To: Enticing fashion’s CEO

From: Pardeep and team

Date: September 21,2021

Subject: How financial statements are used by banks to grant loans to companies.

Banks use every part of financial statements in different ways to grant loans to companies. I
would like to tell you how those parts of financial statements are being used by banks in
next paragraphs.

Firstly, banks analyze balance sheet of company. In liabilities side of balance sheet banks
look for how much money company has already owed to creditors, and loan officer find that
isn’t there already any loan given by bank to customer. If yes, then giving more loan to
customer may result in overextending. On the other hand, assets represent that how the
company is using its borrowed money to generate cash and paying back the existing loans.

Secondly, loan officers pay attention to statement of profit and loss to know how much
revenue business is making. Mostly, lenders fear of temporary financial distress and
bankruptcy. Bankers look at trends of profitability to determine that is company able to
repay its debts. Talking about expenses, loan officers determine how the company
managing its operations while holding back excessive spending. But there can be some
expenses those are for long term investment, sometimes company can not run its sales,
grow market share, and innovate without those expenses.

Third part is cash flow. It provides insight to liquidity movements of company. Bankers look
for regular inflows of cash that tells company has sufficient money to pay back its loan on
the regular basis.

All these aspects, usually lead to a scoring system, where, if good numbers are shown, a
high score is achieved, which demonstrates the acceptability to grant the credit. In
conclusion, the company needs to go right on all those parameters to get the loan from
bank.

I hope I have clarified your doubts regarding the issue in question, and do not hesitate to
contact me if you have any concerns.

Best regards

Pardeed and Team of the accounting firm.

TEAM MEMBERS ACCOUNTING AG2
Sahiba Sood – Student ID 100416992
Jorge Arango – Student ID 100416110
Gurjant Singh – Student ID 100410757
Pardeep Kumar – Student ID 100410485
Diksha – Student ID 100416257