CAIIB · ABM

C Analysis of Financial Statements

Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Advanced Bank Management — CAIIB.

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What is the primary purpose of analyzing financial statements in credit management?

Financial statement analysis helps a banker assess the creditworthiness, repayment capacity, and financial health of a borrower before sanctioning credit facilities.

What is the formula for calculating the Current Ratio?

Current Assets divided by Current Liabilities.

Which financial statements are typically obtained from a borrower for credit appraisal?

Bankers obtain the Balance Sheet, Profit & Loss Account, and Cash Flow Statement, usually for the last three years, along with projected financials for new projects.

What is the ideal Current Ratio benchmark generally accepted by bankers?

2:1 is the ideal current ratio for lending.

What does the Current Ratio indicate in financial analysis?

The Current Ratio (Current Assets / Current Liabilities) measures a firm's short-term liquidity; a ratio of 1.33:1 is generally considered the minimum acceptable level by Indian banks.

What does Debtors Collection Period (DCP) measure in credit analysis?

Average number of days to collect receivables from customers.

How is the Debt-Equity Ratio calculated and what does it signify?

Debt-Equity Ratio = Total Long-Term Debt / Tangible Net Worth; it indicates the degree of financial leverage and how much of the business is funded by creditors versus owners.

What is the formula for Return on Net Worth (RONW)?

Net Profit After Tax divided by Net Worth multiplied by 100.

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