• When conducting an annual credit review, which components of the financial statement review are typically looked at? Select all that apply.

1. Comparative analysis
2. Working capital analysis
3. Internal management analysis
4. Decision making abilities

• Which is not a typical component looked at in an annual credit review?

1. Management review
2. Competitor review
3. Business review
4. Security review

• Match the following warning signs to the methods of assessing them.

Decreasing sales volume Increased leverage/gearing Decreased liquidity Declining profitability

Look for changes in the current ratio or quick ratio Look for sales volumes after adjusting for inflation Look for changes in operating profits and profit margins Look for increases in debt funding

• Jim is looking to increase his line of credit limit because he accidentally purchased too much inventory for his business. What are some implications or indications of this request? Select all that apply.

1. Business growth
2. Poor planning
3. Change in customer preferences
4. A problem with cash flow

• What are some principal causes of corporate decline? Select all that apply.

1. Company events
2. Poor management
3. Competition
4. The company paying off debt

• What is not an example of an inadequate financial control?

1. Poorly used management reporting systems
2. Limits on how much management can spend on discretionary purchases
3. Absence of cash flow forecasts, costing systems and budgetary control
4. Inappropriate cost and overhead allocations

• What are the four characteristics of best practice early warning signals used to monitor corporate clients?

1. Employee specific, measurable, monitorable, communication
2. Client specific, monitorable, trigger action, time sensitive
3. Client specific, measurable, monitorable, trigger action
4. Monitorable, trigger action, measurable, employee specific

• What is not a characteristic of the Altman's Z-score model?

1. It can be applied to all types of business
2. It measures divergence
3. It uses financial ratios
4. It assesses the cash flow of the company

• In Altman's Z-score Model, what does X1 refer to?

1. Working Capital / Total Assets
2. Retained Earnings / Total Assets
3. Sales / Total Assets
4. EBIT / Total Assets

• Calculate the Z-score (original version) using the following information:
• Working capital = 150
• Retained earnings = 20
• EBIT = 40
• Sales = 350
• Total Assets = 1000
• X4 = 1.2

1. 1.40965
2. 1.84062
3. 2.20965
4. 1.38012

• What bond rating can we expect for a company with a Z-score (original version) of 2.450 to have?

1. B
2. A
3. BBB
4. BB

• Can default risk be estimated using principles of option theory?

1. NO
2. YES

• Which is not one of the three stages used to calculate expected default frequency (EDF)?

1. Calculate the growth of competitors
2. The expected value of the firm (based on current firm value and volatility)
3. Calculate the market value and volatility of the firm's shares
4. The default point-based on the firm's liabilities

• What is the formula used to determine the most frequent default point?

1. Default rate = current liabilities + (0.5 x current liabilities)
2. Value of firm = current liabilities + (0.5 x long-term liabilities)
3. Value of firm = non-current liabilities + (0.5 x current liabilities)
4. Default chance = non-current liabilities + (0.5 x long-term liabilities)