Key Ratios To Analyse Creditworthiness

Pixel_Pusher_Key_ratios_to_analyse_credit_worthiness
  1. Debt to equity ratio: This allows lenders to compare the assets of the company with its debts. Financial institutions consider companies with a high ratio of debt to equity as a higher risk than companies with little or no debt. Calculating a debt-equity ratio is done by using a balance sheet to divide the company’s liabilities by its shareholder’s equity. 
  2. Operations margin: The profit of a company makes a percentage of its total sales which is called an operating margin. This helps to separate the gross revenue of a company and its net profit which measures a company’s profitability. 
  3. Current ratio: This is a liquidity ratio that measures the ability of a business to pay for its expenditure by expressing the number of times assets exceed their liabilities. Total assets are divided by total liabilities. 
  4. Inventory ratio: This measures a company’s production and purchasing efficiency. It notifies investors of the number of times a company has sold its inventory. It is calculated by dividing the cost of products /services by the cost of inventory. If a company has a higher ratio it means they are more efficient at turning over their inventory and they are most likely to be considered by lenders. 
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