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.

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

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.

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

manchester88

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

A) Capacity.

B) Coverage.

C) Character.

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The other two are covenants and collateral.

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.

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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.

manchester88

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

A) Capacity analysis.

B) Compensation analysis.

C) Character 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.

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.

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

manchester88

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

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.

manchester88

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

A) Strategic direction.

B) Company structure.

C) Basic operating position.

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

manchester88

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) Affirmative covenants.

B) Third-party guarantees.

C) Ability to securitize assets.

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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.

manchester88

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

A) capacity.

B) covenants.

C) category.

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