CFI CBCA Financial Analysis for Credit Exam Questions And Answers (Verified And Updated).

CFI CBCA Financial Analysis for Credit
Exam Questions And Answers (Verified
And Updated)



Course Objectives - (correct answer) --Understand the components that go into financial
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analysis
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-Calculate the key performance ratios that credit professionals use to assess a company's
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profitability and efficiency
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-Calculate the key financial ratios used to assess a company's liquidity, leverage, and
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coverage
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-Undertake a vertical analysis to determine profitability from the income statement and
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proportionality from the balance sheet
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-Undertake horizontal analysis to spot trends and analyze their meaning
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-Perform industry benchmarking j. j.




Vertical & Horizontal Analysis - (correct answer) -Financial Analysis Overview
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Financial analysis includes a number of steps to - (correct answer) -get a complete picture
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of the performance of a company. The starting point is the company's financial
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statements.
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Ratio analysis is great for - (correct answer) -understanding the relationship between the
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income statement and the balance sheet.
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Performing Financial Analysis j. j. j.



Financial analysis must be undertaken with - (correct answer) -an end-purpose in mind.
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This will influence how you conduct and interpret your analysis.
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Credit Analyst - (correct answer) --Understand a company's overall financial health and a
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borrower's credit risk
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-A company's ability to service credit obligations and how to mitigate loan loss in a default
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scenario
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Trend & Ratio Analysis - (correct answer) -Basic Ratio Analysis
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Adjusting Ratios for Distortion j. j. j. j.



Complex Adjustments j.

,Financial analysis is frequently conducted within the context of a specific borrowing
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request. Lenders must - (correct answer) -overlay the proposed credit facilities and loan
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terms on top of financial results to see how financial metrics are impacted.
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A credit professional may conduct the analysis using - (correct answer) -actual
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current/historical results, as well as using projected operating results.
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There are two forms of financial analysis - (correct answer) -Vertical Analysis and
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Horizontal Analysis
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Vertical Analysis - (correct answer) -• Proportional point of view
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• Compares line items in a financial statement to a base figure (e.g. express line items as
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% of revenue) j. j. j.



• Can be used with the income statement to understand profitability
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• Can be used with the balance sheet to understand asset/liability structure
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• Helps benchmark externally
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• Helps benchmark against internal thresholds which flow through to a risk rating
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• Ratios can be compared to industry performance
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• Set expectations and see if ratios fall within expectations
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• If ratios fall outside of expectations, they will help you ask questions of your client
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Horizontal Analysis - (correct answer) -• Provides context both within the company's own
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performance and through comparisons with peer groups
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• Looks at trends in financial statements
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• Benchmarks trends internally and externally against peers across a time period
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• Combining with vertical analysis provides more useful information
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• Allows for consideration of liquidity, solvency, and leverage ratios
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Example: Company A has positive revenue growth of 5% year-over-year j. j. j. j. j. j. j. j. j. j.



• A good indicator, unless the industry was outperforming it year-over-year
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• Raises questions about sustainability, competitive advantage, and strategy
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• What is their strategy to improve their competitive advantage?
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• What threats have they identified and how are they mitigating them?
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Analyzing credit means - (correct answer) -identifying risk to repayment capacity. Falling
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behind industry trends can be indicative of a company in decline
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Ratio Analysis - (correct answer) -Performance Ratios
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Financial Ratios j.




Performance Ratios j.



How profitable a company is and how efficiently it is being run - (correct answer) -
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Profitability Ratios j. j.



Efficiency Ratios j.




Financial Ratios j.

, Financial condition of the company; liquidity, solvency, and how operating cash flow
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covers principal & interest obligations - (correct answer) -Coverage
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Leverage j.



Liquidity

Breaking down the income statement - (correct answer) -Sales Revenue
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Cost of Good Sold
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Gross Profit j.



Indirect Costs j.



Research & Development j. j.



Marketing & Sales j. j.




Sales Revenue - (correct answer) -is the lifeblood of the income statement and is used in
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several of the ratios seen throughout the module.
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Cost of Good Sold - (correct answer) -relates to direct labor and raw materials needed to
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create the product or service that is being sold, as well as depreciation on manufacturing
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equipment used in production.
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Gross Profit - (correct answer) -is what remains to fund the rest of the business' indirect
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costs, after paying the costs that were directly related to what was sold.
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Indirect Costs - (correct answer) -are those expenses required to run the business. The
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most common are research & development, marketing, sales, and general &
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administration.
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Research & Development - (correct answer) -represent costs required to keep up with or
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stay ahead of the competition.
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Marketing & Sales - (correct answer) -represent costs required to get products or services
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out to customers (e.g., advertising).
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Breakdown of income statement - (correct answer) -Sales Revenue j. j. j. j. j. j. j. j.



Direct Costs j.



Gross Profit j.



Research & Development j. j.



Marketing
Sales
Depreciation & Amortization j. j.



General & Administration j. j.



Income from Ops. j. j.



Interest Inc./Exp. j.



Taxes
Net Income
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