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“If you can’t measure it, you can’t improve it.” - Peter Drucker
Today the market trends change daily and are very unpredictable. In this scenario, not having a clear idea of what ratios to track could lead to inaccurate credit decisions. Result? End up doing business with at-risk customers.
Despite the economic flux, how can you accurately assess your customer’s creditworthiness?
Regular tracking and monitoring of customers' performance metrics, could help credit analysts keep a close eye on their customer’s financial health.
Here are some key metrics to identify risks associated with potential customers
-Liquidity ratios - This ratio will help you determine debtor's ability to pay off their current debt obligations without raising external capital.
-Leverage ratios - This ratio will help you assess your customers’ ability to meet their economic obligations.
-Activity ratios - This ratio will help you understand how efficiently the debtor is leveraging the assets on its balance sheet, to generate revenues and cash.
-Net Income ratios - This ratio will help you measure your organization’s profitability and is primarily used for internal comparison.
Tracking these key metrics could simplify complex sets of data and even save a lot of time and effort. It even widens the scope of inter-firm comparisons to identify companies that are likely to go out of business.
Watch the complete course to explore the methods to use these key ratios in detail. Unlock the break-even point formula to determine whether or not your customers have the dollar amount to do business with you.
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