New RBI Grade B 2025 Notification will come Soon! Enroll Here

    Question

    In the context of credit risk assessment, which of the

    following metrics would be the most reliable for an MSME lender to assess the long-term financial stability of a business, especially when the company is facing difficulties in the international markets?
    A Quick Ratio Correct Answer Incorrect Answer
    B Cash Conversion Cycle Correct Answer Incorrect Answer
    C Debt-Service Coverage Ratio (DSCR) Correct Answer Incorrect Answer
    D Current Ratio Correct Answer Incorrect Answer
    E Return on Equity (ROE) Correct Answer Incorrect Answer

    Solution

    The Debt-Service Coverage Ratio (DSCR) measures an MSME’s ability to meet its debt obligations from its operating income. A higher DSCR indicates that the company is generating enough cash to service its debt, which is particularly important when the firm is facing challenges in international markets that could affect its revenues. This ratio provides a more accurate picture of long-term financial stability compared to other liquidity or profitability ratios.

    Practice Next