Dakota State University
BUS 315 Credit and Collection
Spring 2002
Reading Assignment
Chapter 16: All Chapter 17: All Chapter 19: All
Objectives
Chapter 16: Financial Statements - Analysis and Interpretation
1. State the purpose of financial statement analysis.
2. State and describe the four usual primary financial statements
produced by companies.
3. State the four usual areas of ratio analysis, what is measured by
each area, and give examples of ratios used in each area.
4. Explain the importance of comparison of ratios with references.
* 5. Describe some of the limitations or problems of financial
statement analysis with regard to:
a) window dressing
b) accounting and operating practices
c) GIGO
d) what "good" or "bad" means
e) what reference to use
f) one-way interpretation of ratios
g) market values vs book values
h) fraud
* 6. Describe the following ratios including formula, what is being
measured, what makes a "good" value and why:
a) current ratio
b) quick ratio
c) total asset turnover
d) inventory turnover
e) debt/equity
f) interest coverage (times interest earned)
g) return on equity
h) return on assets
i) return on sales
7. Explain what is meant by common-size financial statements and why
they are calculated.
8. Explain why credit managers focus on cash flow rather than on
net income.
9. State an important characteristic of depreciation for cash flow
analysis purposes.
*10. Give a formula that allows a quick rough calculation of cash flow
from operations.
11. State the three major sections of a cash flow statement.
12. Explain the importance of trends in financial statement analysis.
*13. State the three levels of analysis using financial ratios and
which level is the most difficult.
*14. Explain what liquidity, solvency, and profitability measure and
what kind of business, in terms of the above, a credit manager
likes to see apply for credit.
Chapter 17: Business Credit - Analysis, Decision Making, and Credit Lines
15. List possible initial decisions to a business request for credit.
16. List reasons leading to the following initial decisions:
a) yes
b) no
c) cash
d) maybe
e) How much?
17. List various approaches to handling a "maybe" decision.
*18. State five goals of business credit decision making, i.e. what
characteristics the decisions should have.
19. Explain why the above characteristics are important.
20. State advantages of having a written credit policy.
*21. Discuss the following typical components of a written credit
policy:
a) credit department mission statement
b) credit department goals and objectives
c) credit department organization and authority
d) required documentation and investigation
e) credit line policy
f) terms of sale
g) security requirements
h) collections policy
i) fraud protection
j) first contact
*22. State the very most basic business credit decision guideline.
*23. State and describe the five plus two C's of business credit
analysis.
24. State and describe five basic issues addressed in a business
credit analysis.
25. State the stages in the four-stage business credit decision
making process.
*26. Describe the following stages of the business credit decision
making process:
a) overview of management and operations
b) financial ratio analysis
c) cash flow analysis
d) financial projections
Chapter 19: Collection Policies and Practices
27. State what happens to a firm's cash flow and profitability when
debtors take longer to make payments than agreed upon.
28. Explain
a) what a cost/benefit analysis is
b) why it is needed in developing a collections policy
c) whether costs are difficult to measure and why or why not
d) whether benefits are difficult to measure and why or why not
29. State four factors to consider when creating a collections
policy.
30. State six goals of a good collection system.
*31. Discuss the following goals of a good collection system:
a) aid the working capital position of the firm
b) reduce operating expenses and bad debt
c) retain customer goodwill
d) rehabilitate the customer
e) aid the sales effort
f) promote good communications with customers
32. Discuss the relationship between the aggressiveness of the
collection process and the reasons for nonpayment.
*33. State and/or discuss eleven reasons for nonpayment.
34. State whether a company should try to retain every credit
customer.
35. State examples of collection policies at the two extremes between
liberal and strict.
*36. State and/or discuss five factors affecting a collection policy.
*37. State:
a) four possible combinations of credit policy and collection
policy in terms of liberal or strict
b) which of the above four combinations is common
c) which of the above four combinations is unwise
*38. State and/or discuss five important ingredients in a collection
system.
39. Describe the devices available and the debtors involved in the
following collection stages:
a) impersonal routine
b) impersonal appeals
c) personalized appeals
d) drastic or legal action
40. Describe how computers have automated the collections support.
[Unit Four Study Guide in Word format]
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Last update: April 27, 2002