Understanding Long-Term Credit Ratings
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Questions and Answers

What is a long-term credit rating primarily a prediction of?

  • The short-term credit risk of the issuer
  • The issuer's profitability over time
  • The likelihood of default and the severity of the loss (correct)
  • The current market value of the issuer

What is a limitation of using credit ratings as a forecaster of default?

  • Credit ratings provide real-time default estimates
  • Default probabilities are updated infrequently
  • Credit ratings are more comprehensive than default probabilities
  • Credit ratings are discrete with a limited number of rating grades (correct)

What distinguishes Credit Models from Credit Analysis?

  • Credit Models involve only qualitative factors
  • Credit Models provide specific quantitative outputs like Probability of Default (correct)
  • Credit Analysis does not consider default probabilities
  • Credit Analysis is updated more frequently than Credit Models

Why can default probabilities be estimated in real-time unlike credit ratings?

<p>Credit ratings are updated very infrequently (D)</p> Signup and view all the answers

What is the primary focus of Credit Analysis in institutions?

<p>A comprehensive process involving both quantitative and qualitative factors (D)</p> Signup and view all the answers

What is a common qualitative analysis aspect in credit analysis?

<p>Footnote Analysis (D)</p> Signup and view all the answers

Which financial ratio is used to analyze a company's liquidity?

<p>Quick Ratio (B)</p> Signup and view all the answers

In credit analysis, what is the pro forma and projections focused on?

<p>Growth Variables (C)</p> Signup and view all the answers

Which financial ratio helps in evaluating a company's leverage?

<p>Total Liabilities / Total Assets (A)</p> Signup and view all the answers

What is a critical component of the PIMCO approach to credit analysis?

<p>Business Fundamentals (A)</p> Signup and view all the answers

How do private firms differ from other institutions in terms of credit ratings?

<p>They don't have credit ratings available. (C)</p> Signup and view all the answers

In credit analysis, what does the EBITDA/Interest Expense ratio assess?

<p>(Interest Expense + Debt Due) / Cash Flow (A)</p> Signup and view all the answers

What does the Debt-to-Equity Ratio measure in credit analysis?

<p>$\frac{Total Debt}{Total Equity}$ (C)</p> Signup and view all the answers

In credit analysis, what is the focus of the Issuer Analysis block in the 4 Blocks approach?

<p>Business Fundamentals (D)</p> Signup and view all the answers

What is a key aspect examined in Cost Structure Analysis within financial analysis?

<p>Variable contribution margin (D)</p> Signup and view all the answers

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