Bank's Case Study The Statement Of Cash Flow In Banking

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Bank’s loan officers study the statements of cash flow, because these statements measure in details the aggregate of money that comes in and goes out of the business during a specific financial period of time. From the statement of cash flow, the business is capable to know the quantity of money they have on hand for the purchase of assets and also to pay for the incurred expenses. It shows the quantity of money a business has generated, and how the business is able to pay for its operations and future growth. When the bank’s loan officers analyze the statement of cash flow, they want to make sure that the borrower cash inflow is regular and that they will have enough cash to pay its liabilities.
The value of a statement of cash flow is that
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Hence, besides the financial statements that banks carefully study, they also analyze some additional information or aspects related to the potential borrower to better assess the credit risk such as:
Character: character is the general impression the prospective borrower makes on the potential lender (Пусенкова, 2007). Based on the character, banks will make subjective estimations regarding the ability of the customer to repay the loan. When analyzing the character, banks mostly consider the background and experience in the business and industry, as well as the experience of the management team. Positive comments from professionals such as accountants, lawyers, or certified entities which have reviewed your past proposals are also extremely important elements when applying for a
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The source of payment is the most critical factor for any lender before extending credit to borrowers. The bank want to know how the potential borrower is going to pay back the loan. This capacity of repayment is determined by the cash inflows, the cash generated by the business, the stability of the business, the time taken for the repayment, and especially the probability of repaying the loan. According to Wells Fargo (2015) the ratio of potential borrower current and any new debt as compared to the before-tax income, known as debt-to-income ratio (DTI), may also be

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