Understanding Financial Statements

<p>Gearing Ratio (B)</p> Signup and view all the answers

<p>Shareholders may not be willing to provide additional capital to the company during difficult times. (C)</p> Signup and view all the answers

<p>It should be at least 50% of the company's total assets. (B)</p> Signup and view all the answers

<p>Any profits not distributed as dividends are added to shareholders' equity in the Statement of Financial Position, while losses reduce it. (B)</p> Signup and view all the answers

<p>They may result in capital leakage, liquidity drainage, or affect the borrower's debt repayment capability. (C)</p> Signup and view all the answers

<p>Capital expenses (A)</p> Signup and view all the answers

<p>Operating revenue from core business activities (A)</p> Signup and view all the answers

<p>To develop an expectation of the numbers in financial statements based on the company's nature of business. (D)</p> Signup and view all the answers

<p>They do not reflect the company's ongoing ability to generate cash flow from operations. (A)</p> Signup and view all the answers

<p>To measure the performance of the company's management. (B)</p> Signup and view all the answers

<p>Revenue expenses (C)</p> Signup and view all the answers

<p>Whether the revenue is recurring or non-recurring in nature. (A)</p> Signup and view all the answers

<p>They are responsible for providing capital to the company and expecting a return on their investment. (C)</p> Signup and view all the answers

<p>To assess the borrower's business and operating environment, identifying key risks and success factors. (B)</p> Signup and view all the answers

<p>The borrower's current debt-to-equity ratio. (A)</p> Signup and view all the answers

<p>To understand the alignment between the borrower's internal capabilities and their external environment. (B)</p> Signup and view all the answers

<p>The borrower's strengths and weaknesses in their business processes, and potential risks to cash flow. (B)</p> Signup and view all the answers

<p>To mitigate identified business risks and protect the lender's investment. (B)</p> Signup and view all the answers

<p>Understanding how macro-environmental factors may affect the industry's viability. (A)</p> Signup and view all the answers

<p>Steering the company towards success and mitigating internal and external risks. (A)</p> Signup and view all the answers

<p>To evaluate the borrower's ability to adapt to changing market conditions and competitive pressures. (D)</p> Signup and view all the answers

<p>The Quick Ratio is a more conservative measure of liquidity due to its exclusion of inventory, which is considered less liquid. (B)</p> Signup and view all the answers

<p>A company has a large amount of inventory due to slow sales and a liberal credit policy, leading to a high Current Ratio but potential liquidity challenges. (D)</p> Signup and view all the answers

<p>To evaluate the borrower's reliance on external debt funding compared to internal equity investments. (B)</p> Signup and view all the answers

<p>The company has a conservative financial structure with a lower proportion of debt financing. (A)</p> Signup and view all the answers

<p>Solvency Ratio (Liquidity Ratio) (C)</p> Signup and view all the answers

<p>It excludes inventory, which is generally considered less liquid than other current assets. (B)</p> Signup and view all the answers

<p>It implies a high level of risk due to the company's heavy reliance on external debt financing. (A)</p> Signup and view all the answers

<p>The company may have difficulty in meeting its short-term obligations from current assets. (B)</p> Signup and view all the answers

<p>The borrower's ability to repay both interest and principal installments. (A)</p> Signup and view all the answers

<p>A strong ability to service periodic interest payments. (C)</p> Signup and view all the answers

<p>The Debt Service Ratio includes both interest and principal repayments, while the TIE Ratio only includes interest expenses. (C)</p> Signup and view all the answers

<p>High profitability and low debt levels. (A)</p> Signup and view all the answers

<p>To assess the effectiveness of credit control and collection processes. (C)</p> Signup and view all the answers

<p>Debtors Turnover. (B)</p> Signup and view all the answers

<p>To evaluate the borrower's capacity to meet short-term repayment demands. (D)</p> Signup and view all the answers

<p>Analyzing the efficiency of a company's asset utilization. (A)</p> Signup and view all the answers

<p>The company's liquidity position, funding structure, and risk of insolvency. (A)</p> Signup and view all the answers

<p>The company's past financial statements and its ability to repay debt. (A)</p> Signup and view all the answers

<p>To assess the company's ability to repay debt. (D)</p> Signup and view all the answers

<p>A prediction of the company's future financial performance, including revenue, costs, and cash flow. (B)</p> Signup and view all the answers

<p>To serve as a secondary source of repayment if the borrower defaults on the loan. (D)</p> Signup and view all the answers

<p>To identify any potential financial risks or weaknesses in the company’s operations. (A)</p> Signup and view all the answers

<p>To assess the borrower’s creditworthiness and determine the terms of the loan. (D)</p> Signup and view all the answers

<p>A comprehensive assessment of the borrower’s business activities, risks, and funding needs. (B)</p> Signup and view all the answers

A review to ensure related party transactions are fair.

Transactions conducted as if parties are unrelated.

A financial statement showing a company's assets, liabilities, and equity.

A measure of a company's ability to pay short-term obligations with current assets.

Assesses a company's ability to meet short-term obligations excluding inventory.

Measures the proportion of debt to equity in a company.

The extent of shareholders' investment in long-term assets.

Loss of capital that can impact financial stability.

Measures a borrower's ability to meet short-term obligations with current assets.

Indicates difficulty in meeting short-term obligations.

May suggest inefficient asset management or overstocking.

Another name for the Quick Ratio, indicating short-term financial health.

Indicates lower reliance on external debt, showing more shareholder commitment.

A measure of a company's profitability compared to shareholders' equity.

Increased risk to lenders when a company is financially unstable.

A financial report showing management's performance, linking profits to shareholder equity.

Expenses matched with revenue in the same accounting period.

Expenses accounted for when incurred, not necessarily when paid.

Income generated from a company's core business activities.

Income generated from activities not related to core business operations.

Long-term investments in assets to generate future revenue.

An assessment of internal and external factors affecting a business.

A tool for identifying Strengths, Weaknesses, Opportunities, and Threats of a business.

Areas of potential adverse effects that may impact a business's cash flow.

Critical elements that contribute to a business's long-term sustainability and profit.

Evaluation of the key management personnel critical to business operations.

Agreements or conditions set by lenders to safeguard their investment.

An analysis of the external factors affecting a business's market position.

External influences like economic trends that affect business viability.

The ability of a company to meet short-term financial obligations.

The risk that a company cannot meet its long-term debt obligations.

The management of short-term assets and liabilities to ensure liquidity.

A financial statement that illustrates the company's cash inflows and outflows over a period.

A measure of a borrower's ability to cover debt payments with cash flow.

A projection of a company's future financial performance, including revenue and cash flow.

The ability of collateral to maintain or increase its value to cover a loan.

An assessment of non-numeric factors affecting a borrower's creditworthiness.

A tool derived from dividing one financial item's dollar amount by another's.

Assesses creditworthiness based on ability to service debts, indicating financial stability.

Ratio showing ability to cover interest payments from earnings before interest and tax.

Calculates debt service ability: Earnings Before Interest & Tax divided by (Interest + Principal).

Measures efficiency in managing current and fixed assets productivity.

Average time taken to collect receivables after a sale, expressed in days.

Synonym for Average Collection Period, indicating efficiency in collecting receivables.