Reading 53: General Principles of Credit Analysis-LOS b 习题 border, General, following, 2011, class

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Session 14: Fixed Income: Valuation Concepts
Reading 53: General Principles of Credit Analysis

LOS b: Explain and analyze the key components of credit analysis.

 

 

Which of the following is one of the four Cs of credit analysis?

A) Capacity.

B) Commitment.

C) Capital.

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The four Cs of credit are character, capacity, collateral, and covenants.

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Rating agencies consider all of the following when assessing the quality of a firm's management EXCEPT:

A) Human resources policy.

B) Ability to react to unexpected events.

C) Strategic direction.

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Of the factors listed, the firm's human resouces policies would be the least important factors considered when assessing management quality.

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Which of the following factors is part of the analysis of an issuer’s character?

A) Company structure.

B) Basic operating position.

C) Strategic direction.

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Important considerations of the issuer’s character include: strategic direction, financial philosophy, conservatism, track record, succession planning, and control systems.

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Which of the following 4-C's of credit refers to the terms and conditions of the lending agreement?

A) Contracts.

B) Covenants.

C) Conditions.

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Covenants represent the terms and conditions of the lending agreement. Covenants specify restrictions and requirements that management must follow.

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Which of the following criteria assesses the ability of the issuer to repay its obligations?

A) Capital.

B) Capacity.

C) Commitment.

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When an analyst examines an issuer’s capacity, the analyst is assessing the issuer’s ability to repay its obligations.

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Which of the following is NOT one of the criteria used to conduct a credit examination?

A) Consideration.

B) Character.

C) Covenants.

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The four C's of credit are character, capacity, collateral, and covenants.

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All of the following are elements of the "4 C's" of credit analysis EXCEPT:

A) Coverage.

B) Capacity.

C) Character.

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The other two are covenants and collateral.

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Within the context of the 4-C’s of credit analysis, which of the following most accurately describes the “character” of a firm?

A) The terms and conditions of the loan agreement.

B) The availability of cash flow and other assets to repay the loan.

C) The integrity of management and its commitment toward the repayment of the loan.

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"Character" is the integrity of the firm's management and its commitment to the loan.

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Within the context of the 4-C’s of credit analysis, which of the following most accurately describes the “capacity” of a firm?

A) The availability of cash flow and other assets required by a corporation to repay its obligations.

B) The integrity of management and their commitment toward repayment of the loan.

C) The terms and conditions of the loan agreement.

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Capacity is one of the 4-C's of credit analysis and deals with generation of cash flows.

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Which of the following items is least likely of concern to the analyst when trying to assess the capacity of the firm to pay its debt?

A) Third-party guarantees.

B) Ability to securitize assets.

C) Affirmative covenants.

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When assessing capacity to pay, the analyst is concerned with the company’s financial position and liquidity. Sources of liquidity include working capital, operating cash flows, back-up credit facilities, securitization of assets, and third-party guarantees. Affirmative covenants are not directly related to the firm's capacity to pay.