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29)   Credit risk is the risk of default on a debt that may arise from a borrower...

29)   Credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments.  If you were to measure a company’s credit risk, which ratios that you would analyze?

                                                                                                                                           

  1. TDR
  2. P/E
  3. TIER
  4. CASH COVERAGE
  5. MKT/BOOK
  6. A, C, and D.   
  7. A and C
  8. B and E
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Answer #1

I would be looking for following ratios to analyse the credit risk-

(A) Total Debt service ratio will be helping me in analysing the ability of the company in order to service total debt and remain solvent

(C) TIER - times interest earned ratio will be helping me to understand the cash generation capability of the company and the ability of company in order to pay off its debt in the short term.

(D) Cash coverage ratio will be providing me with an idea about the company's ability to pay its borrowers so it will also be helping me to understand credit risk related to debt Capital.

Price earning ratio and market to book ratio is not relevant in the case of determination of credit risk.

Correct answer will be option (F) A, C and D

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