Skip to content

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

A bank is deciding whether to lend to Zeta Co for two years. Which area of analysis is of most direct interest to the bank?

A lender is most interested in whether the company can pay interest and repay the loan, so liquidity, gearing and interest cover are the key measures. Market share, training spend and dividend yield are of less direct relevance to a bank.

  1. AThe company's ability to meet interest and repay capital, shown by liquidity and gearing measuresCorrect
  2. BThe company's market share growth compared with competitors
  3. CThe level of staff training spend per employee
  4. DThe company's dividend yield for ordinary shareholders

Explanation

A lender cares mainly about the borrower's ability to pay interest and repay capital when due. Liquidity, gearing and interest cover address this. Market share, training spend and dividend yield are of secondary or no direct concern to a lender.

Did you get it right without looking?

One question tells you little. A timed set on Importance and purpose of analysis of financial statements shows your real accuracy, how long you take and where you lose marks.

Practise Importance and purpose of analysis of financial statementsFree diagnostic mock

More Importance and purpose of analysis of financial statements questions