As a relationship person, when onboarding a new corporate client, the key ratios I would look into would primarily be liquidity and profitability ratios. Liquidity ratios such as the current ratio and quick ratio would help assess the company’s ability to meet its short-term obligations. These ratios indicate the availability of liquid assets to cover current liabilities and provide insights into the company’s financial stability and cash flow management.
Profitability ratios, such as return on assets (ROA) and return on equity (ROE), would help evaluate the company’s ability to generate profits and maximize shareholder value. These ratios provide an understanding of the company’s efficiency in utilizing its assets and equity to generate income.
Additionally, as a relationship person, I would also consider other ratios such as the debt-to-equity ratio and interest coverage ratio to gauge the company’s leverage and debt-servicing capacity. These ratios provide insights into the company’s financial risk and ability to manage its debt obligations.
On the other hand, as a credit person, I would focus more on the credit risk aspect and delve into ratios such as the debt service coverage ratio (DSCR) and the interest coverage ratio. These ratios help assess the company’s ability to generate sufficient cash flow to cover its debt obligations. The DSCR specifically indicates the company’s ability to service its debt, including interest and principal payments, and is crucial in determining the company’s creditworthiness.
Furthermore, I would analyze the company’s leverage ratios, such as the debt-to-EBITDA ratio, to evaluate its overall debt burden and repayment capacity. This ratio helps assess the company’s ability to generate earnings before interest, taxes, depreciation, and amortization (EBITDA) to cover its debt obligations.
In summary, as a relationship person, my focus would be on liquidity and profitability ratios to assess the company’s financial stability and profitability. As a credit person, I would emphasize ratios related to credit risk and debt-servicing capacity to evaluate the company’s creditworthiness and repayment ability. The specific ratios considered may vary depending on the industry, company size, and other relevant factors.
