Question

The creditors of a company analyse financial statements so that they can focus on A. the...

The creditors of a company analyse financial statements so that they can focus on

A. the company's amount of debt.


B. the company's ability to generate sufficient cash flows to meet all legal obligations first and still have sufficient cash flows to meet debt repayment and interest payments.


C. the company's ability to meet its short-term obligations.


D. All of the above.

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Answer #1

The correct option is D, all of the above.

The creditors of the company, focus on the financial statements so that they can focus on the amount of debt , too much debt is bad for the financial health of the company. Creditors do not extend credit to companies with too much debt.

The company's ability to pay its short term obligations, and it's ability to pay off debt repayments and interest payments is also considered. Creditors want to ensure the interest and principal is paid on the organisations debt securities (e.g., bonds) when due.

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