Enable java in your browser. Or use the links below. For our privacy policy, click here . For our user agree- ment, click here . Another tool the lender will use is financial ratio analysis.
Ratios permit review of a company's current financial performance versus that of previous years.
In the same way that a medical checkup tests one's heart, lungs, and changeable factors such as body weight, an analysis of a company's financial performance considers the status, changes, and relationships of critical components of a company's health. The lender also may use financial ratio analysis to consider how a company is doing when compared to another company. A limitation of such comparative analysis is that different industries are driven by different factors. As a result, the financial ratios of a manufacturer and retailer can be quite different even though both companies may be similarly successful. To find out what the benchmarks are for your type of business, you may refer to guides published by Robert Morris Associates and others.