Moody's Analytics Test -3

Which costs related to environmental hazards can have a significant negative impact on a

company’s credit risk?

• Cost of insurance premiums.

• Cost of hazardous waste clean-up

• Cost of compliance with environmental laws

• Cost of professional assessment of facilities for safety

What general inference can be made about a company that has positive cash flow from operations,

and that is borrowing and investing?

• It is starting up

• It is closing down

• It is restructuring

• It is acquiring other companies

If net sales for a company over three Fiscal Year Ends (FYE) was

FYE 1: INR 1,25,00,885,

FYE 2: INR 1,37,45,473 and

FYE 3: INR 1,40,25,992,

what is this company’s sales growth for FYE 3 compared to FYE 2?

• 2.0%

• 2.04%

• 8.87%

• 10.0%

Which action by a borrower’s management could have an adverse effect on its cash flow and ability

to meet its obligations?

• Adopting a conservative financing strategy

• Executing plans to ensure short-term goals are met

• Increasing the rate of depreciation resulting in reduced net income

• Disclosing information to other stakeholders on need to know basis

What is the impact of low market entry barriers on competition within an industry and the financial

performance of businesses’ operating within the industry?

• Increased competition, increased cash flow

• Increased competition, decreased cash flow

• Decreased competition, decreased cash flow

• Decreased competition, increased cash flow

In an initial review of a company’s financial statements, which ratios can be reviewed to uncover

opportunities and identify potential risk flags?

1. Net income.

2. Gross margin.

3. Inventory days.

4. Return on equity.

• 1 and 2

• 1 and 4

• 2 and 3

• 3 and 4

Which organisational structure can inhibit management’s ability to take decisions thus adversely

affecting the company’s performance and credit risk?

• A pyramidal structure

• A centralised decision-making process

• A structure that has distinct divisions between different functions

• A structure in which roles and responsibilities are clearly documented

XYZ trucking company (XYZ) has recently entered into an arrangement with an online sales business

to deliver their general consumer goods and expect that this partnership will improve their sales. XYZ has sought

enhanced financing to support this new business. The transportation industry is in a decline due to a recession,

and XYZ’s most recent annual financial statement shows relatively weak sales performance. What is the next step

in assessing XYZ’s credit application?

• The assessment should end, and credit should be declined.

• The assessment should be postponed until the industry enters the recovery stage

• The assessment should continue and focus on total profit as a measure of success

• The assessment should continue with more focus on the sales projections scenarios and cash flow impact

Why does a special purpose vehicle expose a lender to more risk than conventional financing?

• The loan has no security guaranteed

• The sponsor has no established track record

• The sponsor is the only party liable for the loan

• The loan is repaid only from the project’s cash flows

A company has INR 11,304,950 in Cost of Goods Sold (COGS) and INR 1,091,070 in trade payables as

of its most recent fiscal year-end. The company claimed no depreciation in COGS. How many days on average did

it take this company to pay its trade creditors during the fiscal year?

• 9

• 10

• 35

• 38