Which of the following is NOT a common credit risk?

• A. Deteriorating revenue base.
• B. High profitability.
• C. High leverage.
• D. Tight liquidity.

Answer: (B)

Credit risk centers on the ability to cover debt service from cash flows and the overall strength of the earnings needed to stay solvent. A deteriorating revenue base cuts into expected cash inflows, making it harder to meet obligations. High leverage means more fixed debt service burden, so if earnings soften, the risk of distress rises. Tight liquidity signals immediate cash shortfalls and refinancing pressure, which directly heightens default risk. By contrast, high profitability indicates strong earnings power and a solid capacity to cover interest and principal from operating cash flow, reducing rather than increasing credit risk. So, the option describing high profitability is not a common credit risk. (Note: profitability can be misleading if earnings quality is poor or cash flow is weak, but in general it lowers credit risk.)