ACCA FR Syllabus C. Analysing And Interpreting The Financial Statements - Not for Profit sector - Notes ^{1 / 1}

Getting a Loan

Similar criteria as would be used for profit-orientated entities

• How secure is the loan?

  Here use the capital gearing ratio:
  Long-term loans to net assets

  Clearly if this ratio is high, further borrowing would be at an increased risk

• Ability to repay the interest & capital

  Interest cover should be calculated
  PBIT / Interest

  The higher this ratio the less risk of interest default

  Look for trends indicating a deterioration in this ratio

• Nature and trend of income

  Are the sources of income increasing or decreasing

  Does the reported income contain ‘one-off’ donations (which may not be recurring) etc?

• Other matters

  Market value of, and prior charges against, any assets used as loan security

  Any (perhaps the trustees) personal guarantees for the loan