From the course: Financial Modeling and Forecasting Financial Statements
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Financial forecasts and loans
From the course: Financial Modeling and Forecasting Financial Statements
Financial forecasts and loans
- Banks and other lenders are interested in one thing, being repaid with interest. And those payments will be made out of future cash flows. So, success in the banking business is all about making accurate forecast of a borrowers' future cash flows. When a business approaches a bank for a large loan, the bank starts the evaluation process by asking for the company's standard financial statements. A balance sheet, an income statement, and a statement of cash flows. These financial statements are useful because they help the lender predict the future ability of the borrower to repay the loan. By the way, many small and medium-sized businesses do not routinely prepare a statement of cash flows. In a later module, we'll see how to create a statement of cash flows, including a forecasted statement of cash flows using data from the balance sheet and the income statement. Okay, so how do these historical financial statements help…
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