CFA Level I · CFA Level I Exam · Financial Analysis Techniques
A credit analyst is assessing a manufacturer. Which of the following ratios is most likely to be used to evaluate the company's ability to meet long-term debt obligations from operating results?
Debt-to-EBITDA is most likely used. It is a solvency ratio relating total debt to operating earnings, showing how many years of earnings are needed to repay debt. The quick ratio measures short-term liquidity and inventory days measure efficiency.
- ADebt-to-EBITDACorrect
- BQuick ratio
- CDays of inventory on hand
Explanation
Debt-to-EBITDA is a solvency (leverage) measure relating debt to earnings capacity. The quick ratio is a liquidity measure for short-term obligations, and days of inventory on hand is an activity ratio.
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