WorksheetsMoody's Analytics- Exit Test
Total questions: 50
Worksheet time: 34mins
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.
Special Mention Accounts were introduced as a new asset category between which two categories?
Sub-standard and Doubtful.
Standard and Sub-standard.
Standard and Doubtful.
Doubtful and Loss.
How many days is the short-term financing gap for a company with 47 trade receivables days, 68 inventory days and 63 trade payables days?
42
178
52
84
What is the first step for a management team in order to achieve results through the efforts of others?
Incentivise the organisation in an effective manner
Source the necessary resources
Manage the critical business operations on a daily and long-term basis
Set the strategic direction
Which activity can reduce a company’s cash flow position?
Purchase of investments
Sale of assets
Increase in owner’s equity
Collection of receivables
What type of early warning signals may be indicated as a result of technology changes?
Operational
Fundamental
Business
Market
Which type of charge is appropriate when the security is a factory?
Hypothecation
Lien
Mortgage
Pledge
Which party issues a letter of credit in a goods and services transaction?
Applicant
Beneficiary
Seller
Bank
What causes market overcapacity?
Low product demand
Drop in a sales price
Industry growth
Weak competition
What projected information is best to use to assess working capital limits?
Sales
Profit and loss statement
Balance sheet
Labour expenses
Which business is most likely to have a gross margin of 100%?
Clothing store
Car manufacturer
Food wholesaler
Accounting firm
What action does the beneficiary need to take under a bank guarantee in case of default by the debtor?
He needs to request the money from the debtor
He needs to notify the guarantor bank and request payment
He needs to ask the guarantor bank to negotiate a settlement
He only needs to wait for the guarantor bank to step in
What is the principal reason that lenders do not easily accept security of intangible assets?
They are amortized, not depreciated
They are difficult to value and realise
They do not physically exist
They are not a working part of the business
What is the most common definition of credit risk as it applies to banks?
Credit risk is the possibility of losses associated with a fall in value of traded debt instruments.
Credit risk is the risk of economic loss that a bank incurs as a result of the failure by a borrower to make interest and principal payments in full and on time
Credit risk is the risk of losses on funded credit products
Credit risk is the loss in value of a credit exposure as a result of a deterioration in the creditworthiness of the obligor
Which non-current asset is categorised as an item of "property, plant, and equipment"?
Computer software
Goodwill
Investment property
Motor vehicle
Which statement is accurate in relation to the operating cycle?
A company will have numerous operating cycles relating to different product or service lines.
A company usually has numerous operating cycles, each relating to a different customer.
The number of operating cycles will increase as a company sells more of its goods or services
A company usually has just one operating cycle
What would you find on a typical business balance sheet that you would not normally find on a personal statement of net worth?
A list of liabilities
Shareholders' equity
Tangible assets
A total for net assets or net worth
Which of the following statements is correct?
Creative accounting is not intended to mask poor financial performance
Creative accounting is not intended to make reasonable performance look even better
Some level of creative accounting is present in all financial statements
The use of creative accounting tends to reduce the financial statements’ quality and reliability
Who decides the accounting policies used by a company in preparing financial accounts?
The shareholders
The company auditors
Senior management of the company
Local accounting standard setters
Which factor ultimately determines the life cycle of trade receivables?
The speed with which the company collects cash from customers
The volume of sales made
The payment terms offered to customers
The length of time finished goods are held before being delivered to a customer
Which statement accurately describes an accounting risk?
A risk that there may be insufficient assets to repay liabilities as they fall due
A risk that the carrying amount of fixed assets may be overstated compared to their market value
A risk that a company's financial controls may be weak, leading to the possibility of undetected fraud, waste, or inefficiency
A risk that severe commodity price fluctuations will destabilise the cost base of the business
Which of these actions would cause the short-term financing gap of a company to increase?
Renegotiation of a revolving credit facility on more favourable terms
Changing the payment terms offered to customers from 30 to 60 days
Improvements in the manufacturing process to use less raw material content
Purchase of new machinery to reduce production time
What warning sign would be a clue that a company is inflating its revenues in a given year?
Trade receivables growing much more rapidly than sales in that year
Bank balances growing much faster than sales in that year
Trade receivables growing much more slowly than sales in that year
Inventory growing much faster than sales in that year
Which statement correctly defines the asset conversion cycle?
The speed with which the business turns raw materials into cash
A continuous series of capital conversion cycles within a longer operating cycle
The speed with which the business recovers the cost paid for capital items such as plant and machinery
A continuous series of operating cycles within a longer capital conversion cycle
What is seasonality?
A predictable pattern of business activity that peaks during a particular season.
An unpredictable distribution of business activity that peaks during particular seasons, months or quarters
A predictable pattern of business activity that peaks during particular seasons, months or quarters
An unpredictable distribution of business activity that peaks during a particular season
Which strategy would likely decrease the chances of a mature business's survival?
Avoiding different product lines or geographic markets
Introducing new products or services
Merging with or acquiring a competitor
Re-engineering the operation to improve efficiency
What is the solvency test?
A test that evaluates a business's ability to generate cash from ongoing operations to pay all normal expenses, including interest and scheduled principal payments
A test that is a replacement for the liquidity test and provides a short-hand view of overall risk associated with a loan
A test that is a stress test of a lender's portfolio to assess the amount of risk it can safely take on
A test that assesses the adequacy of cash from the liquidation of business assets in distressed circumstances to pay interest and all debt
From a risk management perspective, what is the most reliable indicator of profitability?
Total amount of profits or in terms of percentage of sales
Total amount of profits or in terms of units still to be sold
By the percentage of sales relatively to the number of units not sold
By the actual monetary value of profits
Which factor is most adversely affected by market overcapacity?
Number of businesses in the market
Product availability
Product pricing
Unit sales
In which scenario would a business's sales, cash flow and financial viability be most at risk?
A business that deals with very few large customers
A business that deals with many small customers
A business that deals with many large customers
A business that deals with many individual customers
Which is most affected by seasonality in the operations of a business?
Expense levels
The capital base
Annual cash flow
The timing of cash flows
What information about a borrower's customer base would likely be most relevant to assessing credit risk?
The total number of the business's customers
The terms offered by the business to retain the best customers
The names of the business's largest and most loyal customers
The impact on cash flow if the business loses its largest customer
Which risk category is typically considered critical when addressing a borrower's overall credit risk?
Sovereign risk
Management risk
Counterparty risk
Audit risk
Which company below would likely be least impacted by government regulation?
Airline
Clothing store
Bar
Restaurant
What is the effect of economies of scale on competition in an industry?
Economies of scale tend to encourage new competitors to enter an industry
Economies of scale have no impact on competition in an industry
Economies of scale tend to encourage established competitors to exit an industry
Economies of scale tend to discourage new competitors from entering an industry
Which factor is most likely to increase the intensity of competition within a given market?
Rapid industry growth
Low fixed costs
An economic recovery
Diverse, successful competitors
What is the key risk that is evaluated in assessing a business's credit risk?
How changes in the economic environment affect a business's financing costs
The degree of a business's earnings volatility
Whether a business can repay principal and interest as scheduled
The business's competitive position in its industry
What type of business plan provides the best chance for success?
Clear, unchanging and realistic
Clear, realistic and measurable
Unchanging, highly detailed and measurable
Clear, highly flexible and time-tested
Generally, who creates a business plan?
Management
Lender
Payroll department
Human resources department
Why do lenders attempt to mitigate credit risk?
To justify charging higher interest rates than might otherwise be possible
To transform a bad loan into a good loan
To enable credit to be extended to borrowers that are otherwise considered poor risks
To minimise risk and enhances management of loans extended to creditworthy borrowers
For what business is key person insurance likely most critical?
Government agency
Small business
Publicly traded company
University
Which option can mitigate work stoppages?
Liability insurance.
Alternative sources
Dependable suppliers
Good labour relations
What event is most likely to decrease inventory (stock) days?
Automation of the inventory control process
Recession
Product becomes obsolete
Substitute product introduced
What is the calculation for sales growth?
(Prior Period Sales - Recent Period Sales) / Prior Period Sales
(Recent Period Sales - Prior Period Sales) / Prior Period Sales
(Prior Period Sales - Recent Period Sales) / Recent Period Sales
(Recent Period Sales - Prior Period Sales) / Recent Period Sales
What does a company's current ratio show?
Whether trade receivables and inventory (stock) will cover trade payables in the next operating period
Whether fixed assets exceeded current assets in the most recent operating period
Whether current assets, if converted to cash, will cover short-term liabilities in the next operating period
Whether current liabilities will cover short-term assets in the next operating period
Sales growth is a particularly useful starting point for assessing which component of a business's overall risk profile?
Financial risk
Market (industry and business) risk
Economic risk
Management risk
Trade receivable days do not tend to vary from industry to industry.
True
False
Gross margin does not tend to vary from industry to industry.
True
False
What is the formula for current ratio?
Current Assets / Current Liabilities
Current Liabilities / Current Assets
Current Liabilities - Current Assets
Current Assets + Current Liabilities
What form of business organisation is an extension of a sole trader?
Sole trader
Partnership
Joint stock company
Company
