Question

If you were evaluating the credit worthiness of a business and presented with their balance sheet with working capital of $1,000,000 and $750,000 of the business's current assets were Due from Affiliates, what questions would you ask the CFO and or owner of the business?

Answer 1

DETAILS GIVEN IN QUESTION:

If you were evaluating the credit worthiness of a business and presented with their balance sheet with working capital of $1,000,000 and $750,000 of the business's current assets were Due from Affiliates, what questions would you ask the CFO and or owner of the business?

ANSWER:

SINCE 75 % [750,000 / 1,000,000 ] OF THE CURRENT ASSETS ARE DUE FROM AFFILIATES, IT WILL BE WORTHWHILE TO ASK FOLLOWING QUESTIONS TO CFO OR OWNER OF THE BUSINESS TO EVALUATE CREDIT WORTHINESS OF A BUSINESS:

1. IS IT GROUP POLICY TO SALE TO AFFILIATES ? IF YES, REVIEW THE POLICY TO CHECK ANY LIMITS SPECIFIED FOR TRANSACTIONS WITH AFFILIATES.

2. IT WILL BE WORTH TO CHECK THE SALE PRICE TO AFFILIATES WITH MARKET PRICE OF SIMILAR PRODUCTS. THIS WILL HELP TO IDENTIFY WHETHER SALES ARE INFLATED FOR WINDOW DRESSING.?

3. WHAT IS AGEING OF THESE  DUES FROM AFFILIATES. HOW OLD ARE THESE?

4. WHAT IS THE HISTORY OF RECEIVING MONEY FROM AFFILIATES IN THE PAST YEARS.?

5. WHAT IS THE PROPORTION OF BUSINESS GENERATED THROUGH AFFILIATES? THIS WILL HELP TO UNDERSTAND THE RATIO OF BUSINESS FROM OUTSIDERS AND AFFILIATES.

6. WHAT IS BUSINESS MODEL OF AFFILIATES? HOW ARE THESE PURCHASES FURTHER SOLD TO CUSTOMERS BY AFFILIATES.? THIS WILL HELP TO FIND OUT GENIUNENESS OF THE TRANSACTIONS WITH AFFILIATES.