Application Of Financial Analysis In The Credit Decision-making

Loan is the main business and the main source of profit for all Chinese commercial banks. With the entry of WTO, credit cultures of Chinese and foreign commercial banks are integrated each other. Credit decisions are made by professional loan officers rather than executive officers. Line of Credit is decided through quantitative analysis rather than qualitative analysis. In some practice, financial analysis is simplified and formulized. The result of financial analysis can not reflect the borrower's financial status and management, and is quite different from what the borrower is.From the view of banks, this article discovers the accounting risks of annual financial report, discourses upon 15 specific representative ratios about profitability ratios, efficiency ratios, leverage ratios and liquidity ratios which reflect the borrower's operation activities when bankers evaluate the borrower's operations management, asset management, and liability management. Eight main borrowing causes are listed as seasonal sales peaks, declining asset efficiency, sustained periods of strong sales growth, fixed asset replacement or expansion, restructuring liabilities, insufficient profitability, dividend requirements and unexpected expenditures. Quantitative analysis is depicted in detail for each of the borrowing causes. A future repayment cash flow framework is composed upon the repeatable continuous cash inflows of high quality, retained profits and depreciation etc , minus the cash outflows of working investment increase, fixed asset expenditures and dividend requirements. Also, key predicting variables and predicting methods are described. Both the borrowing causes analysis and the repayment analysis are used to help bankers make a proper credit decision on the loan amount, period and repayment schedule.