土豆妮

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.

土豆妮

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.

土豆妮

Which of the following is least likely considered a strong and reliable source of liquidity for a company undergoing a credit analysis?

A) Line of credit.

B) Ability to use asset securitization.

C) Contractual back-up facility.

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A line of credit is generally not contractual making it easy for banks to refuse to extend the credit.

土豆妮

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.

土豆妮

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.

土豆妮

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.

土豆妮

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.

土豆妮

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.