Lenders evaluation, Financial Accounting

Lenders'  evaluation:  Current  Assets  to  Current  Liabilities,  Quick  Assets  that is current assets minus inventories to Current Liabilities, Long term Debt to Net Assets, total Debt to Net Worth, Long-term Debt to Net Assets, Long-term Debt to Net Worth, total Debt to total Assets and Net Profit before Interest and Taxes that is also called as NBIT to Interest.

Fundamental classification Ratios under this classification are grouped according to a basic function relevant to financial analysis. Four such functional groups have been usually recognized.

a) Liquidity Ratios are ratios that measure a firm's capability to meet its maturing short-term obligations. The main common ratio indicating the extent of liquidity or lack of it is current ratio and rapid ratio.

b) Leverage Ratios are ratios that measure the extent to that a firm has been financed through debt. Suppliers of debt capital would look to equity as margin of safety, although owners would borrow to keep control with restricted investment. And if they are capable to earn on' borrowed funds more than the interest which has to be paid, the return to owners is magnified. Illustration includes debt to times interest earned, total assets and charge coverage ratios.

c) Activity Ratios are ratios that measure the effectiveness along with that a firm is using its resources. Illustration includes are: Inventory turnover, fixed assets turnover, Average collection period and total assets turnover.

d) Profitable Ratios are ratios which measure managements overall effectiveness as demonstrated through the returns generated on investment and sales. Illustrations could be profit as net or gross margin. ROI or Net Profit to total assets, Net profit after taxes to net worth one additional class of ratios is occasionally added to the four groups given above. It is termed as the Market Value group of ratios that relate investor's expectations regarding the company's future to its present performance and financial conditions.

Illustrations would cover PE that is Price-earnings and Market or book-value ratios. The basic classification is probably the most extensively utilized mode of presenting financial statement analysis.

Posted Date: 4/9/2013 2:01:20 AM | Location : United States







Related Discussions:- Lenders evaluation, Assignment Help, Ask Question on Lenders evaluation, Get Answer, Expert's Help, Lenders evaluation Discussions

Write discussion on Lenders evaluation
Your posts are moderated
Related Questions
Q. Credit Reference Agencies and Credit Scoring ? A several organisations example Dun & Bradstreet and Standard & Poor provide credit scores and ratings for companies. These ma

Occasionally cash flows may have to be discounted more often than once a year semi- monthly, daily, annually or quarterly.  The outcome of this is as fold (i)  The number of per

You would like to start investing in the bond markets and your investment horizon is two years.  In view of the current extremely low interest rate environment, you expect the U.S.

Holding company with a subsidiary and a sub-subsidiary Where the subsidiary company has another subsidiary company, then that subsidiary is referred to as a sub-subsidiary compan

First's current stock price is $260. The price may rise to $300 or fall to $170 in one month. The risk-free interest rate is 18% per year. a. Using the replication portfolio app

Q. Calculation of the change in finance costs? Past ACCA examiners have occupied inconsistent approaches regarding the calculation of the change in finance costs due to settlem

How would the following errors affect the account balances and the basic accounting equation: assets = liabilities + owners' equity? How do the misstatements affect income? 1. The

Create a Trial Balance and Income Statement Cash                                     $18,470    A/R                                         14,333                            A

Recording Business Transactions ACCOUNT. An account is an individual record or form to record and précis information for each liability, asset, or owner's equity transactio

This assessment item may be completed either individually or in groups of two (2) students.  The group mark on both assessment items will be given to both students.  Please ensure