ACCA Applied Knowledge · Business and Technology · Financial information provided by business
A lender is considering a loan to Dorado Co and asks for financial information. Which of the following purposes of the information is most specific to the lender's decision?
A lender uses financial information mainly to assess whether the entity can pay interest and repay the loan when due. This focuses on cash flow, liquidity and gearing, unlike investors deciding on shares or employees considering pay prospects.
- AAssessing the entity's ability to pay interest and repay the loan when dueCorrect
- BJudging whether directors' pay is in line with the industry
- CDeciding whether to buy additional shares in the entity
- DEvaluating employees' prospects of future pay rises
Explanation
Lenders mainly need to assess liquidity, cash generation and gearing to judge whether interest and capital will be repaid. Share purchase decisions concern investors, and the other items relate to other stakeholders such as employees or shareholders.
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