concern?

    Answer: Inventory may be obsolete, overstocked, or demand is weakening

    Rising inventory days can indicate slowing sales, overproduction, or obsolescent stock, all of which may impair cash conversion and liquidity.

  5. Under the indirect method of the cash flow statement, which adjustment is made to reconcile net income to operating cash flow?

    Answer: Add back depreciation and amortization

    Depreciation and amortization are non-cash charges deducted in arriving at net income, so they are added back under the indirect method.

  6. A lender requires a personal guarantee on a commercial loan. This primarily addresses which of the Five C's?

    Answer: Collateral

    A personal guarantee enhances collateral by giving the lender recourse to the guarantor's personal assets if the business defaults.

  7. Which financial statement analysis technique involves expressing each income statement line item as a percentage of net revenues?

    Answer: Vertical (common-size) analysis

    Vertical analysis converts income statement figures to percentages of revenue, enabling comparison across periods and against industry peers regardless of size.