FIN 464
5. Which of the following is set at a minimum level of financial performance: a. EBIDA DSCR. b. Debt to Tangible Net Worth. c. Total Debt to EBITDA. d. Dividend Payout amount.
A
What best describes the use of cash budgets?
A cash budget is used to forecast the monthly cash inflows and outflows that an entity expects to experience usually during the next fiscal cycle.
The disadvantage of using cash budgets as a financial management tool are accentuated when which of the following occur:
a. Financial managers do not use the rigor needed to accurately estimate sources and uses. b. Managers fail to update monthly figures with actual results, allowing for timely and useful refinement of the cash budget for the remaining fiscal period.
The Minimum Liquidity covenant requirement is primarily designed to be used for which of the following? a. To ensure that in the event of a businesses financial deterioration or distress a guarantor can provide a needed equity capital injection or debt service payment coverage. b. Only when EBITDA cash flow is deficient. c. For corporations and partnerships, never individuals. d. To establish the amount of cash only a business must hold at the Bank.
A
The structure of a limited partnership includes which of the following: a. At least one general partner. b. Partners have no control over business operations and are legally responsible for losses. c. Are all asks to be "silent" partners. d. Is not taxed.
A
When a manufacturer allows a client time to pay for purchase of product, an asset is created that can be pledged to the bank as collateral known as: a. An "Account Receivable." b. A "Pledge." c. A "Term Loan." d. None of the above.
A
Which covenant tests the ability of the income property to debt service as a stand-a-lone entity? a. EBIDA Debt Service Coverage Ratio. b. NOI Debt Service Coverage Ratio. c. Tangible Capital Base Leverage Ratio. d. EBIDAR Debt Service Coverage Ratio.
B
6. Which profitability ratio displays the amount of profits management can generate from the assets it has? a. The Return on Equity. b. The Return on Assets. c. The Gross Profit Margin d. The Net Profit Margin.
B
Covenants, other than financial ratio covenants, include which of the following? a. Setting up document signing meetings with the borrower. b. Financial reporting and limitation covenants. c. Time bounded and measureable actions after default. d. Limitations on Officer Bonuses or Dividends. e. None of the above.
B
The EBITDA DSCR has an additional nuance relating to the calculation of debt payments. a. Taxes are included at the discretion of the analyst lender. b. The "trailing" twelve months of net income plus interest, depreciation, amortization and taxes paid, as well of the twelve months interest and CPLTD are included. c. Earnings deduct interest expenses and depreciation. d. None of the above.
B
Which of the following is not a Current Asset? a. Accounts Receivable. b. Accounts Payable. c. Inventory d. Other current assets.
B*
A prudent sensitivity of a cash budget includes:
Best case, worst case and most likely case scenarios.
1. A best practice among many analysts and lenders is to: a. Set covenants so that an event of default will occur at the first sign of deterioration. b. Contact the borrower after a default occurs when reasonable. c. Set an internal "pre-trigger" limit, so that a trend of deterioration, when detected, results in a discussion with the business prior to an event of default. d. Make demand on a loan just before a covenant default occurs.
C
The Bank conducts ratio analysis of important numbers drawing them from a business's financial statements. If a business's Return on Assets trend from 2017 to 2019 was 1.75:1, 1.25:1, and 1:1, the trend shows: a. Improvement. b. Stability. c. Deterioration. d. None of the above.
C
The Prime Rate is: a. The lowest rate given to its riskiest loans. b. The highest rate given to its riskiest loans. c. The rate given to the bank's most creditworthy borrowers.
C
Financial managers that use cash budgets in analyzing the next fiscal cycle: a. Provide a comprehensive budget that is time bounded and measureable. b. Can devise responses strategies to unexpected events and revise the case budget c. Create a valuable planning tool that, when thoughtfully prepared, can demonstrate the peak borrowing need to a bank, when requesting a line of credit. d. All of the above
D
The fundamental purpose of financial covenants is to: a. Set prudent financial performance standards that benefit the Bank only. b. Encourage the preservation of a business's liquidity, cash flow, and net worth, (i.e., its financial health). c. Ensure that its obligations can be met according to terms of the credit arrangement granted. d. Only b. and c. e. None of the above.
D
The purpose of a cash budget is best described as follows: a. Determines the peak borrowing need for highly seasonal businesses. b. Useful in determining the viability of new start up entities. c. Understanding if cash inflows will be sufficient to meet all expenses and obligations each month, and if not, what alternatives may be available to management to meet any shortfalls. d. All of the above
D
This course describes how financial covenants are selected, structured and monitored, based on which of the following? a. The type of loan or line of credit granted. b. The financial condition and structure of the business. c. The maximum number possible to place on a business. d. Only a. and b. e. None of the above.
D
When properly used, financial covenants do which of the following? a. Set prudent financial performance standards for borrowers. b. Promote sound financial performance of a business. c. Provide the Bank with the legal authority to take appropriate action(s) to protect its interests if financial covenants are violated. d. All of the above.
D
Which of the following are Current Liabilities? a. Accounts Payable. b. Current Portion of Long-Term debt. c. Notes Payable and Accruals. d. All of the above.
D
Given a review of the JKS Cash Flow Driver Trend Analysis, we can conclude: a. JKS is in a very serious cash flow deterioration cycle. b. Unless it has significant cash on hand and reserves to cushion this shortfall, JKS will fail and go into liquidation. c. Any bank loans would be at risk of loss. d. JKS is at risk of failing. e. All of the above.
E
Which of the following are liquidity-based covenants? a. Long term debt to EBITDA b. Current ratio. c. Quick ratio. d. Capital Base ratio. e. Only b. and c. f. All of the above.
E
Which of the following are not primary ratio covenants of a Bank? a. Tangible Capital Base. b. Tangible Capital Base Leverage Ratio. c. EBIDAR Debt Service Coverage Ratio. d. NOI Debt Service Coverage Ratio. e. Limitations on Officer Bonuses or Dividends.
E
Actions that the Bank may take in the event of a default include which of the following? a. Waiver: This sets aside the violation for a temporary but specified period of time, as the Bank agrees to take no adverse action. b. Amendment: The loan agreement is permanently changed for at least the period in question and possibly up to all remaining periods in the agreement. c. Collateral Liquidation: The Bank immediately takes all the collateral it can and as quickly as possible prior to default to prevent loss. d. Demand Payment: The Bank may declare a default and send written notice to the borrower that the outstanding balance is immediately due. e. All of the above. f. Only a. b. and d.
F
What elements are not included in the minimum liquidity covenant? a. Assets pledged to support other indebtedness of borrower or otherwise unavailable. b. IRA. c. 401(k). d. Annuity or trust accounts e. Privately held, as well as non-traded stocks. f. All of the above.
F
7. Other Expenses are those: a. Not related to the core business activities. b. Related only to the core business activities. c. Are any other expenses outside of the area in which the business operates d. None of the above.
A
A "creditworthy borrower" is: a. An individual or business that a comprehensive analysis demonstrates will be able to pay in full all bank and financial obligations according to terms granted without default. b. A borrower that relies on collateral to repay loans. c. Board of Directors that guaranty a loan. d. A seasoned manager who is personally liable for all obligations and pledges needed collateral to gain credit approval.
A
A Positive Cash After Operating Activities presents the possibility that: a. Management has created sufficient cash flow to meet its debt requirements to repay bank obligations. b. Management has failed to pay for its debt obligations. c. The Bank will likely liquidate a loan. d. The Bank will grant more credit to a business at a lower rate.
A
A bank's assets primarily consist of which of the following: a. Consumer, Business and other Loans. b. Deposits of clients. c. Liquid Assets, such as securities.
A
A bank's credit culture is best summarized as follows: a. To achieve an exemplary credit profile that consistently enhances the Bank's long-term financial goals and actively supports the communities it serves. b. To achieve maximum earnings annually and expand its capital. c. To lend to creditworthy borrowers and expand it's community banking role through business and consumer lending.
A
Analysis of the Production Environment includes which of the following: a. A business's physical facilities, production and distribution resources, as well as the legal, legislative or compliance issues. b. Best perceived value, differentiation and focus. c. Product/service, industry and economic environments. d. Management's strategy to improve sales.
A
Business loans, also known as commercial loans, include which of the following: a. Term, working capital, accounts receivable and seasonal loans. b. Credit cards, unsecured personal lines of credit and seasonal loans. c. Neither A nor B.
A
Corporations can be both privately and publicly held? a. True b. False
A
For a sole proprietor business owner to embrace an "early warning" mentality, she/he must evaluate: a. The Product/Service viability, then the economic, competitive, market share and life cycles risk environments. b. A desire to interview past managers about a businesses history. c. Control ownership and offer collateral for risky endeavors. d. The legal requirements to start the business.
A
If a corporation's debt service capacity for 2017 to 2019 was, 1.25:1, 2:1 and 2.5:1, then: a. There is an improving trend. b. A weakness is evident. c. Things are fairly stable. d. No concerns are evident.
A
In describing the Product/Service stability of a company, a narrative must address which critical points for the reader: a. The outlook for product/service viability and stability during the next fiscal period. b. Whether the company will be acquired. c. The brand name of products and whether that will change. d. None of the above.
A
Inventory turnover days reducing from 90 days to 45 days indicates: a. A one-time source of cash has been created. b. Inventory is likely obsolete. c. Inventory control is less efficient. d. Both b. and c.
A
Of the LIFO and FIFO inventory valuation methods, the FIFO method actually reflects a more realistic view of how inventory generally is sold, i.e., the first items purchased are typically the first to be sold to consumers. a. True. b. False.
A
Relationship Banking is driven by which of the following: a. A culture that focuses on knowing and understanding the client's financial and servicing needs and meeting those needs if possible. b. Charging a fair interest rate. c. Visiting a client's place of business at least annually. d. Researching the client's reputation in the community and in the industry.
A
The "Matching Principle" states that expenses must be recognized in the period in which the products or services were: a. Produced and delivered to customers and included in the sales revenue total for the fiscal period reported. b. Not sold but held for sale. c. Matched to 60 days after delivery only. d. None of the above.
A
The 5 C's of Credit include: a. Character, Capacity, Conditions, Capital and Collateral. b. Cost, Credit, Creditworthiness, Claims and Culture. c. Conditions, Credit, Creditworthiness, Competition, Collateral. d. None of the above.
A
The FDIC and other regulatory agencies are: a. Deeply interested in the success and strength of Community Banks. b. Unlikely to interact with management other than express concerns about the quality of loans. c. See community banks only from the standpoint of ratios and earnings.
A
The Statement of Retained earnings is a reconciliation of the net income earned during the current year less any cash dividends or distributions paid to owners, balancing with the change in the retained earnings from last fiscal year to the current fiscal year a. True. b. False.
A
The current portion of long-term debt (CPLTD) captures which of the following: a. The principal portion of the long-term debt payments that is due in the next twelve months. b. The principal portion of all debt payable to creditors, including short-term debt. c. The principal portion of long-term debt payments that was due in the previous twelve months. d. None of the above.
A
The four different types of audit reports and opinions that may result are: a. An unqualified, qualified, adverse, and disclaimer audit report. b. The compiled, audited, reviewed and disclaimer report. c. Unqualified, restricted, reviewed and unresolved report. d. All of the above.
A
The highest risk business "life cycles" are: a. New, Emerging, Deterioration. b. New, Mature and Deterioration. c. Transition, Mature and Emerging. d. None of the above.
A
The underpinnings of lending to creditworthy borrowers encompass which of the following for lenders: a. A fundamental accountability for ethical practices to consumers and the community business entities served. b. The duty of knowing the regulatory framework that governs how consumers and businesses must be fairly and equally treated. c. A thorough comfort with the types of consumer and business entities in the community, their strengths and weaknesses, and so, the risks of lending to each. d. All of the above.
A
What does the term "Creditworthy" denote? a. Creditworthy" is a term that indicates a borrower has met the bank's lending requirements, satisfactorily evidencing that the loan will be repaid according to the terms. b. "Creditworthy" is a term that restricts approval of a loan to depositors. c. "Creditworthy" is a term that is used by the bank to refuse loans to depositors who may withdraw monies over time.
A
Which of the following best describes attributes of a Sole Proprietorship: a. Owned by an individual who bears total risk and liability. b. Members can elect which business structure they wish to employ. c. Limits liability of owners. d. Partners receive profits based on their percentage of ownership.
A
Which regulation established the Consumer Finance Projection Board? a. Dodd Frank. b. Regulation B. c. The Community Reinvestment Act. d. None of the above.
A
With regard to Owner's Equity, corporations show the components of owner's equity primarily as: a. Common stock," but may also include special (and sometimes preferred stock) and retained earnings. b. Retained earnings, notes payable and owner's equity. c. Only the owner's investment. d. None of the above.
A
With regard to its buildings and improvements, and furniture and fixtures, the gross fixed asset value is reduced by: a. Accumulated Depreciation b. The Sales Value of the Asset c. The decision of management to write down the value of an asset d. Amortization
A
A limited liability company: a. Limits ownership to less than 50 owners. b. Have owners who are called "members." c. Cannot hire a CEO or establish a Board of Directors. d. Pays all taxes incurred.
B
Accounts Receivable and Inventory "Days on hand" or "day's turnover." measures: a. The handling of these accounts by a special department that tracks days it took to repossess accounts. b. How many days it takes a business to collect its accounts receivable sales or convert inventory to cash. c. A measurement indicating something is wrong and collection risk is high, perhaps even in doubt. d. This lack of collection timeliness of Accounts Receivable, but not inventory.
B
Community banks help their communities thrive and grow, by providing a safe place to keep hard earned savings and monies, and loan funds to invest in stores, shops, industry and services, enriching employment and the health of a community. a. False b. True
B
Credit Approval and Credit Administrators: a. Decline credit requests without collateral. b. Provide a "second level approval" if above a lender's lending authority. c. Always approve a loan request recommended by a lender. d. Meet once a week to approve loan request that high risk.
B
Lengthening of turnover days in an indication that: a. Management is paying its trade creditors and receiving discounts. b. An early warning sign that the business may be "leaning on the trade." c. A use of cash has been created. d. None of the above.
B
Long-term assets are listed at their "gross fixed asset value," meaning the original cost at which they were acquired by the business. Listing this amount is associated with which accounting principle? a. The Matching Principle. b. The Original Transaction Value Principle. c. The Revenue Recognition principle. d. The Deferred Asset Value principle.
B
The FDIC's use of the CAMELS rating system rates the risk quality of six categories, which are: a. Credit, Assets, Management, Loans and Sensitivity b. Capital, Assets, Management, Earnings, Liquidity and Sensitivity
B
The Four Step analytical process is: a. Context, Collateral, Management and Repayment Ability. b. Context, Numbers, Testing and Decision. c. Approval, Review, Analysis and Perfection. d. Management review, Context, Collateral and Decision.
B
The bank's three primary regulators are: a. The FDIC, the Federal Reserve and Department of Transportation. b. The DFI, FDIC and the Federal Reserve. c. State of Oregon, State of Washington, and State of Idaho.
B
The five business Life Cycles include: a. Rejection. b. Mature. c. Transference. d. Denial. e. Only a. and b.
B
The primary role of the FDIC is: a. The FDIC regulates community bank business loan only and may examine lenders and borrowers every third year. b. The FDIC guarantees the safety of an approved chartered bank's deposits as part of its primary role in maintaining public confidence in the safety and integrity of the nation's banking system. c. The FDIC was formed in 1933 to protect banks from another depression.
B
Two common industry measurements that assess the quality of a bank's net income include: a. Examination results and publicly released CAMELS ratings. b. Return on Assets (ROA) and Return on Equity (ROE). c. Bauer rating and CAMELS ratings.
B
What do liquidity ratios suggest about a business's financial condition? a. Past due on its obligations to creditors. b. The ability of a business to cover short-term obligations, such as accounts payable or other current liabilities, that come due. c. If management has cash on hand. d. None of the above.
B
What is the function of a Financial Intermediary? a. A financial intermediary owns the deposits of the community as a bank. b. A financial intermediary channels funds between its depositors and borrowers. c. A financial intermediary determines the risk of deposits.
B
Which of the following is not a critical issue to consider when evaluating the Economic Environment of a business? a. Predictions of consumer or business spending in the industry, the region and the demographic(s) served. b. The leader of the Federal Reserve. c. Consumer Price Index. d. Likelihood of a recession, or conversely, economic growth and expansion. e. The best perceived value
B
With regard to what business managers expect in their communication with lenders, there are four foundational rules that must be first understood. a. Management only wants to know the credit decision, interest rate, terms and conditions of an approved credit request. b. Management wants to tell lenders about their plans and goals, understand how lenders view the business, get honest feedback, and the know the issues impacting the provision of credit. c. Bankers will ask for financial statements, analyze them, communicate with management, and avoid confrontation. d. Bankers will provide the exact steps management must follow, what business decisions they can make, the assets they can purchase, and when they must repay loans.
B
5. Three central elements of Uniform Credit Culture are: a. Earnings, Creditworthiness and Prevention of Loss. b. Profitability, Administration and Risk Management. c. Quality first, followed by Profitability and Growth, in that order. d. None of the above.
C
A bank's consumer loans include which of the following' a. Commercial loans and lines of credit and credit cards. b. Credit cards, RV's, Boats and Accounts Receivable lines of credit. c. Loans for a borrower's residence, car, home equity and credit cards.
C
A bank's non-interest income is derived from: a. Loans and Lines of Credit. b. The Allowance for Loan and Lease Loss. c. Account and service charges, safe deposit boxes, and other fees.
C
A bank's primary earnings are derived from: a. Selling assets over time. b. Non-Interest Income. c. Interest income earned and collected. d. Controlling non-interest expense.
C
A current ratio trend from fiscal years 'X7 to 'X9 shows 3:1, 2:1, .9:1. What does this trend imply about the business's liquidity trend? a. Liquidity is strengthening. b. Liquidity is stable overall. c. Liquidity is deteriorating. d. Liquidity is of no concern.
C
An "unqualified" report is: a. A "clean" report, meaning, that there were no accounting irregularities, practices or issues found during the audit. b. The statements are considered fair and true, reliable and accurately reflect the financial condition of the business. c. All of the above.
C
Aside from a business entity's life cycle position, what must lenders know? a. The ownership percentage of partners. b. If the life cycle will end in six months. c. The business entity's industry life cycle position. d. When the business was started.
C
Business entities that protect owners from personal liability are: a. LLP's, LLC's and Corporations. b. Corporations and General Partnerships. c. Limited Partnerships and LLC's. d. None of the above.
C
Cash Flow Analysis is: a. The financial analytical methodology and numbers employed by the bank when evaluating repayment ability of a business. b. Financial numbers that when placed together in a logical order render a clear result as to a business's ability to repay its debt obligations. c. Both a. and b.
C
Competitive environment risk analysis includes which of the following: a. The type of competition, interest rates, the quality of the product. b. Management's view of the industry and production environment. c. The physical, technological, and strategic levels of competition. d. How the bank views the competitive environment.
C
Prohibition of discrimination in lending on the basis of race, color, marital status, sex and national origin is centered in: a. The Community Reinvestment Act. b. Dodd Frank and the Consumer Finance Protection Board. c. Regulation B. d. The Fair Credit Reporting Act.
C
The best practice in assessing the impact of Swing Factor cash flow impacts in EBITDA cash flow analysis is: a. Ignore sales growth and rely only on calculating the Swing Factor trends using the ratio chart. b. Use the ratio trend analysis of both inventory and accounts receivable. c. Use both the trend analysis and cash flow Swing Factor Charts to identify critical changes and their cash implications on EBITDA. d. None of the above.
C
The executive in charge of Credit Administration is: a. The CEO of the Bank. b. Credit Administrators. c. The Chief Credit Officer. d. Department Heads.
C
The four basic types of financial statements are: a. The Income Statement, the Statement of Cash Flow, the Cash Flow Chart, and Retained Earnings Summary. b. The Balance Sheet, the Statement of Cash Flows, the Cash Flow Chart and the Income Statement. c. The Income Statement, Balance Sheet, Statement of Retained Earnings, Statement of Cash Flows. d. None of the above.
C
The general assets of the business, including its inventory, furniture and fixtures, that collateralize loans can be secured by the bank using: a. A loan agreement for an unsecured loan. b. A term secured and working capital loan. c. A lien against these assets, registering their claim using "UCC filings," a.k.a., "Uniform Commercial Code" lien filing.
C
The majority of the bank's liabilities consist of which of the following: a. Debt it owes to Shareholders. b. Capital it owns. c. Deposits of clients. d. None of the above.
C
The two types of Partnerships are: a. Limited Liability and S Corps. b. Executive and Director Generated. c. General and Limited. d. None of the above.
C
Two of the primary depreciation methods business may use are: a. Decelerated and judgmental. b. Total cost and loss after sale. c. Straight-line and accelerated.
C
What must sole proprietors, partners, owners and members must insist on? a. The banker's name, experience and position. b. Freedom from all liability in the business. c. A comprehensive contextual analysis. d. None of the above.
C
4. The debt to tangible equity ratio indicates which of the following: a. The ability of owner's equity to cover all long-term debt in the event of a business downturn. b. The higher the ratio, the less equity to cover debt. c. A high ratio may indicate more risk to lenders, i.e., of management "walking away" in a crisis due to "leverage." d. All of the above.
D
A balanced communication process includes which of the following? a. Lenders must never assume that the findings are correct. b. Lenders must insist on further feedback and justifiable adjustments to these numerical quantifications. c. Ask for critique and comments ensures that alternate interpretations are given equal standing and serious consideration. d. All of the above.
D
Analysts and lenders generally request a "detailed debt schedule" of all long-term obligations from a business, which includes: a. The debt amortization schedule b. Maturity date and assets financed c. The interest rates, and special payment provisions. d. All of the above.
D
Community bankers know the value of which of the following? a. A business plan. b. Management that embraces an early warning mentality. c. Strategic plans that incorporate the five risk environments. d. All of the above.
D
If CAMELS ratings are seriously deficient, the FDIC may take decisive actionto protect the deposits of the bank, including: a. Require a change in Management or the Board of Directors b. Prohibit the bank from operating normally c. Dissolve or sell the bank. d. All of the above.
D
Liquidity ratios include the current ratio and the quick, or acid test ratio. Which of the following formulas reflect the acid test ratio? a. Cash (-) inventory/current liabilities. b. Current assets + accruals/current liabilities. c. Current assets (-) accounts receivable/current liabilities. d. Cash + accounts receivable/accounts payable.
D
Special Credits Officers handle loans that are experiencing financial stress, past due payments, or potentially may default. Their primary role is: a. Dedicated foremost to helping the business management correct its deficiencies and restore debt service capacity. b. They look for solutions to performance issues, as rehabilitation of the credit is preferred. c. Try to avoid liquidating collateral to repay the bank's obligations. d. All of the above.
D
The accounting "Realization Principle" defines: a. When a net loss is realized b. When sales revenues are to be recognized. c. Sales revenues are recognized in the period when the production and delivery of the product or service takes place, also known at "point-of-sale," and for the amount equal to the price to be received. d. Both b. and c.
D
The components of the income statement include: a. Cost of Sales, or Cost of Goods Sold (COGS) and Operating Expenses. b. Gross Profit Margin, Operating Profit, Other Income. c. Other Expense and Net Operating Profit. d. All of the above.
D
The highest professional standard of a financial statement preparation is: a. Company prepared. b. One that has been checked by management's CFO. c. The CPA compiled statement. d. The CPA audited statement.
D
The income statement represents: a. A summary of a business's income, expenses and profits. b. The "operating results" of a business during a specific time period, which is most cases is one year. c. Usually, the twelve-month December 31st income statement as most businesses operate on a "fiscal year." d. All of the above.
D
Weaknesses of Sole Proprietorships include: a. Sole proprietorships often have one primary owner operator responsible for the success of the business. b. Additional capital is more difficult to raise to support rapid growth and may be unavailable if a crisis or financial difficulties arise. c. Limited management depth. d. All of the above.
D
Which regulations prohibit "redlining"? a. Regulation B. b. Dodd Frank. c. The Fair Credit Reporting Act. d. The Community Reinvestment Act.
D
Working Capital represents: a. A mathematical calculation, or the difference between (A) the business's "current assets," and (B) its "current liabilities." b. Funds available to meet its daily needs to operate successfully and pay its current obligations to suppliers, creditors, as well as bank interest and principal. c. The remaining funds after deducting cash and liquidity. d. Both a. and b.
D
The five key business risk environments include: a. Product/service, industry and economic. b. Management retention and labor relations. c. Competitive and production. d. Only a. and c. e. Only b. and c.
D*
5. Review the Activity ratio trend chart for ABC, Inc. below and determine which of the following statements would be accurate: a. AR turnover has deteriorated and is of concern. b. Accounts payable turnover is showing significant deterioration and trade creditors may place ABC on a cash only basis. c. Inventory is well controlled and is showing stability. d. ABC's collection of AR has likely created a cash crisis, forcing past due accounts payable, even with steady inventory control. e. All of the above.
E
A UCA cash flow provides which of the following? a. A full reconciliation of the flow of cash through a business, from sales revenues to ending cash. b. Details as to cash flow's ability to service financing costs and the current portion of long-term debt. c. Estimates capital expenditures. d. Determines if management can take out a loan on longer terms. e. Only a. and b. f. None of the above.
E
A trend where costs of goods sold and operating expenses are rapidly rising may indicate: a. Management has lost control of its expense control drivers. b. The business may be at risk of failure if this trend cannot be reversed. c. Management's plan is effective in generating cash flow. d. There is little risk for lending to a company in the future. e. Both a. and b. f. None of the above.
E
Acceptable Loans are: a. Limited to only a few qualified borrowers. b. Those that credit policy deems desirable and within the risk tolerance of a bank. c. Those that positively meet the credit criteria of the bank. d. Priced according to the years in business. e. Both b. and c. f. All of the above.
E
Accounts receivable (AR) represents: a. Funds owed to the business by those who purchased a product or service from that business. b. Accounts where the buyer who has received the product or service agrees to pay the full balance due to the business within a specified period in time. c. Accounts where payments are always due in 30 days from the delivery date. d. A list of suppliers and when invoices to be paid. e. Only a and b
E
Past due payments on Account Payable to trade creditors are: a. Fraught with risk. b. An "early warning sign" of financial trouble. c. Normal and accepted. d. Measured annually. e. Only a and b
E
The elements of the Historical description should include: a. When the company was formed, where and by whom. b. The ownership structure, percentages of ownership and if public, the company's stock price history. c. Significant events in its history that define what it is today. d. Experience and qualifications of key managers. e. All of the above.
E
The primary duties of Credit Administration include: a. Establish all credit policies governing lending practices b. Approve the credit underwriting methods to be used. c. Establish on-going monitoring and testing of the quality and performance trend of the credit portfolio. d. Approve lending limits for lenders. e. All of the above.
E
The term "leveraging capital" is understood to indicate which of the following: a. The FDIC allows qualified banks that exhibit sound credit risk practices to lend out funds equal to, or in some special cases even greater than, the amount of deposits it has on hand. For most banks, deposits are typically four to five time the amount of the bank's capital. This is "leveraging" capital. b. Qualified banks typically lend out more funds than they have in capital, or a "multiple of capital." This is called "leverage." c. Leveraging capital is simply the difference between a bank's assets and liabilities. d. Capital leverage is a term denoting the unavailability of capital to use for loans due to its need to keep the bank safe and sound. e. Both a. and b. f. None of the above.
E
What three steps help articulate the Industry Environment? a. Define the Industry and recent trends using authoritative sources. b. Relate the industry trend analysis to a possible impact on the product/service of the business under analysis. c. Describe the industry issues that may impact sale of the product or service in the markets serviced. d. Repeat last year's industry risks in the narrative. e. Only a., b. and c.
E
Which of the following are true for corporations? a. Owners are called "stockholders." b. It is legally recognized by as if it were living individual, a "corporate personage." c. It has the right to legal protections and powers, including the right to file lawsuits or purchase real estate and other assets in its own name. d. It can own patents, copyrights, buildings, or even other companies. e. All of the above.
E
With regard to sources and uses of cash, which of the following are accurate: a. An increase in assets is a use of cash. b. An increase in liabilities is a source of cash. c. A decrease in assets is a source of cash. d. A decrease in liabilities is a use of cash. e. All of the above.
E
Contextual analysis in the Four Step analytical process includes: a. The economic risk environment b. The competitive risk environment c. The market share and trend d. The experience of management. e. Business and industry life cycle. f. All of the above.
F
Effective credit cultures established by the CCO consist of at least five additional characteristics that reinforce the Credit Culture statement including: a. Set clear underwriting standards and methods to assess creditworthiness. b. Provide thorough training of credit personnel. c. Ensure the timeliness and accuracy of the risk rating system. d. Provide clarity as to which loans are acceptable and unacceptable. e. Ensure accountability, that every individual in a credit function is equally responsible for risk identification and management. f. All of the above.
F
Which statements are true concerning the Fundamentals and Swing Factors? a. The Fundamentals come from the Income Statement and include Sales, Cost of Sales and Operating Expenses. b. The Swing Factors are found in the Balance Sheet and include Accounts Receivable, Inventory and Accounts Payable. c. The Fundamentals and Swing Factors are known as the Cost Control and Operating Control Drivers. d. Are usually found at the top or beginning of every cash flow chart used by analysts and lenders. e. Only a. and b. f. All of the above.
F
