A credit analyst is evaluating the creditworthiness of three companies: a construction company, a travel and tourism company, and a beverage company. both the constructionAnd travel and tourism companies are cyclical, whereas the beverage company is non-Cyclical. The construction company has the highest debt level of the three companies. TheHighest credit risk is most likely exhibited by the:
A) construction company.
B) beverage company.
C) travel and tourism company.

Question

Quizplus · Accepted Answer

The fact that the construction and travel and tourism companies are cyclical indicates that their revenue and income are tied to economic cycles, making them more vulnerable to downturns in the economy. Additionally, the construction company's high debt level increases its financial risk. Therefore, the construction company exhibits the highest credit risk among the three companies. The non-cyclical nature of the beverage company's business reduces its credit risk.

A Credit Analyst Is Evaluating the Creditworthiness of Three Companies