Reading 51: General Principles of Credit Analysis -LOS b 习题 div, border, General, following, class

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Session 14: Fixed Income: Valuation Concepts
Reading 51: 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) Commitment.

B) Capacity.

C) Capital.

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

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All of the following are part of the four C’s of credit that Moody’s and S& use to analyze credit quality EXCEPT:

A) category.

B) capacity.

C) covenants.

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

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

A) Capacity analysis.

B) Character analysis.

C) Compensation analysis.

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

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Which of the following least likely represent sources of liquidity for a company?

A) Investing cash outflows.

B) Operating cash flows.

C) Back-up credit facilities.

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Of the three elements, the investing cash outflows would not be a source of liquidity for the firm.

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Which of the following is most likely to affect the analysis of a firm's ability to repay the interest and principal components of its debt?

A) The level of the company's debt to total assets ratio.

B) The firm's ability to generate operating cash flows.

C) The character of the firm's management.

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Although we would look at the company's debt-to-total assets ratio in determining the company's ability to repay its debt, the operating cash flows tend to be more critical to the analysis.

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Which of the following statements regarding the analysis of an issuer’s capacity to pay is FALSE?

A) A noncontractual line of credit is viewed as a strong back-up facility.

B) An analyst should examine the firm's financial position over the past three to five years to help determine capacity to pay.

C) A "material adverse change clause" would weaken a back-up facility.

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A strong back-up facility exists when a lender is contractually obligated to provide back-up financing. If the agreement is noncontractual then the back-up facility is considered weak.

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

B) The terms and conditions of the loan agreement.

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

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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 ability of the firm to pay its debt?

A) Third-party guarantees.

B) Affirmative covenants.

C) Material adverse change clause.

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When assessing liquidity, the analyst is concerned with the company’s financial position, operating cash flows, working capital position, back-up credit facilities, the strength of back-up credit facilities, and third-party guarantees.

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Which of the following factors is NOT part of the analysis of an issuer’s character?

A) Control systems.

B) Financial philosophy.

C) Parent company support agreements.

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Parent company support agreements are part of the analysis of the capacity of the issuer to pay rather than the issuer’s character.

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

A) Executive compensation and benefits structure.

B) Conservatism.

C) Succession planning.

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Executive compensation structure is not part of the credit analysis. Credit agencies generally try to assess management quality by understanding business strategies and policies created by management.