Interpreting financials – Think like an auditor
Abstract: Historic financial statements may reveal signs of financial distress and provide the foundation for future projections. But a financial analysis approach based on audit techniques allows lenders to identify and target high-risk areas. As this article explains, the process involves using a risk assessment to create a scorecard for each borrower, and it describes a few generic ratios that belong on every scorecard. But a sidebar illustrates the need to customize one’s financial analysis approach for different types of borrowers.