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Write a 3 page essay on Financial Accounting Week 4- Individual Work.If the solvency ratios reveal a higher turn, then the business is worth to be given loan because it is in a position to meet its ob
Write a 3 page essay on Financial Accounting Week 4- Individual Work.
If the solvency ratios reveal a higher turn, then the business is worth to be given loan because it is in a position to meet its obligations. On the other hand, the liquidity ratios show that the business can easily convert its assets to meet its obligations. The following ratios will be used to test the business credibility for the loan.
The working capital ratio is increasing as the years increases. it is more in 2015 than in 22014. This shows that the business is doing quite well hence can manage its financial obligations. It can therefore viable to be given loans.
This indicates presence of working capital and the business is in a position to meet its financial obligations as the ratio increases with the change in the years. The banker on considering the current ratio will be able to approve the loan for the business this is because the banker will have confidence that the business will be able to repay their loans without default given their wide financial stability, strength and base.
This ratio gives the short term liquidity of a business. It is vital in the measuring of the business short-term debts in relation to its liquid assets. The higher the ratio the better the position of the business.it is calculated as:
Since there are no inventories, the quick ratio is similar to the current ratio. From all the above ratios, it is a clear indication that the business is in a position to meet its financial obligations, therefore the banker will be find it viable to advance the loan to the business.
From the ratios calculated it is noted that the company has good performance as it is in a position to meet all its financial obligations both in the short-term and in the long-term. The leverage and solvency ratios are large showing that the company is very stable and has very good financial base. The company also enjoys very good returns as shown by
