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Ratio Analysis for Clients

Ratio measures the difference and relationship between values in other to make viable decision. They are very significant for measuring client’s performance over a period of time and is generated by dividing the numerator by a denominator with the result being express as a percentage, a monitory value, days or numbers.

 

Why do we need ratio analysis?

  • It helps us make viable decisions on loan approvals
  • It helps us understand the type of risk involved in the client business
  • It interpret clients business performance better
  • It proffers how best to mitigate risk that may arise during course of business
  • It clarifies the relationship between previous reports

 

How to generate ratios

In other to adequately access a business so as to determine the clients net worth and take decision on loan granting, microfinance analyst or account officers are expected to understand the listed ratios below;

  • Liquidity Ratio
  • Turnover Ratio
  • Debt Ratio
  • Profitability Ratio
  • Repayment Capacity Ratio

 

While understanding the above ratios, it is important the results generated from the ratios are as a result of the use of one or combinations of financial statements which are key elements in determining these results. Determining a client net worth and performance would require use of the client’s statement of financial position (balance sheet) and the income statement (profit and loss).

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