Why are these factors important when conducting a financial statement analysis?

There are several metrics that a loan officer may consider when conducting a financial statement analysis. A company's current ratio may be considered when analyzing performance. The current ratio is a liquidity ratio that demonstrates the relationship between a company's current assets and current liabilities. If the current liabilities can be satisfied by current assets, the current ratio is 1. Therefore, the higher the current ratio, the more appealing the findings may be to the loan officer.

Additionally, a loan officer may focus on leverage ratios such as debt to equity and debt to assets. Debt to equity is important for long-term analysis. A loan officer may consider debt to equity because it reflects the ability of a shareholder equity to cover all outstanding debts in the event the business takes a turn for the worst (Fernando, 2021). Higher leverage ratios tend to characterize higher risk stocks and companies. The debt to assets ratio evaluates long term and short term debts in relation to total assets