MOODY'S QUIZ 1

which financial trigger can be set up internally as an early signal of a borrower’s probability of default

• Change in profit projections
• Change in ownership structure
• Unexpected change in dividend policy
• Emergence of new competitive entrants in the market

what is the difference between operating cash flow and earnings before interest, taxes, depreciation and amortization (EBITDA)

• EBITDA considers interest expense
• EBITDA considers capital expenditures
• EBITDA considers changes in cash flow
• EBITDA adds back depreciation and amortization

Which industry factor increases the need for a company to compete for a high volume of sales to remain profitable

• High fixed costs
• Few competitors
• High switching costs
• Rapid demand growth

which action might a company take when it is in the cash concern stage of financial distress

• Selling vital assets
• Cancelling bonuses
• Laying off key employees.
• Eliminating management positions

What does a current ratio of 1.33 indicate about a company’s current assets

• Current assets are less than net working capital
• Current assets are able to cover double the current liabilities
• Very few current assets have been funded from current liabilities
• A portion of current assets has been funded from long-term sources

In which condition can a local business perform well while the local economy is in recession

• Local competition is weak
• The business has a high profit margin
• The business sells high quality and durable products
• The local economy of business’s customers is thriving

Which is likely to be false of a company with a low gearing ratio

• It has a high debt load
• It has high interest costs
• It has high repayment ability
• It has a high repayment obligation

what information in a credit agency report can help a bank assess a company’s management integrity

• Opinion about the company management
• Information about the financial performance
• How freely the management shares information
• Details on covenant compliance for the bank loans

What is the starting point in the process of projecting a business’s financial performance

• Evaluate economic factors
• Complete sensitivity analysis
• Project future values for the risk drivers
• Review historic levels of the risk drivers

What does the credit risk premium attributed to in the credit pricing process

• The bank’s risk appetite
• Expected return on equity
• The bank’s growth strategy
• Losses incurred due to default