Question

1)    What would a banker be concerned about before giving a loan to a company?

2)    What would be a concern to a potential investor in a company?

3)    What is a 10K?

4)    What is horizontal analysis?, vertical analysis?

5)    What is one type "ratio analysis" and describe what it measures in a company.

Answer 1

As per the policy, since there are many questions, I am answering the first one:

1. After the banker understands the business, purpose of loan and repayment, bank checks its risk by following 5 Cs:

Character - It does not matter how much collateral company provides, the banker must have a trust on the company. The lender needs the confidence that the lender has the experience and knowledge to manage the business.

Collateral - When a bank pays a loan, it determines how the borrower will pay the loan. A lender never wants to sell the collateral for their loan as it would not generate the whole amount of loan. Banks like to take property and assets as collateral.

Capacity - The borrower must show he can repay the loan by company's cash flow. Banks calculate ratios to analyse the company's position.

Capital - Banks feel more comfortable when owner has its own money in his business. Banks like to lend money to companies where owners also contribute.

Conditions - Beside analysing the borrower, banks will also analyse the economic condition of the industry, market and politics.