Asked by Zeina Samarneh on Jul 07, 2024
Verified
Lenders form opinions about a company's credit risk by comparing current and future debt-service requirements to estimates of the company's current and expected future cash flows.
Debt-service Requirements
This term refers to the amount of money needed to cover the repayment of interest and principal on a debt for a specific period.
Expected Future Cash Flows
The estimated amount of money that is anticipated to be generated from an investment, project, or asset over a period of time in the future.
- Understand the significance and application of thorough risk assessment in making financial decisions.
Verified Answer
JM
Jabaar MohamudJul 09, 2024
Final Answer :
True
Explanation :
Lenders use cash flow analysis to evaluate a company's ability to repay its debts. They compare the cash inflows and outflows based on the company's historical performance and estimated future performance to determine if the company will have enough cash to repay its debts.
Learning Objectives
- Understand the significance and application of thorough risk assessment in making financial decisions.
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