The Four Financials

To establish a companys creditworthiness (risk), we need to know

about their:

Liquidity
Financial strength
Reliance on borrowings
Profitability

Liquidity
Liquidity is the ability to pay debts as they fall due.
The liquidity of a company is its lifeblood.
Another term for liquidity is solvency
Liquidity is funded through working capital

Financial Strength
Whereas liquidity addresses the companys immediate ability
to pay, financial strength looks at the long term viability of the
business.
A financially strong company can weather many short term
storms.
In the worst case scenario, a financially strong company will
have assets for resale and distribution if the business fails.

Reliance on Borrowings
A business which relies heavily on external funds, is spending
money financing this borrowing.
This is measured through Gearing comparing the funds
gained externally against those raised internally
If an external lender decides to withdraw their support it could
have immediate and drastic consequences on a company
which cannot afford to finance itself internally

Profitability
Most businesses operate with a view to profit & repeatedly low
profits or regular losses are unlikely to be tolerated.
Unprofitable firms cannot invest in their business and are not
viable in the long term.