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. When underwriting a real estate loan, the loan-to-value (LTV) ratio is calculated as:

    Answer: Loan amount divided by the property's appraised value

    LTV equals the loan amount divided by the appraised (or purchase) value of the property, expressed as a percentage.

  2. Which of the following scenarios would most increase credit risk for an underwriter evaluating a manufacturing firm?

    Answer: A single customer representing 60% of revenues

    Heavy customer concentration means the loss of one major client could devastate revenues and severely impair the borrower's ability to repay debt.

  3. What does the term 'covenant lite' refer to in credit underwriting?

    Answer: Loans with few or no financial maintenance covenants for the borrower

    Covenant lite loans have minimal or no ongoing financial maintenance covenants, reducing the lender's ability to detect and respond to early borrower deterioration.

  4. A borrower's interest coverage ratio declines from 5.0x to 1.5x. Which risk is most directly elevated?

    Answer: Default risk

    A falling interest coverage ratio means earnings are barely covering interest expense, substantially raising the likelihood the borrower cannot service its debt.

  5. In analyzing pro forma financial statements submitted by a borrower, an underwriter should be most cautious about:

    Answer: Optimistic revenue growth assumptions without supporting evidence

    Pro forma projections based on unsubstantiated growth assumptions can mask true repayment risk; underwriters must stress-test key revenue drivers.

  6. The 'Z-score' model developed by Edward Altman is used in credit analysis primarily to:

    Answer: Predict the probability of corporate bankruptcy using financial ratios

    Altman's Z-score combines five financial ratios into a single score that discriminates between companies likely to go bankrupt and those that are financially sound.

  7. Which liquidity metric is most useful for evaluating a business with long inventory conversion cycles, such as a homebuilder?

    Answer: Cash conversion cycle

    The cash conversion cycle measures how long it takes to convert investments in inventory and other resources into cash flows from sales, critical for capital-intensive businesses.