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CFI CBCA Core Course Assessments Solutions
1. What is the main goal of using business writing fundamentals?: To reduce mental ettort
2. Which of the following statements describes a "Capacity" strength or weak- ness for a
company in the 5 Cs of credit framework?: The net profit margin ratio is high.
3. Which of the following statements describes a "Condition" strength or weak- ness for a
company in the 5 Cs of credit framework?: The risks associated with the industry are high.
4. Which of the following scenarios would NOT be considered a strength when assessing
the management team as part of evaluating a company's character?- : Financial reports are not widely shared and performance measures have not been identified.
5. Which of the following ratios most likely indicates strong "Capacity" for a company?:
High asset turnover ratio
6. Select the correct formula to calculate the operating margin ratio.: Operating Margin Ratio =
EBIT / Revenue
7. Select the correct formula to calculate the inventory turnover ratio.: Inventory Turnover Ratio
= Cost of Goods Sold / Average Inventory
8. Which of the following most likely indicates strong "Capital" for a company?-
: Unutilized lines of credit or loans
9. Which of the following statements on collateral is NOT correct?: Collateral can be used as the
main determinant of a credit decision.
10. Which of the following tools or methods is used to assess the general
business environment?: PEST analysis
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11. Select the loan contract with the lowest risk.: A demand loan with monthly payments secured by
assets
12. Which is not one of the three main financial statements?: Statement of equity
13. What does the balance sheet indicate?: The financial strength of the business
14. Financing activities: Issuing shares and bonds
15. Operating activities: Payments to suppliers; Depreciation and amortization expense
16. Investing activities: Buying and selling equipment
17. Which is not a section in the financial statement note disclosures?: Management
discussion and analysis
18. Balance Sheet: Retained earnings; Share capital
19. Income Statement: Rent expense
20. Cash Flow Statement: Sale of property, plant and equipment
21. If a company has net assets equal to $3.25 million but is sold for $5.35 mil- lion,
how much goodwill does the acquirer record on their balance sheet?: $2.1 million
22. Intangible assets: Items of value, which have no physical substance, that are used to generate revenues
23. Authorized shares: The total number of shares a company can sell
24. Contingencies: Events that may or may not happen, depending on certain circumstances
25. Commitments: Future obligations that a company has agreed to
26. If a company issues 60,000 shares at $0.25 each but the shares have a par value
4 / 31 organic farm products. In response, many other grocery stores and supermarkets have started selling organic vegetables and fruits grown by local US farmers.: Social factors
38. 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: https://www.fmcsa.dot.gov/regulations/hours-service/summa- ry-hours- service-regulations): Legal factors
39. When competition within an industry is high, which of the following is most likely to
be true?: Buyers have high bargaining power
40. Which of the following is most likely true for companies at the maturity stage of the
industry lifecycle?: Sales > Cash Flow > Profit
41. According to the growth/share matrix, companies at maturity have:: Low market growth
and high market share
42. 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?: Growth
43. Read the following passage and determine which of the following strategies the
5 / 31 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.- : Best product
44. Which of the following strategies describes a company's attempt to enter into
new markets with its existing products?: Market development
45. Which of the following strategies describes a company's attempt to enter into
new markets with new products?: Diversification
46. According to the course, which is the most important section of the business plan?:
Executive Summary
47. In which section of a business plan can you find the name of the company's lawyer?
Select the best answer.: Company Description
48. Which SMART component is the following goal missing? In 2020, Company ABC's
Canadian operations generated $90M of revenue, and in 2021 the Cana- dian operations generated $98M of revenue. Their goal is to achieve $100M of revenue in their Canadian operations in the near future.: Timely
49. Where would you most likely find information regarding the hierarchical or flat
structure of the organization? Select the best answer.: Management and Operations
50. What is a benefit of having a small number of suppliers for a company's
7 / 31 firm's largest customers stopped purchasing from the firm tomorrow?: Attitude to business risk
60. According to the study conducted on internal barriers to growth, which was the
least important factor out of this list?: Lack of successful innovation
61. 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?: Business-oriented
62. What level of strategy would focus on market positioning strategies to gain a
competitive advantage?: Business-level
63. Which of the following is an example of a strategy?: Create a promotional otter to increase the sale of
food products
64. Which components should be analyzed when assessing the track record of a
company? Select all that apply.: Previous statements, Budget vs. actual, Historic promotional success
65. What is the difference between budget and actual performance called?: Budget variance
66. Which of the following activities impacts the long-term cash flow?: Purchase PP&E
67. Which of the following strategies is most likely to shorten the working capital
funding gap?: Extend payments to suppliers
68. Calculate accounts receivable days based on the information below:
Revenues: 2,500, Costs of goods sold: 1,600,000 Days in period: 365 Receivables: 300, Inventories: 150, Payables: 200,000: 43.8 = (AR/Revenue)*Number of days in year
69. What's the company's working capital funding gap in days based on the
8 / 31 information below? Receivable days: 47. Inventory days: 34. Payable days: 45. Days in the period: 365: 36.1 days = inventory days + receivable days - payable days
70. 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, Cost of goods sold 1,600, Receivables balance 300,000 Up to 50% Inventories balance 150,000 Up to 50%: Financing Required = 153,425 = Cost of goods sold * Funding gap (days) / Days in period Financing Allowed = 225,000 = Receivables + Inventories
71. The cash conversion cycle measures:: The number of days it takes for a company to turn its resource
inputs into cash
72. 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
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73. Calculate the net cash provided by the operating activities based on the
information below: Net income: 60, Depreciation: 25, Increase in accounts receivable: 12, Increase in inventory: 8, Increase in accounts payable: 15,000: 80,000 = Net Income + Depreciation - Increase in accounts receivable - Increase in inventory + Increase in accounts payable
74. Calculate the total capital expenditure of 2018 based on the information
below: 2017 PP&E: 43, 2018 PP&E: 65, 2017 Depreciation: 10, 2018 Depreciation: 12,000: = 34,000 = 2018 PP&E - 2017 PP&E + 2018 Depreciation
75. Calculate the company's free cash flow for the current year based on the
information below: Net income: 60, Depreciation: 25, Increase in accounts receivable: 12, Increase in inventory: 8, Increase in accounts payable: 15,000 Capital
11 / 31 expenditures: 45, Increase in long-term debt: 15,000: Cash from Operations = Net income + Depreciation - Increase in accounts receivable - Increase in inventory + Increase in accounts payable = 80, Free cash flow = Cash from Operations - Capital Expenditures Free cash flow = 35,
76. What is the starting point when conducting a financial analysis of the perfor- mance
of a company?: Review of company financial statements
77. With an end goal in mind, what is the purpose for a credit analyst or commer- cial
banking professional completing a financial analysis?: To understand a company's overall financial health and credit risk.
78. Which of the following is not a part of completing a vertical analysis?: Compar- ison of line
items between the balance sheet and income statement
79. Which of the following is a part of completing a vertical analysis?: 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
80. Financial ratios include:: Coverage, leverage, and liquidity
81. The gross profit margin is calculated as...: (Revenue - COGS) /Revenue
82. Which of the following are unique features of a balance sheet? Select ALL that apply.:
The asset section is broken down into two sections: current and non-current assets; Assets are typically organized in terms of liquidity.
83. 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...: Net sales /Total (or net) Assets
13 / 31 company?: Receivables are being collected eflciently, and customers are paying their debts quickly.
90. Which of the following statements are true when completing a horizontal
analysis?: 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.
91. Which of the following statements are true when completing a horizontal
analysis? Select ALL that apply.: Protect inputs by locking input cells
92. Complex financial models are all of the following EXCEPT:: They are easy to follow and audit
93. 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, Cost of Goods Sold 30, 2019 Estimate Sales Growth 8% Gross Margin 40%: = 32,
94. Forecast the accounts receivable for Company XYZ using the following annu- al
information. Receivable days assumption = 55 days Payable days assumption = 69 days
14 / 31 Forecasted revenue = $263, Forecasted cost of goods sold = $114,780: = 39,705 = Receivable days assumption*Forecasted revenue/365 days
95. What formula below can be used to forecast inventory?: = Inventory days * Cost of sales
96. Which of the following items can be found in a published cash flow statement under
"operating activities"? Select ALL correct answers.: Changes in operating assets and liabilities, Depreciation
97. 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: = 490 = Net income + Depreciation - Increase in receivables - Increase in inventory
98. Calculate the end of the year cash balance based on the information below:
Beginning of the year cash balance: 2, 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: = 1,
99. Which Excel function or tool will you use to display the cells that are referred to by
16 / 31 income: 2, Dividends paid: 1,700: = 8,100 = Retained earnings beginning of period + Net income - Dividends paid
104. What's the depreciation expense based on the information below?
Depreciation (percent of sales): 4% Revenues: 60, Gross profit: 25, PP&E: 40,000: = 2,400 = Depreciation (percent of sales)*Revenues
105. What's the forecasted EBIT based on the information below?
Revenues: 56, Cost of goods sold: 32, SG&A: 8, Depreciation: 2, Interest: 1, Taxes: 3,800: = 12,800 = Revenues - Cost of goods sold - SG&A - Depreciation
106. Select ALL the direct securities from the list below.: Inventory, buildings, intellectual property
107. Which of the following does NOT describe the fixed charge of security?: The borrower can
trade its assets unless there's a default on the loan payment.
108. Which of the following does describe the fixed charge of security?: 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.
109. Which of the following is typically used as floating charge security?: Accounts receivable
110. Which of the following is NOT typically used as floating charge security?: -
Machinery, land, letter of comfort
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111. If a loan is secured by a limited corporate guarantee, what will happen when the
borrower is unable to repay the debt?: The lender has the right to pursue the assets of the company within a specific dollar amount.
112. Which of the following security assets are considered personal property? Select
ALL correct answers.: Bonds and equities, Consumer goods
113. Which of the following security assets are NOT considered personal prop- erty?
Select ALL correct answers.: Land, Factories, Oflce buildings
114. Which of the following may indicate low-quality inventory?: There is a limited shelf-
life
115. Which of the following is NOT an aspect to consider when evaluating the quality
of machinery and equipment?: The cost to maintain the asset
116. Which of the following are aspects to consider when evaluating the quality of
machinery and equipment?: The market value of the asset, The life expectancy of the asset, The condition of the asset
117. Which is a typical source of information used in ascertaining the value of the real
property?: Real estate listings
118. It is the legal counsel's responsibility to: (Select ALL correct answers): Ensure that the
security is properly registered. Advise the borrower that the lender can pursue all their assets in the event of default.
19 / 31 the breach happened
128. 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, Line of Credit: 2, Current Portion of Long-Term Debt: 3, Interest Expense: 800: = 2.2 = 12,000+2,000/(2,500+3,000+800)
129. 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, Line of Credit: 2, Current Portion of Long-Term Debt: 3, Non-Current Portion of Long-Term Debt: 15,000: = 1.5 = (15,000+3,000+2,500)/(12,000+2,000)
130. 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?: Current portion of long-term debt will increase by 4,000.
131. Monitoring: It involves determining new level of credit risk associated with a borrower.
132. Documentation: It provides timely, relevant and thorough information for loan approval, security and
monitoring.
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133. Re-classifying: It involves undertaking regular reviews of a borrower's financial statements and evaluating changes in a
borrower's business.
134. Which of the following statements is NOT true about credit administration?-
: Credit administration is about documentation, ongoing monitoring, and possibly re-classifying a borrower before a loan has been made.
135. Which of the following statements are true about credit administration?: Ap- propriate 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.
136. Loan approval documentation: Term sheet, loan agreement, commitment letter
137. Monitoring documentation: Annual review; monthly/quarterly report
138. Which of the following is the correct order of documentation submission in the loan
approval process?: Loan application -> Term sheet -> Commitment letter -> Loan agreement
139. What is a term sheet?: A non-binding agreement given to the borrower that summarizes primary terms including the
interest rate, time to maturity, and security.
140. What are covenants?: Clauses in a loan agreement outlining what a borrower must maintain or what they are
restricted from doing.
141. Which of the following are monitoring documents commonly provided by a borrower
on a monthly or quarterly basis? Select all correct answers.: Compliance certificates, Unaudited financial statements, Tax returns
142. Financial statement review: Involves re-assessing the cash flow and financial position of the borrow- er.
143. Security review: Involves re-assessing any assets that are being used as protection in the case of default.
