Grating Fiber Coupler Design

Return on Total Assets = Earnings before Taxes Total Assets

The ratio measures the efficiency of the managers in the utilization of the available to generate reasonable volume of earnings. Hence the ratio measures the efficient management of the assets in the operations of the business.

8. Fixed Assets Turnover

The ratio relates the total volume of sales to the total fixed assets available for the business operations. This measures the efficient utilization of the available fixed assets to generate reasonable level of sales or turnover for the business.

Fixed Assets Turnover = Total Sales Fixed Assets

This also measures the efficiency of the managers in utilizing the available fixed assets to generate adequate level of sales in the process of business operations.

SELF ASSESSMENT EXERCISE 3

Mention and show how to calculate relevant financial ratios considered for creditworthiness of customer in loan request.

Ability: – this refers to the ability of the business to generate enough income from cash inflows with which to repay the loan facility.

Margin: – this refers to the profit or reward of engaging in the lending facility which will determine the bank’s consideration in committing funds.

Purpose: – this relates to the reason which informs the customer’s request which should not be connected with abnormal business operations such as speculative business, illegal business transaction, fruitless venture, self aggrandizement, failed venture, money laundering, dealing in arms or weapons, etc.

Amount: – this refers to the value or amount of funds that is being requested by the customer, which will be considered in relations to issues such as available funds for lending, the liquid position of the bank, regulation of the apex bank, amount of loan already committed to loan, pace of loan recovery, trend in volume of withdrawals, etc.

Repayment: – this refers to the possibility of the repayment schedule being appropriate to the bank’s liquidity management plan. More so, the bank will also consider the past performance of the business in relation of its ability to meet periodic repayments of the funds in relation to the liquidity plan of the bank.

Insurance: – this refers to the issue of collateral security which is available to secure the loan by the customer. This is very important to the bank because in the event of defaults or inability to repay the loan the bank will use the collateral security for generate funds to settle the loan.

The analysis above indicates that it represents a broad-based evaluation of the loan request compared to the earlier consideration in this unit. These considerations are important in terms attributes which coalesce to form the basis of the lending decision.

Among these considerations, there are five attributes that are linked to the accounts and finances of the prospective borrowers. The remaining two considerations are character and margin, which are related to the customer and the bank’s profit contemplation.

In the case of character, the issues are management of the business, which represents subjective assessment, and the others in the areas of the products of the company, and the past performance of the business, the latter which can be specifically quantified from the balance sheet data.

The banks will therefore, be interested in seeing financial information for the past five years before lending any money to the customer. These are the balance sheet and the income statement of the business which incorporates the past data relating to five years consecutively.

SELF ASSESSMENT EXERCISE 4

What are the issues to be considered in technique used for assessing the creditworthiness of the customers?

4.0 CONCLUSION

You have learnt from this study unit that there are numerous considerations which are normally taken into cognizance by commercial banks in evaluating and analyzing loan request for credit facilities from customer before taking decisions on such facilities. This is important for the commercial banks because they are interested in ensuring that funds committed into credit facilities as well as loans would not go down the drain. The relevant considerations are in categorizations such as: analysis of the credit request;

credit analysis; assessment of the past performance of the customer; and the technique that commercial banks used in assessing creditworthiness of the customers requesting for credit facilities.

5.0 SUMMARY

In this study unit, topics covered include the following:

Analysis of Loan Request Credit Analysis

Assessment of Past Performance of Loan Applicant

Technique for Assessing

In the next study unit, you will be taken through the discussion on decision criteria in credit administration.

6.0 TUTOR-MARKED ASSIGNMENT

Identify and discuss the relevant technique for assessing the creditworthiness of customers requesting for credit facilities.

7.0 REFERENCES/FURTHER READINGS

Araga, S. A. (2008). Practical Business Finance, Abuja: Premier Educational Institute.

Fraser, D. R., Gup, B. E. and Kolari, J. W. (1995). Commercial Banking: The Management of Risk, Minneapolis/St Andrew: Western Publishing Company.

Jessup, P. F. (1980). Modern Bank Management, New York: West Publishing Company.

Jhingan, M. L. (2008). Money, Banking, International Trade and Public Finance, 7^th Edition, Delhi: Vrinda Publications (P) Ltd.

Luckett, D.G. (1984). Money and Banking, Singapore: McGraw-Hill Book Co.

International Edition.

Uremadu, S. O. (2004). Core Bank Management: Concepts and Application, Enugu:

Precision Publishers.

Uzoaga, W.O. (1981). Money and Banking in Nigeria, Enugu: Fourth Dimension Publishers.

Further Reading

Uremadu, S. O. (2000). Bank Management: Basic Issues in Money, Bank Lending and Credit Administration, Benin City: Precision Publishers.

Module 4