granting credit.

kerryhill100

last question for a while I promise!!

I have been provided with just a P&L no balance sheet and been asked to do a full analysis of it in a memo to the credit controller in regards to granting the new customer with credit. most of the ratios that are in the book require a balance sheet to assess the liquidity of a company.

Any suggestions? I am banging my head against a brick wall.

MichaelBeechFMAAT

For the memo to the credit controller regarding the ratios, you have a little bit of information in the p&l which can help

For example, what about the gross profit ratio(GP/Sales) and the net profit ratios(NP/Sales)? Agreed from there on in it could be a bit tricky. Yes the acid ratio and liquidity ratios do require BS, but how about looking at what you have in the P&L as a guide to the profitability of the company in question? Looking at net profit compared to gross profit, is there a big difference? Is there lots of expenditure dragging the gross profit and making the company not so profitable. High expenses could be a bad sign. On the other hand, are the sales levels at a healthy margin compared to Cost of Sales.

there are a couple of other ratios which you can get from a P&L which can help.

Take a look at: Gross margin:COS ratio, expressed as GP/COS

COS= cost of sales.

I think you need to think outside of the box with this one. Look at the actual P&L rather than ratios. Nice healthy gross profit with not too much expenses then a good way to go.

Don't forget as well, it would be valid to put in your answer: I need more info. I need a B.S , because those are where the most important credit control ratios are (acid test,Current ratio,Debtor Days, Creditor days etc etc)

Hope this helps. Good luck, you can do it!

kerryhill100

thank you so much for your advice!

panic is really setting in and I seem to be forgetting more and more. my skills test is the 18th of june. just praying it will come together on the day lol

MichaelBeechFMAAT

Don't panic! I feel the same way. I have a Technician Business Tax exam on 15th. I've just completed Intermediate three weeks ago! So it's a bit of a rush. But we will get there. Just need to keep focused...!

Remember the old adage: with confidence everything can be achieved. Without confidence nothing can be achieved!