CFI CBCA CORE COURSE ASSESSMENTS & QUIZZES QUESTIONS WITH CORRECT ANSWERS

CFI CBCA CORE COURSE ASSESSMENTS & QUIZZES QUESTIONS WITH CORRECT ANSWERS "Which of the following statements on collateral is NOT correct? - CORRECT ANSWER Collateral can be used as the main determinant of a credit decision." "Which of the following tools or methods is used to assess the general business environment? - CORRECT ANSWER PEST analysis" "Select the loan contract with the lowest risk. - CORRECT ANSWER A demand loan with monthly payments secured by assets" "Which is not one of the three main financial statements? - CORRECT ANSWER Statement of equity" "Authorized shares - CORRECT ANSWER The total number of shares a company can sell" "Contingencies - CORRECT ANSWER Events that may or may not happen, depending on certain circumstances" "Commitments - CORRECT ANSWER Future obligations that a company has agreed to" "Which of the following tools are used to analyze a company? - CORRECT ANSWER Firm lifecycle, Ansoff's matrix, SWOT analysis" "In assessing the PESTEL factors, consumer disposable income is an example of: - CORRECT ANSWER Economic factors" "Read the following passage and determine which of the PESTEL factors the described business is facing: Fresh and Co. is a local grocery store operating in a small town in Seattle since 2010. The store sells fresh vegetables, fruits, meat, dairy, and other packaged products. In recent years, people in the neighborhood have shown increasing demand for organic farm products. In response, many other grocery stores and supermarkets have started selling organic vegetables and fruits grown by local US farmers. - CORRECT ANSWER Social factors" "Company XYZ sells women's running shoes in two U.S. states. Which option would be considered their SAM (Serviceable Attainable Market)? - CORRECT ANSWER The demand of women's running shoes in the two U.S. states" "Company A sells bottled soft drinks in Australia. Which of the following answers best describes a threat to company A according to a SWOT analysis? - CORRECT ANSWER Customers are purchasing more gym memberships and are becoming more focused on their health" "Company B is a technology company which primarily sells products to middle-class individuals. If the average middle-class income falls, which PESTEL factor would be affected? - CORRECT ANSWER Economic" "When a company is developing their outlook through conducting a market analysis, which areas should they consider? Select all that apply. - CORRECT ANSWER Population growth expectations in the region, Spending plans of the relevant government, Favorable or unfavorable legislation, Unemployment rates" "Which of the following three statements are true? Select the best answer. I.There is a tendency to focus on financial issues rather than management issues II.Management ability is a key driver of business results III.Businesses often fail as a result of management weaknesses - CORRECT ANSWER All statements are true" "Which is not an example of a strategy scorecard measure? - CORRECT ANSWER Sales growth" "Which is not a questioning skill used to gather more information? - CORRECT ANSWER Using straightforward yes/no questions" "Which type of attitude is specific to management looking into a strategy if the firm's largest customers stopped purchasing from the firm tomorrow? - CORRECT ANSWER Attitude to business risk" "According to the study conducted on internal barriers to growth, which was the least important factor out of this list? - CORRECT ANSWER Lack of successful innovation" "If a company has an aim to grow and plans to exit by sale of the business or flotation, what type of ownership style is this? - CORRECT ANSWER Business-oriented" "What level of strategy would focus on market positioning strategies to gain a competitive advantage? - CORRECT ANSWER Business-level" "Which of the following is an example of a strategy? - CORRECT ANSWER Create a promotional offer to increase the sale of food products" "Which components should be analyzed when assessing the track record of a company? Select all that apply. - CORRECT ANSWER Previous statements, Budget vs. actual, Historic promotional success" "What is the difference between budget and actual performance called? - CORRECT ANSWER Budget variance" "Which of the following activities impacts the long-term cash flow? - CORRECT ANSWER Purchase PP&E" "Calculate the ROI based on the cash flows of each year: 2020 Cash Flows -$2,000 2021 Cash Flows $100 2022 Cash Flows $300 2023 Cash Flows $500 2024 Cash Flows $700 2025 Cash Flows $900 - CORRECT ANSWER ROI = 25% = 2025 Cum. Cash Flows / Minimum Cum. Cash Flows" "Calculate the net cash provided by the operating activities based on the information below: Net income: 60,000 Depreciation: 25,000 Increase in accounts receivable: 12,000 Increase in inventory: 8,000 Increase in accounts payable: 15,000 - CORRECT ANSWER 80,000 = Net Income + Depreciation - Increase in accounts receivable - Increase in inventory + Increase in accounts payable" "Calculate the total capital expenditure of 2018 based on the information below: 2017 PP&E: 43,000 2018 PP&E: 65,000 2017 Depreciation: 10,000 2018 Depreciation: 12,000 - CORRECT ANSWER = 34,000 = 2018 PP&E - 2017 PP&E + 2018 Depreciation" "Calculate the company's free cash flow for the current year based on the information below: Net income: 60,000 Depreciation: 25,000 Increase in accounts receivable: 12,000 Increase in inventory: 8,000 Increase in accounts payable: 15,000 Capital expenditures: 45,000 Increase in long-term debt: 15,000 - CORRECT ANSWER Cash from Operations = Net income + Depreciation - Increase in accounts receivable - Increase in inventory + Increase in accounts payable = 80,000 Free cash flow = Cash from Operations - Capital Expenditures Free cash flow = 35,000" "What is the starting point when conducting a financial analysis of the performance of a company? - CORRECT ANSWER Review of company financial statements" "With an end goal in mind, what is the purpose for a credit analyst or commercial banking professional completing a financial analysis? - CORRECT ANSWER To understand a company's overall financial health and credit risk." "Given the table below, calculate the annual debt service obligation using the PMT function in Microsoft Excel: Loan Amount $75,000 Interest Rate 4.75% Periods (Term in Years) 6 Compounding Periods per Year 1 Monthly Payment? - CORRECT ANSWER = $14,658.38" "What would a low AR days number, compared to the industry, mean for a company? - CORRECT ANSWER Receivables are being collected efficiently, and customers are paying their debts quickly." "Which of the following statements are true when completing a horizontal analysis? - CORRECT ANSWER Horizontal analysis is usually performed after vertical analysis. This analysis can be used to better project future performance and solvency. Analysis can reveal things such as consistent records of sales, or profitability growth." "Which of the following statements are true when completing a horizontal analysis? Select ALL that apply. - CORRECT ANSWER Protect inputs by locking input cells" "Complex financial models are all of the following EXCEPT: - CORRECT ANSWER They are easy to follow and audit" "Forecast the 2019 Cost of goods sold on the previous year's number and the assumptions 2018 Actual Sales Growth 6% Gross Margin 40% Revenues 50,000 Cost of Goods Sold 30,000 2019 Estimate Sales Growth 8% Gross Margin 40% - CORRECT ANSWER = 32,400" "Forecast the accounts receivable for Company XYZ using the following annual information. Receivable days assumption = 55 days Payable days assumption = 69 days Forecasted revenue = $263,500 Forecasted cost of goods sold = $114,780 - CORRECT ANSWER = 39,705 = Receivable days assumption*Forecasted revenue/365 days" "Which of the following may indicate low-quality inventory? - CORRECT ANSWER There is a limited shelf-life" "Which of the following is NOT an aspect to consider when evaluating the quality of machinery and equipment? - CORRECT ANSWER The cost to maintain the asset" "Which of the following are aspects to consider when evaluating the quality of machinery and equipment? - CORRECT ANSWER The market value of the asset, The life expectancy of the asset, The condition of the asset" "Which is a typical source of information used in ascertaining the value of the real property? - CORRECT ANSWER Real estate listings" "It is the legal counsel's responsibility to: (Select ALL correct answers) - CORRECT ANSWER Ensure that the security is properly registered. Advise the borrower that the lender can pursue all their assets in the event of default." "Which of the following is NOT correct on security registration and documentation? - CORRECT ANSWER It is the borrower's responsibility to ensure that the loan security documentation is properly completed and registered." "Which of the following are correct on security registration and documentation? - CORRECT ANSWER Common Security documentations include mortgage appraisal, assignment of leases and rents, and general security agreement. The registration of the security is done differently in various jurisdictions around the world. It is the lender's responsibility to ensure all loans are adequately secured." "Which of the following is NOT a benefit of including covenants in a loan agreement? - CORRECT ANSWER Covenants protect lenders by reducing their financial loss in the event of default." "Which of the following is a benefit of including covenants in a loan agreement? - CORRECT ANSWER Covenants restrict borrowers from taking actions that can increase the risk for the lenders; Covenants provide borrowers with clear expectations of the lenders; Covenants reduce the cost of borrowing because lenders are more willing to provide a lower interest rate when they can impose restrictions." "Select ALL the non-financial covenants from the list. - CORRECT ANSWER The company cannot change its business operations; The company must maintain minimum insurance coverage of 2 million." "Select the correct formula to calculate the quick ratio. - CORRECT ANSWER Quick Ratio = (Cash & Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities" "Select the correct formula to calculate the working capital ratio. - CORRECT ANSWER Working Capital Ratio = Current Assets / Current Liabilities" "Which of the following scenarios is most likely to indicate high lending risk? - CORRECT ANSWER Low interest coverage ratio" "What is the best next step when there is a breach of a loan covenant? - CORRECT ANSWER Investigate why the breach happened" "Calculate debt service coverage ratio (using EBITDA instead of EBIT) based on the company's financial information below: Net Operating Profit: 12,000 Depreciation & Amortization: 2,000 Accounts Payable: 2,000 Line of Credit: 2,500 Current Portion of Long-Term Debt: 3,000 Interest Expense: 800 - CORRECT ANSWER = 2.2 = 12,000+2,000/(2,500+3,000+800)" "Which debt repayment profile pays only interest throughout the loan term, and pays off the full principal at the end of the loan term? - CORRECT ANSWER Bullet repayment" "Which of these business categories are not on the banking spectrum? - CORRECT ANSWER Company banking" "Which of these business categories are on the banking spectrum? - CORRECT ANSWER Corporate Banking Commercial Banking Business Banking" "Which of the following components make up the overall interest rate that is charged on the client's loan? - CORRECT ANSWER Spread + Cost of Funds" "Based on the following scenarios, choose which company's loan request would have the least favorable loss given default score. - CORRECT ANSWER Company Y is requesting a loan to finance the acquisition of a smaller company in their industry." "Which of the following is NOT part of the risk-adjusted return formula? - CORRECT ANSWER Capital Requirement" "Which of the following is part of the risk-adjusted return formula? - CORRECT ANSWER Interest Revenue Closing Fees Exposure at Default" "Using the following information, calculate the risk-adjusted return. •Loan Amount: $10,000,000 •Interest Rate: 5.0% •Cost of Funds: 2.75% •Fees: 10,000 •Expenses: 5,000 •Loss Given Default Rate: 25% •Default Probability: 0.5% - CORRECT ANSWER = 217,500" "Using the following information, calculate the risk-adjusted capital. •Loan Amount: $10,000,000 •Capital Requirement: 12% •Capital Ratio: 25% - CORRECT ANSWER $300,000" "Using the following information, calculate the RAROC. •Risk-Adjusted Return: $80,000 •Loan Amount: $3,000,000 •Capital Requirement: 10% •Capital Ratio: 75% - CORRECT ANSWER 35.56%" "Which of the following was NOT discussed in this course within the context of client negotiation levers? - CORRECT ANSWER Loan Type" "Which of the following was discussed in this course within the context of client negotiation levers? - CORRECT ANSWER All-in Rate Amortization Period Loan to Value" "Why do private lenders generally operate lower down the capital stack compared to financial institutions? - CORRECT ANSWER Financial institutions are readily accessible and are often the first place companies go for loans, leaving only more risky borrowers for private lenders." "Using our risk rating and profitability model, compare two scenarios regarding a loan issuance. Compare the ratios of the two scenarios below: Scenario 1 Scenario 2 Debt Service Coverage Ratio1.89 5.19 Adjusted EBITDA/Interest8.85 9.09 Debt/Equity0.86 0.86 Total Liabilities/Tangible Net Worth1.78 1.78 Current Ratio2.03 2.03 If the company's balance sheet is the same for both scenarios, what could have caused the changes in the ratios for Scenario 2? - CORRECT ANSWER Longer amortization period in the loans." "Which of the following statements is true about writing in the active voice? - CORRECT ANSWER Active voice improves reading flow, allowing the reader to understand the message quicker." "Which three factors out of the 5Ws and H are most important for business writing preparation? - CORRECT ANSWER How, who, why" "Which is NOT one of the three most important factors to consider before you begin your business writing? - CORRECT ANSWER Topic" "Which of these statements about reducing mental effort is FALSE? - CORRECT ANSWER It takes less time to write" "Which of these statements best represents inverting the pyramid? - CORRECT ANSWER I was injured yesterday playing soccer. I fell and sprained my ankle. One of the players on the other team tripped me while I was trying to get past him." "Which of the following best describes the 'Question' of the SCQA method of writing? - CORRECT ANSWER The question is the problem that needs to be addressed." "Which of the following is NOT a component of a credit application? - CORRECT ANSWER Comparable Company Analysis" "Which of the following is a primary reason for why the ownership structure of a company is important for the credit application? - CORRECT ANSWER Knowing the ownership structure gives an idea of who the primary decision-makers are and the effectiveness of the decision-making process." "What does a proper loan structure accomplish for the borrower and the lender? - CORRECT ANSWER Satisfies financial needs; optimizes profitability" "Which of the following statements is TRUE about reviewing a borrower's history and background? - CORRECT ANSWER For existing borrowers, the most important part of the annual review process is to review changes that have occurred since the last review." "Which of the following is considered an external factor for the automotive industry? Hint: Factors for industry analysis are based on how they affect the borrower's industry, not just the borrower. - CORRECT ANSWER Global economic experts predict an upcoming recession." "Which of the following is TRUE regarding management analysis? - CORRECT ANSWER Management analysis is more important when dealing with a high-risk borrower than a low-risk borrower." "What factors should you pay attention to when evaluating a company's financial standing? - CORRECT ANSWER Profitability, operational performance, balance sheet health, cash flow, and debt service coverage" "Which of the following statements is TRUE regarding loan security? - CORRECT ANSWER Loan security protects the lender's claim against unforeseen and unfavorable events." "What is the purpose of loan covenants? - CORRECT ANSWER To require or restrict the borrower from doing something that could affect their creditworthiness." "What should NOT be included in the conclusion and recommendation section of the credit application? - CORRECT ANSWER A short summary of the points discussed throughout the application." "Stampede's A/R turnaround days are higher than industry benchmarks. Despite this, why is this not considered a warning signal against lending to the company? - CORRECT ANSWER Stampede purposely extends favorable payment terms to one of their key customers as part of its business strategy." "Which of the following is a factor that should have been included or discussed in Stampede's credit application? - CORRECT ANSWER Succession planning regarding the likely impending retirement of the CEO." "What is one of the most important writing rules to keep in mind when writing the credit application? - CORRECT ANSWER Any information presented should be concise, clear, well-structured, and relevant. Any redundant or irrelevant details should be left out." "Select ALL of the statements regarding environmental comments that are TRUE. - CORRECT ANSWER Environmental assessments need to be conducted if commercial real estate is taken to secure a loan. One of the goals of an environmental assessment is to identify how environmental hazards may impact the value of the property as collateral for the loan. Environmental due diligence should be conducted on companies whose operations create significant externalities around their properties." "Stampede's financial growth is slowing down. Despite this, their credit application for a $5 million fixed-term loan was still approved. What does this tell us about the credit analysis process? - CORRECT ANSWER Credit analysis evaluates the company holistically, looking at all factors that affect debt service, not just financial analysis." "Which of the following is NOT true about moral principles? - CORRECT ANSWER The same moral principles are always shared among and followed by different social groups." "Which of the following is true about moral principles? - CORRECT ANSWER Moral principles are principles of right and wrong that are accepted by an individual or a group. The moral principles of an organization will govern the conduct of the individuals within the organization. Businesses have a set of applied or professional moral principles that are relevant to them." "Which are desired outcomes when trying to reduce the ethics risks in the workplace? Select ALL correct answers. - CORRECT ANSWER A decrease in observed misconduct Reduced retaliation for reporting" "What's the best way to manage the situation where individuals rationalize committing misconduct in an organization? - CORRECT ANSWER By communicating corporate values and emphasizing those values" "What is the main role of the supervisory level in an organization to create an ethical culture? - CORRECT ANSWER Reinforcing ethical behavior" "Which code of conduct and ethics policy will you violate if you influence the hiring manager to recruit your cousin in a position that he's not qualified for? - CORRECT ANSWER Conflict of interest" "Select the ALL correct statements on whistleblowing. - CORRECT ANSWER The best practice of whistleblowing is to report illegal acts to your direct manager. External investigators are a better option compared to internal audit for investigating the whistleblowing report. Whistleblowers tend to be company insiders who have a strong moral compass. It's important to keep the whistleblower anonymous through a confidential whistleblower reporting mechanism." "Which example could impair independence in appearance? - CORRECT ANSWER One of your family members is connected to a client of your organization." "You started a new full-time job a few weeks ago and you just learned that your family owns part of a business that provides services to your employer. What should you do? - CORRECT ANSWER Disclose the conflict of interest to your manager." "Which of the following signs indicate weak ethical culture in an organization? Select ALL relevant signs. - CORRECT ANSWER Employees are encouraged to do whatever it takes to achieve their goals. Individuals often rationalize their behavior by saying "everybody does it."" "Select the FALSE statement on the five ethical approaches to decision making. - CORRECT ANSWER Based on the justice approach, you should treat people differently to provide the greatest good for the greatest number." "Which of the following statements show the strength of a company's character when assessing the management team? - CORRECT ANSWER -Realistic and responsive business plans -Management team has clear and well thought out succession plans -Setting up an independent board of directors allows for counsel and guidance on the business. -The performance measures should be aligned with the business plan." "DSCR = - CORRECT ANSWER = Operating Profit / (Interest + Principal Repayments)" "Porter's 6 Forces, PEST Analysis, SWOT Analysis - CORRECT ANSWER Porter's 6 Forces- Analyze industry attractiveness PEST Analysis- Assess the general business environment SWOT Analysis- Assess the competitive position of a company" "Purpose of the income statement - CORRECT ANSWER Show the revenues, expenses, and operating profit of the financial year" "The notes to the financial statements are important to - CORRECT ANSWER Understand the overall financial position of the company" "Where can you find information regarding share-purchase warrants or options? - CORRECT ANSWER Notes section - share capital" "Goodwill = - CORRECT ANSWER = Purchase price - fair value of net assets acquired" "If Company A issues $10,000 worth of shares, which of the following are impacted? - CORRECT ANSWER -cash on the balance sheet -share capital on the balance sheet -common shares section on equity statement" "For a sole proprietorship, what is shareholders' equity called? - CORRECT ANSWER Owner's Equity" "Which statements describe operating cash flows? - CORRECT ANSWER -Representative of the lifeblood of the company -Relates to day-to-day business of the company -Used to finance the investing activities of the company" "Place the levels of financial reports into degrees of comfort that the financial statements fairly represent the activities of the business - CORRECT ANSWER -Auditor's report (unqualified opinion) (high) -Review engagement report (moderate) -Auditor's report (adverse opinion) (low) -Notice to reader report (lowest)" "Which of the following ratios provide insight into the solvency of a company? - CORRECT ANSWER -Debt to equity ratio -Debt service coverage ratio" "Match the following tools to the corresponding levels in the framework for analyzing business growth - CORRECT ANSWER External economy - PESTEL Analysis Industry - Porter's Five Forces and Industry Lifecyle Company - Competitive advantage, Ansoff matrix, and firm lifecycle" "Lenders are likely to lend to companies in all of the following stages of the industry lifecycle except for: - CORRECT ANSWER Launch" "Drag the examples into their corresponding categories of a balanced scorecard to measure business performance - CORRECT ANSWER Financial metrics - operating margin, EPS Management metrics - planning abilities, growth mindset Customer metrics - Reviews, net promoter score Strategy metrics - detailed roadmap, PEST analysis" "Which forecasted financial metrics are commonly used to assess management's optimism? - CORRECT ANSWER Revenue, EBITDA" “What is the main goal of using business writing fundamentals? - CORRECT ANSWER To reduce mental effort" "Which of the following statements describes a "Capacity" strength or weakness for a company in the 5 Cs of credit framework? - CORRECT ANSWER The net profit margin ratio is high." "Which of the following statements describes a "Condition" strength or weakness for a company in the 5 Cs of credit framework? - CORRECT ANSWER The risks associated with the industry are high." "Which of the following scenarios would NOT be considered a strength when assessing the management team as part of evaluating a company's character? - CORRECT ANSWER Financial reports are not widely shared and performance measures have not been identified." "Which of the following ratios most likely indicates strong "Capacity" for a company? - CORRECT ANSWER High asset turnover ratio" "Select the correct formula to calculate the operating margin ratio. - CORRECT ANSWER Operating Margin Ratio = EBIT / Revenue" "Select the correct formula to calculate the inventory turnover ratio. - CORRECT ANSWER Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory" "Which of the following most likely indicates strong "Capital" for a company? - CORRECT ANSWER Unutilized lines of credit or loans" "What does the balance sheet indicate? - CORRECT ANSWER The financial strength of the business" "Financing activities - CORRECT ANSWER Issuing shares and bonds" "Operating activities - CORRECT ANSWER Payments to suppliers; Depreciation and amortization expense" "Investing activities - CORRECT ANSWER Buying and selling equipment" "Which is not a section in the financial statement note disclosures? - CORRECT ANSWER Management discussion and analysis" "Balance Sheet - CORRECT ANSWER Retained earnings; Share captial" "Income Statement - CORRECT ANSWER Rent expense" "Cash Flow Statement - CORRECT ANSWER Sale of property, plant and equipment" "If a company has net assets equal to $3.25 million but is sold for $5.35 million, how much goodwill does the acquirer record on their balance sheet? - CORRECT ANSWER $2.1 million" "Intangible assets - CORRECT ANSWER Items of value, which have no physical substance, that are used to generate revenues" "If a company issues 60,000 shares at $0.25 each but the shares have a par value of $0.20 each, what is the resulting contributed surplus? - CORRECT ANSWER $3,000" "What line item is not found in the statement of shareholders' equity? - CORRECT ANSWER Debt issued or repurchased" "What is not true about a partnership? - CORRECT ANSWER Partners cannot be held liable for a debt" "Which line item usually accounts for direct labor? - CORRECT ANSWER Cost of goods sold" "Select the statements below which are true. Select all that apply. - CORRECT ANSWER Depreciation and amortization are non-cash expenses; A company can be profitable but experience negative cash flows" "What are the 4 types of audit opinions? - CORRECT ANSWER Adverse, unqualified, qualified, and disclaimer of opinion" "Which of the following statements regarding a review engagement is false? - CORRECT ANSWER A review engagement is used for financial statements prepared for internal use" "Select the following key lending ratios used to evaluate the financial capacity of a business (select all that apply). - CORRECT ANSWER Debt to equity ratio; Working capital ratio" "Which of the following tools is NOT used to analyze a company? - CORRECT ANSWER Porter's five forces" "Read the following passage and determine which of the PESTEL factors the described business is facing: Mountain Transportation is a trucking company that provides in-door deliveries of electronic products purchased through large consumer electronics retailers in the US. Shawn, a truck driver at Mountain Transportation, has filed a lawsuit with the company regarding a violation of the Hours of Service regulations for commercial drivers. Shawn claims that he has been forced to work over 70 hours for the past couple weeks, due to a high volume of customer orders. According to the Hours of Service regulations, all commercial drivers may not drive after 60 hours on duty in 7 consecutive days and may only restart after taking 34 or more consecutive hours off duty. (Source: "When competition within an industry is high, which of the following is most likely to be true? - CORRECT ANSWER Buyers have high bargaining power" "Which of the following is most likely true for companies at the maturity stage of the industry lifecycle? - CORRECT ANSWER Sales > Cash Flow > Profit" "According to the growth/share matrix, companies at maturity have: - CORRECT ANSWER Low market growth and high market share" "At which stage of the firm lifecycle would a company most likely have high business risk, low financial risk, and generate neutral net cash flow? - CORRECT ANSWER Growth" "Read the following passage and determine which of the following strategies the business uses in creating solid relationship with its customers. Innovation Co. is an international smartphone manufacturer which currently holds more than 15% of global smartphone market share. One of the superior product features it offers (seamless integration with any smart devices including televisions, smart home electronics, and home assistance) is the selling point of the company's latest smartphone series, creating a huge competitive advantage over its competitors. This premium feature also allows Innovation Co. to charge an above-average price while maintaining a loyal customer base. - CORRECT ANSWER Best product" "Which of the following strategies describes a company's attempt to enter into new markets with its existing products? - CORRECT ANSWER Market development" "Which of the following strategies describes a company's attempt to enter into new markets with new products? - CORRECT ANSWER Diversification" "According to the course, which is the most important section of the business plan? - CORRECT ANSWER Executive Summary" "In which section of a business plan can you find the name of the company's lawyer? Select the best answer. - CORRECT ANSWER Company Description" "Which SMART component is the following goal missing? In 2020, Company ABC's Canadian operations generated $90M of revenue, and in 2021 the Canadian operations generated $98M of revenue. Their goal is to achieve $100M of revenue in their Canadian operations in the near future. - CORRECT ANSWER Timely" "Where would you most likely find information regarding the hierarchical or flat structure of the organization? Select the best answer. - CORRECT ANSWER Management and Operations" "What is a benefit of having a small number of suppliers for a company's products? - CORRECT ANSWER Better relationship which can result in better repayment terms" "Which risks may be associated with the location of a firm's operations? Select all that apply. - CORRECT ANSWER Regulatory risk, Foreign exchange risk, Geo-political risk" "Which of the following strategies is most likely to shorten the working capital funding gap? - CORRECT ANSWER Extend payments to suppliers" "Calculate accounts receivable days based on the information below: Revenues: 2,500,000 Costs of goods sold: 1,600,000 Days in period: 365 Receivables: 300,000 Inventories: 150,000 Payables: 200,000 - CORRECT ANSWER 43.8 = (AR/Revenue)*Number of days in year" "What's the company's working capital funding gap in days based on the information below? Receivable days: 47.2 Inventory days: 34.5 Payable days: 45.6 Days in the period: 365 - CORRECT ANSWER 36.1 days = inventory days + receivable days - payable days" "Based on the information below, how much does the company need to finance the working capital funding gap and how much is the lender willing to provide? Funding gap (days) 35 Days in period 365 Revenues 2,500,000 Cost of goods sold 1,600,000 Receivables balance 300,000 Up to 50% Inventories balance 150,000 Up to 50% - CORRECT ANSWER Financing Required = 153,425 = Cost of goods sold * Funding gap (days) / Days in period Financing Allowed = 225,000 = Receivables + Inventories" "The cash conversion cycle measures: - CORRECT ANSWER The number of days it takes for a company to turn its resource inputs into cash" "Which of the following is not a part of completing a vertical analysis? - CORRECT ANSWER Comparison of line items between the balance sheet and income statement" "Which of the following is a part of completing a vertical analysis? - CORRECT ANSWER Comparing line items in a single financial statement to a base figure; Comparison of the client's profile to another company in the same credit portfolio; Comparison of the client's profile to their peer group using third party benchmarks" "Financial ratios include: - CORRECT ANSWER Coverage, leverage, and liquidity" "The gross profit margin is calculated as... - CORRECT ANSWER (Revenue - COGS) /Revenue" "Which of the following are unique features of a balance sheet? Select ALL that apply. - CORRECT ANSWER The asset section is broken down into two sections: current and non-current assets; Assets are typically organized in terms of liquidity." "Efficiency ratios are important to look at how efficiently a company is using its assets. An example of this would be the Asset Turnover Ratio, which is calculated as... - CORRECT ANSWER Net sales /Total (or net) Assets" "Which of the following is not considered a financing activity that you would see on the cash flow statement? - CORRECT ANSWER Additions of PP&E" "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. - CORRECT ANSWER The client provided detailed projections of utilization as a source of reference; Historical usage patterns reveal that it has never been fully utilized in the past; A credit professional will always use figures based on a fully drawn operating line" "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.. - CORRECT ANSWER It will allow for a lender's adjudication team to evaluate the borrowing request more clearly; It will permit clearer discussions with the borrower's management team around the borrowing request" "For owner-operated borrowers, which of the following statements is true with respect to understanding management compensation when calculating debt service coverage? - CORRECT ANSWER The analyst must adjust EBITDA for any drawings considered "non-discretionary". Removing these dividends will reduce the debt service coverage ratio." "What formula below can be used to forecast inventory? - CORRECT ANSWER = Inventory days * Cost of sales / 365" "Which of the following items can be found in a published cash flow statement under "operating activities"? Select ALL correct answers. - CORRECT ANSWER Changes in operating assets and liabilities, Depreciation" "What is the total cash from operating activities based on the information below? Net income: 500 Depreciation: 80 Increase in receivables: 100 Increase in inventory: 50 Increase in payables: 60 - CORRECT ANSWER = 490 = Net income + Depreciation - Increase in receivables - Increase in inventory + Increase in payables" "Calculate the end of the year cash balance based on the information below: Beginning of the year cash balance: 2,000 Net income: 300 Depreciation: 140 Increase in accounts payable: 60 Acquisitions of PP&E: 580 Dividends paid in the current year: 130 Increase in long-term debt: 200 - CORRECT ANSWER = 1,990" "Which Excel function or tool will you use to display the cells that are referred to by a formula in the selected cell? - CORRECT ANSWER Trace Precedents" "What is the forecasted value of property, plan and equipment (PP&E) based on the following information: Capital asset turnover ratio: 2.5 Forecasted revenues: $120 Forecasted costs of goods sold: $80 - CORRECT ANSWER = 48 Capital asset turnover ration = Revenue / PP&E (Average)" "What is the impact on cash flow from operations in the current year based on the change in operating assets and liabilities listed below? Prior Year Accounts receivable 1,725 Inventories 1,535 Accounts payable 1,325 Current Year Accounts receivable 1,825 Inventories 1,785 Accounts payable 1,475 - CORRECT ANSWER = -200" "What's the forecasted capital expenditure based on the information below? Net PP&E beginning of period: 15,000 Net PP&E end of period: 17,500 Depreciation expenses: 2,400 - CORRECT ANSWER = 4,900 = Net PP&E end of period - Net PP&E beginning of period + Depreciation expenses" "What's the retained earnings end of period based on the information below? Retained earnings beginning of period: 7,500 Net income: 2,300 Dividends paid: 1,700 - CORRECT ANSWER = 8,100 = Retained earnings beginning of period + Net income - Dividends paid" "What's the depreciation expense based on the information below? Depreciation (percent of sales): 4% Revenues: 60,000 Gross profit: 25,000 PP&E: 40,000 - CORRECT ANSWER = 2,400 = Depreciation (percent of sales)*Revenues" "What's the forecasted EBIT based on the information below? Revenues: 56,000 Cost of goods sold: 32,000 SG&A: 8,500 Depreciation: 2,700 Interest: 1,200 Taxes: 3,800 - CORRECT ANSWER = 12,800 = Revenues - Cost of goods sold - SG&A - Depreciation" "Select ALL the direct securities from the list below. - CORRECT ANSWER Inventory, buildings, intellectual property" "Which of the following does NOT describe the fixed charge of security? - CORRECT ANSWER The borrower can trade its assets unless there's a default on the loan payment." "Which of the following does describe the fixed charge of security? - CORRECT ANSWER Securities with fixed charges are usually made up of non-current assets; The financial institute has the legal rights to the asset; The financial institute can take possession of the asset to settle the debt in case of loan default." "Which of the following is typically used as floating charge security? - CORRECT ANSWER Accounts receivable" "Which of the following is NOT typically used as floating charge security? - CORRECT ANSWER Machinery, land, letter of comfort" "If a loan is secured by a limited corporate guarantee, what will happen when the borrower is unable to repay the debt? - CORRECT ANSWER The lender has the right to pursue the assets of the company within a specific dollar amount." "Which of the following security assets are considered personal property? Select ALL correct answers. - CORRECT ANSWER Bonds and equities, Consumer goods" "Which of the following security assets are NOT considered personal property? Select ALL correct answers. - CORRECT ANSWER Land, Factories, Office buildings" "Calculate funded debt to EBITDA ratio based on the company's financial information below: Net Operating Profit: 12,000 Depreciation & Amortization: 2,000 Accounts payable: 2,000 Line of Credit: 2,500 Current Portion of Long-Term Debt: 3,000 Non-Current Portion of Long-Term Debt: 15,000 - CORRECT ANSWER = 1.5 = (15,000+3,000+2,500)/(12,000+2,000)" "If a company takes out a 5-year equally amortizing loan of 20,000, and 6 months later purchases equipment with that loan, what will happen to its financial statements? - CORRECT ANSWER Current portion of long-term debt will increase by 4,000." "Monitoring - CORRECT ANSWER It involves determining new level of credit risk associated with a borrower." "Documentation - CORRECT ANSWER It provides timely, relevant and thorough information for loan approval, security and monitoring." "Re-classifying - CORRECT ANSWER It involves undertaking regular reviews of a borrower's financial statements and evaluating changes in a borrower's business." "Which of the following statements is NOT true about credit administration? - CORRECT ANSWER Credit administration is about documentation, ongoing monitoring, and possibly re-classifying a borrower before a loan has been made." "Which of the following statements are true about credit administration? - CORRECT ANSWER Appropriate credit administration and documentation practices allow for better information for more informed decision regarding actions taken towards a borrower's account. Proper credit documentation practices allow for more flexibility to respond to changes in a borrower's circumstances. Credit administration is important for identifying problems in a borrower's account and reducing the risk of credit default." "Loan approval documentation - CORRECT ANSWER Term sheet, loan agreement, commitment letter" "Monitoring documentation - CORRECT ANSWER Annual review; monthly/quarterly report" "Which of the following is the correct order of documentation submission in the loan approval process? - CORRECT ANSWER Loan application -> Term sheet -> Commitment letter -> Loan agreement" "What is a term sheet? - CORRECT ANSWER A non-binding agreement given to the borrower that summarizes primary terms including the interest rate, time to maturity, and security." "What are covenants? - CORRECT ANSWER Clauses in a loan agreement outlining what a borrower must maintain or what they are restricted from doing." "Which of the following are monitoring documents commonly provided by a borrower on a monthly or quarterly basis? Select all correct answers. - CORRECT ANSWER Compliance certificates, Unaudited financial statements, Tax returns" "Financial statement review - CORRECT ANSWER Involves re-assessing the cash flow and financial position of the borrower." "Security review - CORRECT ANSWER Involves re-assessing any assets that are being used as protection in the case of default." "Management review - CORRECT ANSWER Involves re-assessing any changes that have occurred within management that may impact the business' ability to tackle potential issues." "Business review - CORRECT ANSWER Involves re-assessing the direction of the business, potential opportunities, and other issues the company is facing." "Which of the following is NOT a reason to perform an annual review on a borrower? - CORRECT ANSWER An annual review gives a borrower a sense of general loan parameters such as the interest rate, time to maturity, and security." "Which of the following is a reason to perform an annual review on a borrower? - CORRECT ANSWER An annual review provides an opportunity to do a comprehensive re-assessment. An annual review allows a lender to re-assess and meet a borrower's changing needs. An annual review helps a lender identify a borrower's business trends, early warning signs and mitigate credit risk." "Which of the following activities will be performed during a security review? - CORRECT ANSWER A re-assessment of personal and corporate guarantors." "Which of the following is the best reason to take on debt instead of equity? - CORRECT ANSWER Debt is non-dilutive." "Which of the following types of debt ranks the LOWEST on the capital stack? - CORRECT ANSWER Mezz unsecured" "Which of the following are NOT one of the analysis framework tools used to evaluate the qualitative elements (business, industry and management analysis) in our risk rating model? - CORRECT ANSWER Sensitivity Analysis" "Which of the following is one of the analysis framework tools used to evaluate the qualitative elements (business, industry and management analysis) in our risk rating model? - CORRECT ANSWER Porters Five Forces PESTEL Analysis Business Analysis Scorecard" "In our risk rating model example, we looked at a scenario that improved Atlas' risk rating from "Moderate Risk" to "Low Risk". As a result, the RAROC for each of its loan facilities increased significantly. Which of the following changes to the inputs in the RAROC calculation, in response to the improved risk rating, did NOT contribute to this increase in the RAROC? - CORRECT ANSWER A decrease in capital requirement" "Choose the statement that best describes business writing. - CORRECT ANSWER Business writing focuses on meeting a need and delivering a conclusion for a problem." "Choose the statement that is most correct regarding writing for different audiences. - CORRECT ANSWER Business writing aimed at a director should be short and concise because they are very busy and only have small amounts of time to process the information." "Compare the following two sentences. As of the most recent safety meeting regarding equipment, there have been a number of grievances that have been raised. We have received complaints about equipment safety. Identify which plain language techniques were used to re-write the first sentence into the second sentence. - CORRECT ANSWER Active voice, short words, unnecessary words, long sentences" "Which of the following statements best describes why we direct readers to the appendices, where we put supporting evidence and raw data? - CORRECT ANSWER Decision-makers want to focus on the main message of the writing. The supporting evidence is available in the appendices if they want to know more." "Which of these statements about using graphics is the LEAST correct? - CORRECT ANSWER Graphics should always be used whenever they can replace text." "What of the following is NOT one of the key items to consider for plain language writing? - CORRECT ANSWER Writing delivery" "What is the purpose of using the fog index? - CORRECT ANSWER To evaluate how hard it is to read your writing." "You are a financial analyst at Company A. Your company is looking to acquire Company B. You have been tasked to evaluate their financial performance and you notice the following: Sales have declined for the last five years by roughly 1.5% each year Operating expenses have also been increasing by 2.1% each year in the same time period COGS as a percentage of revenue has stayed the same You want to recommend to the director that your company should not look to acquire Company B. Which of the following statements is best for making this recommendation? - CORRECT ANSWER Our company should avoid acquiring Company B. Their financial performance has been declining for the past five years. We can achieve better returns without acquiring them."