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Write a 2 page essay on Analyze Financial Statement.We will be interested in a high ratio since we will be assured of a high return on our investments.A higher ratio is recommended since this indicate
Write a 2 page essay on Analyze Financial Statement.
We will be interested in a high ratio since we will be assured of a high return on our investments.
A higher ratio is recommended since this indicates the solvency of the organization. Since it has the highest current ratio in 2015 hence shows that the company is having ability to meet its obligation if they fall due. This shows that if loan are to be advance to the company it will be able to pay its interest as per the loan in the short-run.
Higher ratio is preferred as this will indicate liquidity of the entity. Hence it will be wise to consider this company as qualified for loans since it has the highest quick ratio in the year 2015 but this will only be a wise decision after assessing the Going concern principle of the entity.
This shows the ability of the entity to meet its obligation in the long-run. Since the lower ratio is recommended hence this shows that the company will experience the challenges in paying back the loan hence will recommend the loan maturity should be lowered.
Finally apart from the quantitative analysis of the financial statement of the company, it can also be advisable to consider carrying out the following qualitative analysis before advancing loans and also after advancing loans
Assess whether they have established long-term customer relationships, with the company or its suppliers hence this can proof its viability whether to advance loans or not and if yes how much and at what interest.
The company should provide collateral and compensating balance requirements. This will help in loan recovery in case of default. The company advancing the loan can exercise credit rationing by giving a loan but limiting the loan amount to be less than the borrower would