1

What is the starting point when conducting a financial analysis of the performance of a company?

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Review of company financial statements

Ratio analysis

Industry benchmarking

Trend analysis

2

With an end goal in mind, what is the purpose for a credit analyst or commercial banking professional completing a financial analysis?

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To understand a companys overall financial health and credit risk.

To determine the value of a companys publicly traded shares.

To complete M&A Negotiations.

To determine the value of a firm.

3

1. Which of the following is not a part of completing a vertical analysis?

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Comparison of the clients profile to their peer group using third party benchmarks

Comparing line items in a single financial statement to a base figure

Comparison of line items between the balance sheet and income statement

Comparison of the clients profile to another company in the same credit portfolio

4

Financial ratios include:

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Coverage, leverage, and liquidity

Leverage, liquidity, and efficiency

Profitability, efficiency, and coverage

Coverage, leverage, and efficiency

6

Which of the following statements are true when completing a horizontal analysis? Select ALL that apply.

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Analysis can reveal things such as consistent records of sales, or profitability growth.

This analysis can be used to better project future performance and solvency.

Horizontal analysis is usually performed after vertical analysis.

Horizontal analysis is also known as forecast analysis.

7

Which of the following are unique features of a balance sheet? Select ALL that apply.

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The asset section is broken down into two sections: current and non-current assets.

Non-current assets must hold a value of over $1,000,000.

Assets are typically organized in terms of liquidity.

Current assets are expected to be moved off the balance sheet within 18 months.

10

1. Which of the following statements are true?

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Preferred shareholders are not entitled to a specified rate of dividend.

Creditors get paid out first, before shareholders, in a liquidation.

Common shareholders do not have voting rights, but preferred shareholders do.

Common shareholders are paid first, and preferred shareholders get the residual.

11

Why might a credit professional test a client's operating line as some percent other than fully drawn (e.g., 25, 50, or 75%)? Select ALL that apply.

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The client provided detailed projections of utilization as a source of reference

The standard average utilization is always 30% for testing an operating line

A credit professional will always use figures based on a fully drawn operating line

Historical usage patterns reveal that it has never been fully utilized in the past

12

When a credit analyst is reviewing a borrowing request, it can get complex when multiple credit facilities are involved. Why is a sources and uses of funds table important for an analyst when reviewing the request? Select ALL that apply..

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Currently held debt obligations are not relevant when analyzing a new credit request.

It will allow for a lenders adjudication team to evaluate the borrowing request more clearly.

To help a credit analyst better understand what existing debt needs to be refinanced concurrent with the present transaction request.

It will permit clearer discussions with the borrowers management team around the borrowing request.

13

For owner-operated borrowers, which of the following statements is true with respect to understanding management compensation when calculating debt service coverage?

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The analyst must adjust EBITDA for any drawings considered non-discretionary. Removing these dividends will reduce the debt service coverage ratio.

The analyst must adjust EBITDA for any drawings considered non-discretionary. Removing these dividends will increase the debt service coverage ratio.

A decrease in a shareholder loan asset will have a negative impact on a borrowers debt service coverage ratio.

Owner-operators should be permitted to draw funds out of their business to cover personal debt obligations without it impacting the business' financial ratios.

15

What would an unusually high AR days turnover mean for a company?

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AR days turnover does not provide analytical value until converted to receivables turnover ratio.

They are not collecting receivables in an efficient manner.

A high AR days turnover is not desirable, and stricter collection terms are necessary.

Receivables are being collected efficiently, and customers are paying their debts quickly.