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ACCA Applied Knowledge · Financial Accounting · Importance and purpose of analysis of financial statements

A bank is considering a request from a company for a five-year loan. Which of the following information in the financial statements would be MOST relevant to the bank's decision?

Gearing and interest cover are most relevant to a lender because they show how heavily the company is already financed by debt and whether profits are sufficient to meet interest payments. EPS growth and dividends mainly interest shareholders, not lenders.

  1. AGearing and interest coverCorrect
  2. BEarnings per share growth
  3. CDividend per share
  4. DStaff costs per employee

Explanation

A lender needs to assess whether the company can service interest and repay capital, so gearing (level of borrowing) and interest cover (profit available to pay interest) are most relevant. EPS growth and dividends matter more to shareholders. Staff costs per employee is of limited relevance to lending risk.

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