What Bankers Look for in Financial Statements
January 31, 2018
Share:By: Michelle Pinochet, CPA
When you’re trying to obtain a line of credit or loan for your organization, the banker will most likely ask for a copy of your financial statements. The top three things bankers are concerned about are (1) performance, including profitability and operational management; (2) liquidity, or how fast assets can be converted into cash; and (3) leverage, the extent of your ability to pay back debt. Thus, credit analysts will perform ratio analysis using your organization’s financial statements to evaluate these three areas in order to ultimately decide whether to approve a loan.
See below for some of the most common ratios credit analysts calculate:
Performance ratios
– Gross profit margin
– Accounts receivable turnover
– Inventory turnover
Liquidity ratios
– Current ratio
– Quick ratio
– Cash conversion cycle
Leverage ratios
– Debt coverage ratio
– Debt-to-equity ratio
– Times interest earned
For more resources on obtaining a business loan, the Small Business Administration provides a comprehensive guide to preparing a loan proposal.