Practice Test Geeks(CCM) Certified Credit Manager Practice Test
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Credit Risk Evaluation Flashcards

7 cards from real CCM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Credit Risk Evaluation flashcards as text

  1. A company has a current ratio of 0.8 and a quick ratio of 0.4. What does this indicate about its short-term liquidity?

    Answer: Potential liquidity problems with heavy reliance on inventory

    A current ratio below 1.0 and a quick ratio of 0.4 indicate the company relies heavily on inventory to meet short-term obligations, signaling liquidity risk.

  2. Which financial metric measures how efficiently a company collects its receivables?

    Answer: Days Sales Outstanding (DSO)

    DSO measures the average number of days a company takes to collect payment after a sale, indicating receivables management efficiency.

  3. In credit risk assessment, a 'concentration risk' refers to:

    Answer: Excessive exposure to a single customer, industry, or geography

    Concentration risk arises when a credit portfolio has excessive exposure to one customer, sector, or region, amplifying potential losses if that segment defaults.

  4. A buyer requests Net-60 terms but your analysis shows their DSO is 85 days. What is the most appropriate action?

    Answer: Approve with a reduced credit limit and monitor closely

    Approving with a reduced limit and close monitoring balances the business relationship while mitigating the elevated payment risk indicated by the high DSO.

  5. Which of the following best describes 'systematic risk' in a credit portfolio?

    Answer: Market-wide risk that affects all borrowers simultaneously

    Systematic risk is macro-level risk (economic downturns, interest rate changes) that impacts all borrowers and cannot be eliminated through diversification.

  6. When evaluating a new business with no credit history, which source provides the MOST relevant credit insight?

    Answer: Personal credit reports of the business owners

    For a new business without its own credit history, the personal credit of the owners is the most direct indicator of likely payment behavior.

  7. A customer's EBITDA is $500,000 and their total debt is $2,500,000. What is their debt/EBITDA ratio and what does it suggest?

    Answer: 5.0x, indicating high leverage and potential repayment risk

    A debt/EBITDA of 5.0x is considered high leverage, suggesting the company would need five years of current earnings to repay its debt, raising repayment risk.