CFA Level 1 Question of the Week – Fixed Income

The correct answer is A.

The two primary categories of ratios used for credit analysis are leverage and coverage ratios.

A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt (loans) or assesses the ability of a company to meet financial obligations.

A coverage ratio is a measure of a company’s ability to meet its financial obligations. In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders.