CFA Level I · CFA Level I Exam · Credit Analysis for Corporate Issuers
Which of the following industry factors would an analyst most likely consider when evaluating an issuer's capacity?
Competitive intensity and barriers to entry are the best fit. Industry structure shapes how durable and predictable an issuer's cash flows are, which drives its capacity to pay. Bankruptcy seniority and covenant behavior belong to other Cs, not capacity.
- ACompetitive intensity and barriers to entryCorrect
- BThe seniority ranking of the bond in bankruptcy
- CThe issuer's historical willingness to honor covenants
Explanation
Capacity analysis includes industry structure, such as competition and barriers to entry, which affect cash flow durability. Seniority relates to recovery and collateral, and covenant history relates to character.
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