Deck 8: Credit Evaluation Process

Question 1

A subprime FICO score is

A) 562
B) 613
C) 701
D) 800

Answer 1

562

Question 2

A junk bond rating is

A) BAA
B) BBB
C) BB
D) none of the above

Answer 2

BB

Question 3

The average collection period concerns

A) accounts receivable
B) accounts payable
C) current assets
D) cash discounts on credit sales

Answer 3

accounts receivable

Question 4

The common-size income statement expresses all items listed on the income statement as a percentage of assets

A) equity
B) sales
C) net income
D) Cost of goods sold

Question 5

Net income of a firm divided by the revenue (net sales) gives the

A) ROA
B) ROE
C) EPS
D) Profit margin

Question 6

Efficiency ratios measure how well a firm is using its

A) financial capital
B) personnel
C) assets and liabilities
D) financial leverage

Question 7

The dividend payout ratio shows

A) EPS
B) the percentage of net income paid to shareholders
C) the percentage of income paid to shareholders
D) the ratio of dividends paid to shareholder's equity

Question 8

The difference between current assets and current liabilities is

A) current ratio
B) retained earnings
C) net income
D) net working capital

Question 9

How is the ROE related to the ROA?

A) multiply ROE by the leverage ratio (equity/assets) to find ROA
B) multiply ROA by the leverage ratio to find ROA
C) the rate of ROE is higher than ROA
D) the rate of ROA is higher than ROE

Question 10

If a firm is using financial leverage successfully, the ROE should be

A) higher than the profit margin
B) higher than ROA
C) higher than if no leverage were used
D) lower than if no leverage were used

Question 11

Times interest earned is a measure of the

A) operational earnings of the firm (EBIT) compared to annual interest payments
B) net earnings after taxes compared annual interest payments
C) net earnings before taxes compared to annual interest payments
D) gross profit compared to annual interest payments