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Business Loan Financing Ratios That You Cannot Ignore

There are hundreds of business financial ratios you can find in any book on accounting and finance.

Other than making the originators of these key financial ratios look ingenious, some of them actually are very simple and important for you to understand so as to track the performance of your company.

if you don’t have an emotional need to know the formulas of all these financial ratios to impress other businessmen, there are really only a few of them that matters when you want to get a business loan. So what are the financial ratios that really matter?

There is no need to go into the grand history of how these ratio come about, but knowing some of them can be critical when you apply for a business loan. In fact, these ratios are so generic, you could have been credited to them if there wasn’t already someone else taking the credit.

So here they are. Pluck the figures and numbers from your financials and tabulate the scores with the simple formulas.

Revenue Growth Rate

Revenue Growth Rate = {(Latest Year Sales – Last Year Sales) / Last Year Sales} x 100%

Advantageous as long as it’s not in a negative figure for acquiring business loan.

Leverage

Leverage = (Long Term Liabilities + Short Term Liabilities) / (Paid-Up Capital + Retained Earnings – Intangible Assests)

Anything below 3.5 should be considered good enough for acquiring business loans.

Gearing

Gearing = Total Bank Borrowings / (Paid-Up Capital + Retained Earnings – Intangible Assests)

Anything below 2 can be considered to be favourable for acquiring business loans.

EBITA Growth Rate

EBITDA Growth Rate = {(Latest Year EBITDA – Last Year EBITDA) / Last Year EBITDA} x 100%

Good as long if it is a positive figure for acquiring business loans

Debtors Ratio
Debtors Ratio = Trade Debtors / Turnover

For acquiring business loan financing, it is best to be lower.

Creditors Ratio

Creditors Ratio = Trade Creditors / Cost of Goods Sold

Generally accepted that ¼ of Cost of Goods Sold is favourable for acquiring business loan.