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IAI Actuarial Core Principles · Business Finance · Construction and features of company accounts and reports

A bank is considering a term loan to an Indian manufacturing company. Which feature of the company's published accounts would be of most direct interest to the bank as a lender?

A lender mainly cares about the company's ability to pay interest and repay the loan on time, so cash generation, liquidity and gearing disclosed in the accounts are most relevant. Share price prospects concern investors, not lenders.

  1. AThe company's ability to generate cash to meet interest and capital repayments when dueCorrect
  2. BThe detailed remuneration of every junior employee
  3. CThe likely future share price of the company on the stock exchange
  4. DThe competitor's pricing strategy disclosed in the notes
  5. The company's compliance with its customers' quality standards

Explanation

Lenders are mainly concerned with whether the borrower can service interest and repay principal, so liquidity, cash flows and gearing matter most. Share price expectations matter to investors, and the other items are not primary lender concerns or not disclosed in accounts.

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