Credit Analysis Ratios

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Which of the following ratios is used to evaluate a company's ability to pay its short-term debt obligations?

Leverage ratio

Profitability ratio

Liquidity ratio (correct)

Efficiency ratio

What does a low-debt service coverage ratio may indicate?

Potential problems for a company in covering its interest and principal repayments (correct)

A company's high liquidity

A company's high profitability

A company's ability to cover its interest and principal repayments

What does a high debt-to-equity ratio may indicate?

Potential problems for a company trying to service and repay its debt (correct)

A company's high liquidity

A company's high efficiency

A company's high profitability

What do profitability ratios measure and evaluate?

A company's ability to generate profit Signup and view all the answers

What do efficiency ratios measure?

A company's ability to utilize its assets Signup and view all the answers

What does a high current ratio usually indicate?

A company's ability to maximize the liquidity of its current assets to settle debt and payables Signup and view all the answers

What is the primary concern when evaluating a company's capacity to service and repay its debt?

The company's forecasted levels of operating cash flow generation Signup and view all the answers

What is the purpose of analyzing a company's cash flow statement?

To identify the company's sources and uses of funds Signup and view all the answers

What is a possible use of excess cash flows after investing activities are undertaken?

To repay debt Signup and view all the answers

What drives a company's cash flows?

The company's income-producing ability Signup and view all the answers

What is an example of a cash flow trend that may indicate cash flow difficulties?

Increasing receivables Signup and view all the answers

What is a key aspect of evaluating a company's capacity?

Analyzing the company's cash flow statement Signup and view all the answers

What is the primary purpose of analyzing a company's leverage ratios?

To measure the amount of capital that comes from debt Signup and view all the answers

What is the primary concern when evaluating a company's ability to access new equity?

The company's recent success in raising equity Signup and view all the answers

What type of asset is considered redundant if it is not currently used in the business and could be sold to generate cash?

Fixed asset Signup and view all the answers

What is the primary purpose of evaluating a company's working capital?

To assess the company's ability to meet its short-term obligations Signup and view all the answers

What type of debt is considered high-quality if it has a low interest rate and a long repayment term?

Long-term debt Signup and view all the answers

What is the primary purpose of evaluating a company's debt service coverage ratio?

To assess the company's ability to meet its debt obligations Signup and view all the answers