This shows the level of liquidity the client has in his business which can cover short term liabilities as they arise
Turnover ratios
Inventory Turnover
Income Statement
Stat of Fin Pos
COGS
Inventory/Stock
This ratio shows the portion of the inventory/stock that has been sold off already
Turnover ratios
Inventory Turnover
Stat of Fin Pos * x days
Income Statement
Inventory * x days COGS
If we need to find out how many days it will take to sell of the stock,
Turnover ratios
Inventory Turnover
Stat of Fin Pos * x days
Income Statement
Inventory+New loan* x days
COGS
If additional loan is given to the client to buy more stock to his business
Debt ratios
Debt-to-equity ratio
Stat of Finanacial Position
Stat of Financial Position
Total Liability
Equity
Shows the percentage level of client’s indebtedness to other formal or informal sources.
Debt ratios
Future Debt-to-equity
Stat of Fin Pos+New Loan
Stat of Fin Pos
Debt + New loan
Equity
Shows the percentage level of client’s indebtedness to other formal or informal sources if additional fund must be availed to the client.
Profitability ratios
Return on sales
Income Statement * 100
Income Statement
Profit * 100
Sales
It shows the percentage of profit the business has made which can be reinvested into the business or trade with.
Repayment ratio
Repayment capacity
Income Statement
Income Statement
Monthly instalment
Disposable fund
The above ratio is used to make decisions if a customer is to have access to the loan applied for and the amount that can be availed
Sample Exercise
A customer request for loan of 300,000 with monthly repayment of 60,000 monthly for six month. The client’s repayment capacity will be calculated using 50% as the maximum risk buffer. Also calculate the appropriate ratio for the client financial statement.
Sample Statement of Financial Position as at 31st Dec 2015 Sample Income Statement as at 31st Dec 2015
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Stat of Financial Position
Current liability
Stat of Fin Pos
Inventory/Stock
Income Statement
Income Statement
COGS
Stat of Financial Position
Equity
Stat of Fin Pos
Equity
Income Statement
Sales
Income Statement
Disposable fund
Sample Exercise
A customer request for loan of 300,000 with monthly repayment of 60,000 monthly for six month. The client’s repayment capacity will be calculated using 50% as the maximum risk buffer. Also calculate the appropriate ratio for the client financial statement.
Sample Statement of Financial Position as at 31st Dec 2015 Sample Income Statement as at 31st Dec 2015
40,000
23,000
30,000
5,000
10,000
2,000
7,000
118,000
2,229,500
Ratios
40,000
30
750,000
2.8
2,125,000
11 Days
2,125,000
15 Days
2,189,500
2%
2,189,500
16%
2,500,000
11
145,000
41%