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

Calculate shares no., Q. Bento, Inc. had 500,000 shares of common stock out...

Q. Bento, Inc. had 500,000 shares of common stock outstanding before a stock split occurred, and 1,500,000 shares outstanding after the stock split. The stock split was a. 2-for-5.

Characteristics of accounting information?, According to the FASB, the usef...

According to the FASB, the usefulness of accounting is judged by which of the following two qualitative characteristics of accounting information? Comparability and neutrality Unde

Consistency concept, how does the concept of consistency aid in the analysi...

how does the concept of consistency aid in the analysis of financial system?

Accumulation accounts for minors-trusts laws, ACCUMULATION ACCOUNTS FOR MIN...

ACCUMULATION ACCOUNTS FOR MINORS   (a) Income accumulations : When property is left in trust for minors, the income earned for the period will be divided equally or according t

Calculate the operating cash flow, You are evaluating a project which costs...

You are evaluating a project which costs $720,000, has a four-year life, and no salvage value. Depreciation is straight-line and the half year rule does not apply. Sales are projec

Illustrations of income statement, Illustrations of Income statement ...

Illustrations of Income statement Profit/Loss on disposal of non-current assets Material write down or reversal of write down on assets e.g. PPE inventory and debtors.

What is its wacc, You were hired as a consultant to Giambono Company, whose...

You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost

Bond Valuation, FV of Bond 20000, CR 0.045, MR 0.059, Remaining payments 32...

FV of Bond 20000, CR 0.045, MR 0.059, Remaining payments 32. Answer

Long as the yield to maturity, The Brownstone Corporation's bonds have 7 ye...

The Brownstone Corporation's bonds have 7 years remaining to maturity. Interest is paid yearly, the bonds have a $1,000 par value, and the coupon interest rate is 10%. a.

What is the financial objective of a business, What is the financial object...

What is the financial objective of a business A business is created to enhance wealth of its owners. This may come as a surprise, as there are other objectives which a business

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