ACCA Applied Knowledge · Financial Accounting · Stakeholders' needs
A bank is considering a five-year loan to Delta Co. Which information in Delta Co's financial statements would be of MOST direct interest to the bank?
The bank would be most interested in gearing, interest cover and cash generated from operations, because these show whether Delta Co can service interest and repay the loan capital. Staff data, market share and director options do not directly address repayment ability.
- AGearing, interest cover and cash generated from operationsCorrect
- BThe directors' share option entitlements only
- CStaff turnover rates and training spend
- DMarket share trends against competitors
Explanation
A lender needs to judge the ability to pay interest and repay capital. Gearing, interest cover and cash flow indicate this. The other items are of lesser or indirect relevance to a lender.
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