When using ratios associated with solvency, EBITDA (as against EBIT) is a better proxy for estimating the borrower's underlying cash flow in situations where:

A) the borrower has fairly limited capex to be done on an ongoing basis

B) the borrower is required to keep up with continuous spend on intangibles - such as licenses and software development - to remain in business

C) if depreciation is a large percentage of EBITDA, and annual capex generally exceeds the depreciation charge

D) the borrower is required to continuously reinvest heavily in ongoing capex activity

When preparing the cash flow statement with the Net Income as the starting point, which of the following would not be an appropriate adjustment to make in arriving at the Net Cash from Operations?

A) Depreciation for the year should be added back

B) Non-operating gains for the year should be subtracted

C) Increase in inventory for the period should be deducted

D) All of the above are appropriate adjustments

You have met various suppliers and buyers of your borrower (a manufacturer of household consumer products), as part of your 'trade checks'. Amongst the various categories listed below, whose feedback would you not wish to solely rely upon?

A) Group companies of the borrower, who are intermediary buyers of the borrower's product

B) The top 3 supermarket chains in the region

C) A handful of midsized suppliers of raw materials to the borrower

D) Research bureaux tracking product and category sales for consumer products

Legal subordination exists when

A) The lender's priority of claim on the assets or cash flows of the borrower's ranks behind other creditors' claim by virtue of legal preference

B) The lender's priority of claim on the cash flows of the borrower ranks behind other creditors' claims by virtue of timing

C) The lender's priority of claim on the assets and cash flows of the borrower contractually rank behind other creditor's claim

D) Other creditors have better, direct access to the assets and cash flows of group companies

A borrower's continued refinancing of a long-term loan taken years ago to finance a capex programme could signal which of the following:

A) The borrower has been taking advantage of lower interest rates to refinance

B) The capital expansion has not yielded the incremental operating cash flow to repay the instalments

C) Neither of the above

D) Both of the above

When industry players have undertaken significant capital investment activities to enter the industry, and their departure from the industry is likely to leave their assets worthless, (a) entry costs are high (b) entry costs are low (c) exit costs are low (d) exit costs are high

a,c

a.d

b,c

b,d