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LOS d: Evaluate the credit quality of an issuer of a corporate bond, given such data as key financial ratios for the issuer and the industry.
Q1. Which of the following would indicate a lessened capacity by a corporate bond issuer to pay principal and interest? Relative to the industry average, the issuer’s:
A) acid-test ratio is lower.
B) interest expense is lower relative to earnings.
C) equity is higher relative to its long-term debt.
Q2. The ratios below pertain to three firms being evaluated for credit risk.
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Firm A |
Firm B |
Firm C |
|
Net Profit Margin |
2.1% |
3.3% |
3.3% |
|
Current Ratio |
0.8 |
0.9 |
1.3 |
|
Financial Leverage Ratio |
0.75 |
0.43 |
0.39 |
Which of these firms demonstrates the greatest capacity to pay principal and interest?
A) Firm A.
B) Firm B.
C) Firm C.
Q3. The ratios below pertain to three firms being evaluated for credit risk.
|
|
Firm A |
Firm B |
Firm C |
|
Acid-Test Ratio |
1.5 |
1.9 |
1.6 |
|
Interest Coverage Ratio |
0.9 |
2.4 |
2.3 |
|
Capitalization Ratio |
0.51 |
0.34 |
0.39 |
Which of these firms demonstrates the greatest capacity to pay principal and interest?
A) Firm C.
B) Firm B.
C) Firm A. | 
发表于 2009-3-14 18:02
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