Question

From a lender's viewpoint, which ratio(s) do you think would be the most important in determining if a company is a good candidate for a loan? Several of the ratios are very similar; for instance, the current ratio, quick ratio, and the cash ratio. Why do we have these different measures? Discuss some instances where one might be more useful than the other for a lender examining a company.

Answer 1

While there are many ratios that help a lender in determining the status of a customer, only some will be helpful in that situation. These ratios help in analysing the repaying capacity of a customer and the eligibility of that customer for that loan. These ratios tell us the financial condition of the customer by examining and comparing their assets and liabilities. In some situations the financial status of the customer mightb e important while in some other the reputation of the company is needed. So as per the requirement the lenders decideon what ratios to use for examining that company. When the company is new one but many assets are put as security , we use one ratio where as when the company is a well established one we use another ratio.