CFA Level I · CFA Level I Exam · Credit Analysis for Corporate Issuers
Which of the following is most likely a feature of the character component when analyzing a corporate issuer's credit quality?
Character relates to management quality, including its strategy, governance and record in dealing with creditors. The ratio of funds from operations to debt measures capacity, and a pledge of specific property to secure a bond is collateral, so neither describes character.
- AThe quality of management's strategy, governance and track record with creditorsCorrect
- BThe ratio of funds from operations to total debt
- CThe pledge of specific property to secure a bond
Explanation
Character (management quality) covers strategy, governance, risk management and the track record of treating creditors fairly. Funds from operations to debt is a capacity measure, and pledging property is collateral.
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