manchester88

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 integrity of management and its commitment toward the repayment of the loan.

B) The terms and conditions of the loan agreement.

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

---

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

manchester88

Which of the following focuses on analyzing the quality of management?

A) Capacity analysis.

B) Compensation analysis.

C) Character analysis.

---

Character analysis is the act of assessing the quality of management, which is an important factor in assessing the issuing company’s credit strength.

manchester88

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

A) Ability to react to unexpected events.

B) Human resources policy.

C) Strategic direction.

---

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

manchester88

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

A) Capacity.

B) Coverage.

C) Character.

---

The other two are covenants and collateral.

manchester88

Which of the following accounting practices is least likely to have a significant impact on the balance sheet ratios of a firm?

A) Leasing accounting.

B) Inventory cost flow decisions.

C) Diluted versus basic EPS.

---

LIFO/FIFO and operating leasing v. capital leasing can both have a major impact on the balance sheet ratios of the firm.

ikoreaii

Which of the following statements regarding the use of traditional ratios to analyze a firm’s financial condition is least accurate?

A) Financial ratios are based on the historical accounting data of the firm.

B) Financial ratios do not reveal any information regarding the future capital requirements of the firm.

C) Many of the financial ratios can be used to assess the future financial position of the company.

---

Traditional financial ratios have limited use in that they are not forward looking.

ikoreaii

Traditional financial ratios are useful in providing information regarding the firm’s:

A) competitive position.

B) financial position at a given point in time.

C) future earning prospects.

---

Traditional financial ratios provide a snapshot of the firm’s financial condition at a particular point in time. They are not forward looking.

ikoreaii

The office furniture industry is highly cyclical. Which of the following is least likely a limitation of ratio analysis for the office furniture industry?

A) A recession could significantly change the financial condition of the company.

B) Cyclical companies do not have accurate industry comparisons due to the more volatile changes in ratios.

C) Ratio analysis relies on historical information.

---

Different standards apply to cyclical companies versus stable companies, but accurate industry comparisons are still possible. The major limitation of ratio analysis is that it is not forward looking because it does not consider factors that can impact future cash flows.

ikoreaii

The use of coverage ratios when assessing a firm's ability to repay its debt is most likely to be focused on which of the following?

A) The availability of liquid assets to meet short-term obligations.

B) An examination of the adequacy of cash flows generated through earnings to meet debt obligations.

C) An examination of additional risk associated with increased borrowing.

---

Coverage tests examine the adequacy of cash flows generated through earnings to meet debt obligations.

ikoreaii

Which ratio group measures the firm's ability to generate enough cash flow through its earnings to meet its debt and lease obligations?

A) Profitability ratios.

B) Coverage ratios.

C) Short-term solvency ratios.

---

Coverage ratios test the adequacy of cash flows generated through earnings to meet debt and lease obligations.