Question

-Which financial statement, or statements, would be of most interest to creditors? 200 words

Answer 1

EXPLANATION --- Creditors are one of the stakeholders for any company. They give credit period to company by seeing their past history and reputation and growth in the respective industry.

Creditors look at financial statement to determine the credit risk , whether company has sound credibility and credit worthiness that it can repay its obligations and debts timely.

Mainly Creditors look at balance sheet from where they see the current ratio and analyse the same. They see this ratio and determine whether business will be able to repay its short term obligations and dues over the next one year. A good ratio is 1.2 or more is taken into consideration by creditors.

Creditors look at debt equity ratio and loan repayments. They see whether the company has sufficient funds to meet up their long term obligations. What will be their primary source and secondary source of repayment because cash flows are very important to meet up liquidity and repay obligations on time therfore balance sheet forms a very important source of information for creditors.

Also other financials can be looked upon to get a generalised idea about the total purchases and sales and also the net margin the company is earning , and various expenses company is incurring on its operations.