Question

A.Which of the following is TRUE regarding management analysis?

1.A risk averse management team is preferred when evaluating the creditworthiness of a company.

2.Management analysis is critical when dealing with a high risk borrower.

3.The reputation of the management team should be evaluated by interviewing employees of the company.

B.Which of the following statements is TRUE regarding loan security?

A.An analyst should aim to secure a loan with one of each type of loan security.

B.Loan security protects the lender’s claim against unforeseen and unfavorable events.

C.Financial institutions should always approve loans if the value of the security can cover the value of the loan.

D.It is unnecessary to take security if the company has a good history with the financial institution.

4.Management analysis is one of the most efficient and effective ways to evaluate a company’s creditworthiness.

Answer 1

.Which of the following is TRUE regarding management analysis?

ANSWER: All the three are true

1.A risk averse management team is preferred when evaluating the creditworthiness of a company-- only then the true capacity for repayment can be assessed ,that too on a tight scale--by a person who detests risks.

2.Management analysis is critical when dealing with a high risk borrower--- as a high risk borrower needs to be evaluated ,as a worst case scenario.

3.The reputation of the management team should be evaluated by interviewing employees of the company--- if that is possible-- because they can divulge most of the day-to-day as well as very pertinent & valuable details , if scrutinised by a specialist, who can bring out the maximum , from them.

B.Which of the following statements is TRUE regarding loan security?

Answer: B

B.Loan security protects the lender’s claim against unforeseen and unfavorable events-- so that he can sell the security in the market and recover his dues, in case of defult by the borrower.

These cannot be the answers for:

C.Financial institutions should always approve loans if the value of the security can cover the value of the loan---not necessarily--there are various other metrics like credibility & standing of the borrower, genuine of the purpose of borrowing, like reasons for borrowing is not for any unethical/illegal use, etc.

D.It is unnecessary to take security if the company has a good history with the financial institution--- in money matters , there can be no ambiguity or sentiments or friendships, or verbal agreements.