This module covers the use of financial statements in making credit-granting decisions. Students first read chapter 6 of Understanding Financial Statements, ninth edition, by Lyn M. Fraser and Aileen Ormiston, then view the on-line presentation. Topics covered include: types of financial ratios and what each measures; how firms make capital structure and liquidity decisions; trend analysis and graphing of ratios; comparison of ratios to industry averages; and types of ratios that are most relevant to trade creditors. The module concludes with a case study which requires the computation and interpretation of a debtor’s ratios and cash flows.
Dr. Frederick C. Scherr is a Professor Emeritus of Finance at the College of Business and Economics at West Virginia University, where he taught for 30 years and won both the College’s Outstanding Teacher and Outstanding Researcher awards. He is the author of more than 30 research articles, four textbooks, and many articles in professional publications such as The Credit and Financial Management Review, The Credit Manager, and Business Credit. He has done extensive work in adult education for the National Association of Credit Management, including teaching at the Graduate School of Credit and Financial Management, and for private corporations.