Bankruptcy and Credit Risk Analysis Quiz

What is bankruptcy?

• A process to free the business from overwhelming debts

• A process to increase company profits

• A method to avoid paying taxes

• A strategy to expand business operations

Which of the following is a voluntary bankruptcy petition?

• Creditors’ petition

• Debtors’ petition

• Court’s petition

• Shareholders’ petition

What does the Z score measure in credit risk analysis?

• Company profitability

• Company liquidity

• Company failure probability

• Company market share

Which of the following is NOT a ratio used in Altman’s Z score formula?

• Working capital/total assets

• Retained earnings/total assets

• Earnings before interest and tax/total assets

• Current liabilities/total assets

What is the cut-off Z score below which a company is considered a potential failure according to Altman?

• 3.0

• 2.7

• 1.8

• 1.0

Which credit rating agency is NOT mentioned in the document?

• Moody’s

• Standard & Poor’s (S&P)

• Fitch Ratings

• lloyds bank

What does a credit rating of AAA signify?

• High credit quality, but more susceptible to economic changes

• Highest credit quality with minimal risk of default

• Good credit quality, but more vulnerable to adverse conditions

• Speculative elements, but still less vulnerable in the near term

Which ratio measures short-term liquidity risk?

• Working capital/total assets

• Retained earnings/total assets

• Earnings before interest and tax/total assets

• Sales/total assets

What is the primary purpose of credit rating agencies?

• To evaluate the profitability of companies

• To assess the creditworthiness of issuers of debt securities

• To manage company assets

• To predict market trends

Which of the following is a non-investment grade (junk) rating?

• BBB

• AA

• CCC

• A