10 Questions
What type of business is M/s Saraswathi Trading Enterprises engaged in?
Dry fruits
Which document is mentioned in the text as not acceptable as an address proof?
PAN card
Why did M/s Saraswathi Trading Enterprises approach for a working capital facility?
To introduce online shopping
Which ratio is mentioned in the text as reflecting the liquidity position of a firm?
Current Ratio
What does the text mention about financial parameters reflecting the entire business position of a firm?
They only indicate the financial position
Which type of document is mentioned in the text for customer identification?
Driving License
Why is PAN card not accepted as an address proof according to the text?
It does not have an address mentioned
What impact do officially valid documents have in customer identification?
Help in verifying customer's age
What does the text mention about utilizing CIBIL reports in the context provided?
'CIBIL' reports help in assessing the risk parameters of proposals
Why is it important for M/s Saraswathi Trading Enterprises to own their premises?
To secure loans easily
Study Notes
Financial Analysis and Risk Management
- Integrating financial analysis with qualitative analysis, including business and management risk factors, is crucial for credit analysis purposes.
- Financial risk parameters include:
- Liquidity ratio: Current Ratio
- Solvency ratio: Debt Equity Ratio
- Leverage ratio: Debt service coverage ratio/interest service coverage ratio
- Profitability ratios include:
- Return on capital employed
- Risk management involves evaluating various risk factors, including:
- Customer authentication and verification
- Business risk
- Financial risk
- Management risk
Risk Management Parameters
- Management risk parameters include:
- Integrity and character of promoters/partners
- Technical/financial knowledge and expertise
- Managerial competence, commitment, and experience
- Succession arrangements
- Market reputation and record
- Relationship with the bank
- Reputation with customers and suppliers is also crucial
- Credit record of accomplishment and meeting commitments to lenders and creditors are essential
Risk Evaluation and Assessment
- Risk evaluation involves identifying and assessing various risks, including:
- Business risk: risks inherent in the operating cycle
- Financial risk: uncertainty in cash flows to meet future obligations
- Business risk assessment involves evaluating:
- Supply risk: continuous availability of raw materials and inputs
- Production risk: hurdles/obstacles in manufacturing process
- Demand risk: demand for final products and market preference
- Collection risk: delay in realization of sale proceeds
- Financial risk assessment involves a deeper analysis of financial statements, including:
- Compliance with bank parameters
- Financial reports in isolation may not present the entire analysis
Test your knowledge on financial analysis integrated with qualitative analysis for credit analysis purposes. Explore topics such as ability to mobilize funds, liquidity and solvency tests, financial risk parameters, and profitability ratios.
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