ASSESSMENT OF BUSINESS PERFORMANCE FROM LENDERS' POINT OF VIEW

We wish to assess the performance of a business more from lenders' point of view, therefore we will look for ways to measure the financial and economic consequences of past management decisions that shaped investments, operations, and financing over time. The important questions to be answered are whether all resources were used effectively, whether the profitability of the business met or even exceeded expectations, and whether financing choices were made prudently. As we'll present, there is a wide range of choices among many individual ratios and measures, some purely financial and some economic which can indicate problems of repayment capacity. No one ratio or measure can be considered predominant. We will base present analysis of business performance on published financial statements. Our focus will be on key relationships and indicators that allow the analyst to assess past performance and also to project assumed future results. We'll point out their meaning as well as the limitations inherent in them. Past performance and future expectations have to be viewed at some point in terms of cash flow generation, investment returns, and operational effectiveness. Many performance measures are related to each other in various ways, and credit analysis requires a thorough understanding of these linkages. Performance analysis is best performed as a dynamic process, using financial models where possible, to assess combinations of data and measures over time.