These key financial ratios act as a loanworthiness report card for your business.
Managing the loan world is, at times, a task that is very hard to understand. But the best loan processing company in Chennai—Ambit Crest—believes that finance should be as simple as a delicious filter coffee on a hot day!
If you were to get a loan for the ongoing or new business, the bank officers would be taken through some important financial ratios to do so. These ratios are like your financial report card, showing how stable and efficient your company is.
One may say the current ratio is a measure of a company's short-term liquidity, or stability for the next 365 days.
Formula: Current Ratio = Current Assets / Current Liabilities
A ratio over 1.0 tells that the company has more short-term assets than it has short-term liabilities. For lenders, having a ratio in a range from 1.5 to 2.0 is considered healthy, because it shows that they can meet their short-term financial requirements even without a hard situation.
This ratio is the 'what part of this is yours and what part of it is borrowed' account. It compares the Total Outside Liabilities (all kinds of debts—short and long-term) of the company to Total Net Worth (the owner's share or equity). The ratio with a lower value (often less than 1.5 or 2.0, depending on the branch) is considered more favorable. A smaller ratio means that the company is heavily funded with its own capital—a very good indicator that you are loanworthy.
DSCR is arguably the most important question directly addressed by any lender: 'Is this a business that can make its loan payments?'
Formula: DSCR = Net Operating Income / Total Debt Service
A DSCR of 1.0 means that the income just fits the payments—no room for a breach. Lenders usually look for a DSCR of 1.25 or more. The higher the score, the more confident the lender is that you will not be in trouble if loan payments fall with the business.
Knowing the ratios is just the first step, and the second step, which is really all about presenting ratios in a way that convinces the lender that the loan is granted at the best terms, is where the real mastery comes in. For this reason, businesspeople from all over Tamil Nadu are selecting Ambit Crest.
We are not just about loan processing but also about client exposure and empowerment. Our expert from Chennai employs their detailed and profound knowledge of the market to present your company's financial condition in the most suitable way, thus allowing you to get the best terms possible.