CU Financial and Credit Analysis 2

Question 1

Which financial ratio best measures a company's ability to meet short-term obligations using only its most liquid assets?

Accepted Answer

Cash ratio

Answer

The cash ratio uses only cash and cash equivalents divided by current liabilities, making it the most conservative liquidity measure.

Question 2

A borrower's debt-service coverage ratio (DSCR) is 0.85. What does this indicate?

Accepted Answer

The borrower cannot fully cover debt payments from operating income

Answer

A DSCR below 1.0 means net operating income is insufficient to cover total debt service obligations.

Question 3

When analyzing a commercial borrower's global cash flow, which of the following is typically included?

Accepted Answer

Cash flows from the business plus all related entities and guarantors

Answer

Global cash flow analysis consolidates cash flows from the business, related entities, and personal income of guarantors to assess total repayment capacity.

Question 4

A company shows a high accounts receivable turnover ratio. What does this most likely indicate?

Accepted Answer

The company efficiently collects receivables and has strong credit policies

Answer

A high accounts receivable turnover ratio indicates the company collects outstanding balances quickly, reflecting effective credit and collection processes.

Question 5

Which of the following is considered an off-balance-sheet item that underwriters must evaluate?

Accepted Answer

Operating leases under old GAAP

Answer

Under older GAAP standards, operating leases were not recorded on the balance sheet, requiring underwriters to adjust financial statements to capture true leverage.

(CU) Certified Underwriter Practice Test

(CU) Certified Underwriter Practice Test

CU Financial and Credit Analysis 2