What is the purpose of financial ratio analysis in credit assessment?
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Financial ratio analysis helps evaluate a borrower's ability to repay by analyzing liquidity, solvency, and profitability.
Which of the following is a key component of a credit report?
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A credit report includes the borrower’s credit history, outstanding debts, and payment behavior to assess risk.
What does the debt-to-equity ratio measure?
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The debt-to-equity ratio compares a company's total liabilities to its shareholders' equity, indicating financial leverage.
What is the role of collateral in credit management?
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Collateral serves as security for a loan, reducing the lender’s risk in case of borrower default.
Which financial statement shows a company’s financial position at a specific point in time?
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The balance sheet reflects a company’s assets, liabilities, and equity at a specific date.
Why is credit scoring important in financial institutions?
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Credit scoring provides a standardized method to evaluate borrower risk and supports consistent lending decisions.