Answer questions Essay Example | Topics and Well Written Essays - 1000 words - 12

Answer questions - Essay Example Here, issues of bank overdraft are nonexistent and the business is in a good business shape. An example of when underlying circumstances may be such that the accounts receivable turnover increases one period to the next and is favorable is when the accounts receivable turnover has a high value, which shows that there is an improvement in the process of collecting cash on credit sales. An example of when underlying circumstances may be such that the accounts receivable turnover increases one period to the next and is unfavorable is when the accounts receivable turnover has a lower figure that indicated inefficiencies in collection of credit sales. A example of when the underlying circumstances may be such that the accounts payable turnover increases from one period to the next is favorable is when a company is paying its suppliers longer than it should take. This means that the company is taking advantage of discounts that come with early payment. Credit analysis refers to the method used to investigate whether a company has the financial ability to repay its obligations. It is done through the development of classification-based approach that seeks to differentiate potential defaulters from non-defaulters. The basics of credit analysis can be understood through five C’s that include character, capacity, capital, collateral and conditions. The first C, character, refers to the general impression the customer has on the prospective investor or lender. The lender comes up with a subjective opinion regarding whether the company or client can be trusted to repay a loan or generate a return from the funds that are invested into the firm. The background of the company and the experience in its particular field of business are issues that must be considered including issues of employee experience, and the quality of the references given