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    Question

    A company has an interest coverage ratio of 0.8 and

    negative operating cash flows for 2 years. What is the likely impact on its credit rating?
    A Upgrade due to improved profits Correct Answer Incorrect Answer
    B Stable rating Correct Answer Incorrect Answer
    C Downgrade due to high credit risk Correct Answer Incorrect Answer
    D No impact due to past performance Correct Answer Incorrect Answer
    E Rating withheld automatically Correct Answer Incorrect Answer

    Solution

    Low interest coverage and consistent negative cash flows signal severe financial stress, likely leading to downgrade by rating agencies, indicating increased probability of default.

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