CCR Credit flashcards
CCR Credit · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Working capital
- Current assets minus current liabilities. It measures the short-term liquidity cushion available to fund operations and extend credit to customers.
- Cash conversion cycle
- Days inventory outstanding plus days sales outstanding minus days payable outstanding. A shorter cycle frees cash to support credit operations.
- WACC
- Weighted average cost of capital combining equity and after-tax debt costs by their proportions. It is the discount rate for evaluating credit-related investment decisions.
- Net present value
- Sum of discounted future cash flows minus initial outlay. Positive NPV indicates a project adds value when extending credit capacity.
- Trade credit discount cost
- Forgoing terms like 2/10 net 30 carries an annualized cost of about 37.2%, computed as (0.02/0.98) times (365/20).
- Operating leverage
- Contribution margin divided by operating income. Higher leverage amplifies the effect of sales declines on a borrower's ability to service obligations.
- Financial leverage
- Total debt divided by total equity. Rising leverage increases fixed obligations and the probability of default.
- Cash budget
- A projection of receipts and disbursements by period. A persistent negative balance signals liquidity stress requiring credit-line use.
- FCRA scope
- The Fair Credit Reporting Act governs consumer credit reporting, dispute rights, and permissible purposes. Business credit is largely outside its scope.
- ECOA prohibitions
- The Equal Credit Opportunity Act bars discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
- FDCPA scope
- The Fair Debt Collection Practices Act restricts third-party debt collectors' conduct. It generally does not govern a creditor collecting its own debt.
- Statute of frauds
- Many jurisdictions require a writing for credit agreements not performable within one year or above a monetary threshold.
- UCC Article 9 attachment
- A security interest attaches on value given, debtor rights in collateral, and an authenticated security agreement.
- Perfection of security interest
- Typically requires filing a UCC-1 financing statement. Priority generally follows first-to-file or first-to-perfect rules.
- Bankruptcy chapters
- Chapter 7 is liquidation, Chapter 11 reorganization, and Chapter 13 individual repayment. The automatic stay halts collection actions on filing.
- Truth in Lending Act
- TILA requires disclosure of finance charges and APR for consumer credit. Regulation Z implements its requirements.
- Current ratio
- Current assets divided by current liabilities. A ratio below 1.0 signals potential short-term liquidity shortfall.
- Quick ratio
- Cash plus marketable securities plus receivables, divided by current liabilities. It excludes inventory to test immediate liquidity.
- Debt service coverage ratio
- Net operating income divided by total debt service. A DSCR below 1.0 means insufficient cash to cover debt payments.
- Altman Z-score
- A weighted combination of five financial ratios. A score below 1.81 indicates high bankruptcy risk for manufacturers.
- Interest coverage ratio
- EBIT divided by interest expense. Lower values reflect reduced ability to service debt from operations.
- Aging schedule
- Classifies receivables by days past due. Rising proportions in 60-plus-day buckets signal deteriorating credit quality.
- Credit scoring model
- Combines weighted factors such as payment history, leverage, liquidity, and industry into a probability-of-default estimate.
- Concentration risk
- A single customer exceeding a defined share of receivables or revenue warrants additional monitoring and limits.
- Five Cs of credit
- Character, capacity, capital, collateral, and conditions. Each informs a distinct dimension of creditworthiness assessment.
- Credit policy
- Defines standards for approval, limits, terms, and collection. It must balance sales growth against bad-debt exposure.
- Days sales outstanding
- Accounts receivable divided by credit sales, multiplied by days in period. A key performance indicator for collection efficiency.
- Aging-based collection strategy
- Escalate contact frequency as receivables move into 30-, 60-, and 90-day past-due buckets.
- Credit limit setting
- Base limits on assessed repayment capacity, historical payment behavior, and exposure tolerance.
- Credit KPIs
- Key metrics include DSO, bad-debt ratio, percentage current, average days delinquent, and collection effectiveness index.
- Segregation of duties
- Approval, disbursement, and reconciliation functions should be separated to reduce fraud risk.
- Periodic credit review
- Reassess limits and terms at defined intervals or on trigger events such as downgrades or adverse payment trends.