Lenders evaluation, Financial Accounting

Assignment Help:

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.


Related Discussions:- Lenders evaluation

Secret trusts-trusts laws and accounts, SECRET TRUSTS The initial basis o...

SECRET TRUSTS The initial basis of the doctrine of secret trusts was the refusal of equity to permit a statute to be used as an engine of fraud (e.g. Bannister v Bannister).  Cer

Troubled debt restructuring, Troubled Debt Restructuring - Agreement betwee...

Troubled Debt Restructuring - Agreement between CREDITOR and DEBTOR which amends the terms of a DEBT which has little chance of being paid in accordance with its contractual terms.

Delegation-trusts laws and accounts, DELEGATION A trustee cannot delege...

DELEGATION A trustee cannot deleget unless: 1.    It is necessary or in the ordinary course of administration; or 2.    Authorised by the trust instrument; or 3.    Authorise

Adjustment entry, 1) A sales discount correctly taken by the charge custome...

1) A sales discount correctly taken by the charge customer was debited to Sales at the time the entry was recorded. This error will cause. A) the net income for the period to be un

Determine income statement and balance sheet, Prepare an Excel spreads...

Prepare an Excel spreadsheet containing the following: - Construct the next five-year pro-forma statements (income statement and balance sheet). - Estimate annual F

How the value of information received by decision maker, How the value of i...

How the value of information received by decision maker How the value of information received by decision maker eventually begins to decline. This is, maybe, since additional i

International accounting standards committee, International Accounting Stan...

International Accounting Standards Committee, the (IASC) - is an independent private sector body, formed in 1973, with objective of harmonizing the accounting principles that are u

What net carrying amount, On June 30, 2011, Omara Co. had outstanding 8%, $...

On June 30, 2011, Omara Co. had outstanding 8%, $3,000,000 face amount, 15-year bonds maturing on June 30, 2021. Interest is payable on June 30 and December 31. The unamortized bal

Group retained profits-group accounts, Group retained profits Retained pr...

Group retained profits Retained profits ideally should be the amounts that can be distributed as dividends. Therefore,  in arriving at group retained profits, careful attention s

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd