Credit Analysis

This service is offered to our clients to determine the creditworthiness of their customers. The objective of credit analysis is to verify an entity’s ability to meet its obligations as per their purchase terms. Our credit department will verify all the available public information from your customer to evaluate the conditions and historic payment performance of the company to establish its financial strength.

Summar uses a combination of data (Analysis of financial statements, credit reports, business references, payment habits or history, etc.) to assign a credit limit for your customer.

Usually, we look for public information first, but if there isn’t sufficient information available we would require financial statements from the Customer.

In our analysis we establish some of the following ratios:

Current Ratio: Current Assets/Current Liabilities

The ratio is mainly used to give an idea of the company’s ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point.

Quick Ratio: (Current Assets – Inventory)/Current Liabilities

The quick ratio is more conservative than the current ratio, a more well-known liquidity measure, because it excludes inventory from current assets. Inventory is excluded because some companies have difficulty turning their inventory into cash. In the event that short-term obligations need to be paid off immediately, there are situations in which the current ratio would overestimate a company’s short-term financial strength.

Net working capital: Current Assets – Current Liabilities

Positive working capital means that the company is able to pay off its short-term liabilities with its current assets. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory).

Summar works with major commercial database providers and credit insurance companies to better profile your customers and assign an accurate credit limit.