Certificate in Credit T22 – 5R Strategic Consultancy Sdn Bhd

Name

Based on Diagram 2, ...Y... represents

Operation Cycle

Collection of Trade Receivable

Production Process

Payment to Suppliers

Which of the followings are the pre-requisites of Financial Statements analysis?

I. Understanding borrower's business
II. Business Operating Cycle
III. Capital Investment Cycle
IV. Funding Requirements

I only

I and II

I, II and III

All the above

Fixed Asset Turnover ratio is measurement of assets efficiency based on

Rated capacity of the Fixed Assets

EBIT generated by Fixed Assets

Sales generated from the use of Fixed Assets

Number of hours to machine operate to generate the product

Based on Diagram 1, ...X... represents

Trade Receivable

Cash

Trade Payable

Debtors

What is Leverage Ratio?

Borrower's reliance on external debts relating to financial commitments

Measure the efficiency with which the fixed assets have been deployed to generate sales

Indicate how much borrowing is required by the business

An indication of borrower's ability to repay its debt

Combining the Operating and Capital Investment Cycles will enable the credit officers to derive a

Statement of Financial Position

Statement of Comprehensive Income

Statement of Financial Position and Statement of Comprehensive Income

Statement of Cash Flow

In analysing management and shareholders risk, the following are important in providing the company's direction and strategic plan are

I. Character of the management
II. Capability of the management
III. Capital provide by the management
IV. Capacity of the management

III and IV

II and III

I and II

I and IV

Which of the following is Integrated Analysis?

Reporting changes in Sales increased by 20%

Adjusting analysis with credit officer's own knowledge of borrower business and industry

Application of "Mosaic Theory" in Financial Analysis

Assessing borrower's past lending level of gearing

The group of ratio deals with Profitability of the day to day business. A sub-category ratio in this group is

Price Earning Ratio

Earning for Shares

Return on Assets

Return on Equity

Diagram 2 represents

Operating Cycle for a Trading Concern

Business Operating and Capital Investment Cycle

Operation Cycle for a Manufacturing Concern

Capital Investment Cycle

Trade related gearing has lower risk than capital expenditure related gearing due to

Cash conversion cycle is shorter

Payment obligation that need to be serviced and variable

Funds can be used for any purpose

Payment obligation that need to be serviced and fixed

The first important characteristic of good Financial Analysis

Value Added Analysis

Integrated Analysis

Prospective Analysis

Dynamic Analysis

Which of the following statements is NOT true with regard Financial Analysis?

Prospective, not Historical Analysis

Value Added, not Elevator Analysis

Dynamic, not Static Analysis

Isolated, not Integrated Analysis

During loan application, which of the following is likely window dreasing measure adopted by customer?

High dividend acceleration

Capitalization of expenses

Recorded cash sales

Under value closing stock

Committing to sell or selling without offsetting purchase commitment or ownership is call

To Hedge

Short

Long

Spot

Return on Assets Ratio measures

Return earned by management of the funds contributed by the ordinary shareholders

Return to investors for investing in business

Efficiency with which assets have been employed to generate sales

Effectiveness with which assets have been employed to make profit

The standards of comparison used in Ratio Analysis are

I. Results of each ratio over the years
II. Past performance of the company
III. Industry norms
IV. Results and trends

All the above

I and IV

II and III

I only

The sales growth of the company increased by 20% from RM1,000,000.00 to RM1,200,000.00 over the year. This is example of

Isolated Analysis

Elevator Analysis

Dynamic Analysis

Value Added Analysis

Understanding the Capital Investment Cycle of borrower's business is equivalent to understanding

I. Estimated costs of the machines
II. estimated economic life spam of the fixed assets
III. Specific assets needed by the borrower
IV. Working Capital Requirements of the business

All the above

I and III

III and IV

I, II and III

Maintaining Goodwill without any write off is seen as an attempt to

Promote image and able to compete in the market

Improve Cash Flow Position

Preserve the reported annual profitability and higher total asset level

Improve Assets Turnover Ratio

Which of the following is NOT the source of finance to purchase Fixed Assets?

Revenue Reserve

Capital Injection

Working Capital

Long-Term Liabilities

In accounting policies and statement review the following are NOT common red flags EXCEPT

Decrease in Discretionary Cost

Conservative Accounting Policy

Recurring Source of Income

Increase in Tangible Asset

Which of the following is an operational efficiency ratio?

Average Payment Period

Return on Assets

Debt-Service Ratio

Return on Equity

Before Ratio Analysis is undertaken, it is essential that the following view points to be considered by credit officer.

I. Management
II. Owners or Investors
III. Creditors or Lenders
IV. Analysts

III only

I, II and III

All the above

I only

Solvency or Liquidity ratios measure

Reliance can external debt by the borrower to the financial commitment of the shareholders

Ability to meet short term obligation from liquidation of current assets within the next 12 months

Credit worthiness of borrower in relation to their ability to service debt obligation

How long on the average if takes to pay the current liabilities

Creative accounting is probably the most common business fraud which include

I. Cover up losses
II. Diversion of funds
III. High dividend decreation
IV. Capitalisation of uncoverable expenses

I, II and IV

All the above

I and IV

I, II and III

What is the best reason using EBIT as the numerator when computing ROA compared to other profits measure?

EBIT is a profit produced by employing assets throughout the period

EBIT measure the effectiveness with which assets have been employed to make profit

EBIT reflects the effective use of assets which is not effected by the method of financing the acquisition of assets or by tax policies

EBIT reflect how effective borrower is using its assets

Which of the following is a correct relative comparison of characteristic of a good financial analysis?

Prospective Analysis vs Historical Analysis

Integrated Analysis vs Historical Analysis

Value Added Analysis vs Static Analysis

Dynamic Analysis vs Elevator Analysis

Which of the following is not classified as an operating expenses in Statement of Comprehensive Income?

General and Administrative expenses

Legal fees for acquisition

Cost of Good Sold

Finance expenses

Diagram 1 represents

Business Operating and Capital Investment Cycle

Operating Cycle for a Real Estate Concern

Operating Cycle for a Trading Concern

Operating Cycle for a Manufacturing Concern

Which of the following could result in high current ratio?

Tight Credit Control

Good Collection

Low Fixed Assets

Stock Obsolescence

The analysis of over-gearing can be influenced by various factors such as

I. Types of gearing
II. Relative change in gearing
III. Track record
IV. Economic Environment

I and III

I, II and III

I and II

All the above

The following are limitation of Financial Ratio except

Ratio are mathematically A/B expressing relationship between two variable

Business mat not be comparable due to factors such a size and accounting method

Financial analysis are performed on historical data

Other non-financial on quantitative information not reflected in financial ratio

Which of the following common red flag that can be observed in the financial statements?

Adherence to Accounting Standard

Reserve Manipulation

Increase in Tangible Assets

Low Leverage

The key areas of Statement of Financial Positions analysis are

I. Assets Consistency
II. Short-Term Solvency
III. Long-Term Financial Stability
IV. Level of Gearing

I, II and IV

I, II and III

II, III and IV

All the above

Which of the following is characteristic of good Financial Analysis?

Historical Analysis

Static Analysis

Prospective Analysis

Elevator Analysis

Company uses cash to pay Long Term Bond. The effect on current ratio and assets turnover ratio are

Current Ratio: Decrease, Asset Turnover: Increase

Current Ratio: Increase, Asset Turnover: Decrease

Current Ratio: Decrease, Asset Turnover: Decrease

Current Ratio: Increase, Asset Turnover: Increase

Which of the following areas is the best considered as part of qualitative analysis?

Competitiveness of the industry

Collateral Valuation

Financial Position

Earning Capacity

The formula for Stock Turnover period is

Average Trade Receivable ÷ Credit Sales x 365 days

Average Trade Payable ÷ Purchase x 365 days

Average Stock Balance ÷ COGS x 365 days

Stock ÷ Sales x 365 days

Frequent extension on the maturity of the trade bills may indicate

Increase in the trade payable period

Increase in the trade receivable period

Increase in Sales

Decrease in Sales

The following affects the profits but has no effect on the cash flow of business

Sales

Dividend Payout

Interest

Depreciation

Statement of Cash Flow indirect format start with

Operating Profit

Net Profit after Tax

Sales

Gross Profit

In Prospective Analysis of Financial Analysis, the following areas should be addressed except

Liquidity and Cash Flow Position

Outstanding Major Public Liability

Profitability Position

Gearing Position

Which of the following group of activities are reflected in the Statement of Cash Flow?

Purchase, Sales and Collection

Purchase, Value Added and Sales

Trading, Manufacturing and Investment

Operating, Investing and Financing

Which of the following would reflect inadequate management quality?

I. High risk financial strategy
II. Diversification into unfamiliar business
III. Dominant owner/manager
IV. Tapping fund in the capital market

All the above

I and II

I, II and III

I, III and IV

Understanding borrower's business operating cycle explain

How the business is carried out and the various financing requirements

How the net working capital is computed

Time taken to complete cash cycle

How the management manages its business

An increase in which of the following items is considered as a source of funds?

Trade Payable

Inventories

Trade Receivable

Investment

In analysing the credit proposal with DSR 100%, what would be the proper action to be taken by Credit Officer?

Approve the loan due to satisfactory DSR

Approve the loan with the tenor to be shortened

Reject the loan due to poor DSR

Approve the loan with the tenor to be lengthened

When stockholding period increase and Trade Payable period decrease, what happen to the financing gap?

Cannot be determined

Will decrease

Remain unchanged

Will increase

Which of the following can be determined only with Statement of Financial Position?

Funding Stability

Debtor Aging

Assets Turnover

Return on Assets

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