What does a banker evaluate to determine a company's capacity to repay a bank loan?
A) the firm's credit history
B) the firm's ability to generate cash flows
C) the collateral used to secure the loan
D) the character of the owners of the business

Question

Quizplus · Accepted Answer

Bankers evaluate a company's ability to generate cash flows in order to repay a loan. This is because cash flow represents the ability of a company to generate enough money to pay its expenses, including loan repayments. While a company's credit history, collateral, and the character of its owners are also factors that may be considered, they do not provide as direct an indication of a company's ability to generate the cash necessary to repay a loan.

What Does a Banker Evaluate to Determine a Company's Capacity