Credit management in simple words is the process of monitoring and collecting payments from the borrowers. A specialized credit management system eases the amount of capital tied up with debtors. The principles of credit management revolve mainly around the concepts of safety, Liquidity, Diversity, and Profitability. The banks all over the world examine following details…
Working capital is the operating capital of a business which is used in its day-to-day operations, calculated as the current assets minus the current liabilities. The positive working capital commonly indicates that a company is able to pay off its short-term liabilities almost immediately. An important objective of the working capital management is improving profitability…
A common size financial statement is an income statement or balance sheet in which all items are expressed as percentages of a common base figure rather than as absolute numerical figures. For example, in a common-size income statement you will find the income and expenditure amounts as percentage of net sales. Similarly, a common size…
Trend analysis is a method used in technical analysis that tries to predict the future. Under this system, Revenue and cost information from a company’s income statement is arranged on a trend line for multiple reporting periods and then examined for trends and inconsistencies. The object of trend analysis is to spot actionable patterns from…
In banking parlance, volatile liabilities are ‘hot’ or ‘unstable’ funds that can disappear from bank’s balance sheet overnight. Demand deposits are best examples of volatile liabilities which can move out of the bank overnight. Thus, funding volatility ratio (FVR) is calculated by proportion of liquid assets to CASA deposits i.e. FVR=Liquid assets÷ CASA deposits. In…
The land, building, machinery etc. are known as non-liquid assets because it can take months for a person or company to receive cash from the sale of such assets. Unlike non-liquid assets, the liquid assets are cash in hand or the other assets which are cash equivalent. In simple words, liquid asset can be described…
The term ratio means a simple division of one number by another. It is measured by the number of times one number is contained by the other, either integrally or in fraction. The ratio analysis of financial statement means the process of calculating structural relations of different items and groups in the financial statements. Generally,…
If any lending decision is to be properly made, the risk involved in the transaction should be properly evaluated. Risk evaluation primarily consists in the ascertainment of the ability of the prospective borrower to repay the proposed loan. To ascertain this ability, apart from financial analysis many other vital considerations such as the character of…
(This article explains the method of computation and the purposes of capital structure ratios viz. Current ratio, Quick ratio/Acid test ratio, Debt Equity Ratio, Solvency Ratio, Proprietary or Equity asset ratio, Fixed assets to tangible net worth plus term debt, Current debt to tangible net worth ratio, Inventory to net working capital ratio, Current debt…
The turnover ratios or inter-statement ratios represent the quantity of any assets or liabilities used by a business entity to generate revenue through sales. The concept of turnover ratio is useful in determining the efficiency with which a business utilizes its assets. The following ratios are called Turnover Ratios or inter-Statement Ratios. Debtors’ velocity ratio…