Asked by Kristen Salcedo on May 08, 2024
Verified
Creditors assess credit risk by comparing a firm's required principal and interest payments to estimates of the firm's current and future
A) net assets.
B) gross income.
C) net income.
D) cash flows.
Credit Risk
The potential for loss due to a borrower's failure to make payments on any type of debt.
Principal
The original amount of a debt or investment before interest.
Interest Payments
Periodic payments made to lenders or creditors as compensation for borrowing money, usually calculated as a percentage of the principal amount.
- Identify how financial information is utilized by various external parties including creditors, investors, and analysts.
- Grasp the importance and implications of financial statement analysis for assessing company performance and risk.
Verified Answer
MC
Michael CronkMay 14, 2024
Final Answer :
D
Explanation :
Creditors assess credit risk based on the ability of the firm to generate sufficient cash flows to meet its required principal and interest payments. Net assets, gross income, and net income are important, but ultimately it is the ability to generate cash that determines the firm's ability to meet its obligations.
Learning Objectives
- Identify how financial information is utilized by various external parties including creditors, investors, and analysts.
- Grasp the importance and implications of financial statement analysis for assessing company performance and risk.
Related questions
Investors Who Presume That They Have No Insights About Company ...
The Costs of Providing Financial Information Is Ultimately Borne by ...
The Best Source of Information About a Company's Current Health ...
All Economic Events and Activities That Affect a Company Are ...
Accounting Improprieties Are Sometimes Designed to Meet the Expectations and ...