CREDIT-COLLECTION-w4-Financial_Statement_Analysis_Credit_Evaluation.pptx

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1. Financial Statement Analysis in Credit Evaluation Balance Sheet, Ratios, and Cash Flow Assessment

2. Introduction Financial Statement Analysis is a key tool in Credit Evaluation. - Helps assess repayment capacity - Identifies strengths and weaknesses in financial health - Supports informed lending decisions

3. Balance Sheet & Income Statement Review Balance Sheet: - Shows assets, liabilities, and equity - Reveals financial strength at a point in time

4. Balance Sheet & Income Statement Review Income Statement: - Reports revenues, expenses, net income - Assesses profitability trends and stability

5. Liquidity Ratios Current Ratio = Current Assets ÷ Current Liabilities Quick Ratio = (Current Assets - Inventory) ÷ Current Liabilities High ratios suggest strong short-term repayment capacity.

6. Solvency Ratios Debt-to-Equity Ratio = Total Debt ÷ Equity Interest Coverage Ratio = EBIT ÷ Interest Expense Measures long-term stability and debt risk.

7. Profitability Ratios Net Profit Margin = Net Income ÷ Sales ROA = Net Income ÷ Total Assets ROE = Net Income ÷ Equity Indicates efficiency and profit generation.

8. Cash Flow Assessment Operating Cash Flow – Core operations Investing Cash Flow – Asset investments Financing Cash Flow – Borrowing and repayments Strong operating cash flow = repayment ability.

9. ABC Company Income Statement For the year ended December 31, 2024 Account Amount (₱) Sales Revenue 1,200,000 Less: Cost of Goods Sold 720,000 Gross Profit 480,000 Operating Expenses 250,000 EBIT (Operating Income) 230,000 Interest Expense 30,000 Income Before Tax 200,000 Income Tax Expense (25%) 50,000 Net Income 150,000 Net Profit Margin? Interest Coverage Ratio ? ROE?

10. ABC Company Balance Sheet As of December 31, 2024 Current Ratio? Quick Ratio? Debt to Equity Ratio? ROA?