Balance sheet review of the creditworthiness of a GmbH

Introduction

The creditworthiness of an exemplary GmbH is analyzed on the basis of its financial position, liquidity, capital structure and profitability. The review is carried out on the basis of the balance sheet and the Proof of accountsto identify potential risks and opportunities in financing.

The Difference between creditworthiness, credit capacity and KYC have been presented in a separate article. The overview of the entire exemplary GmbH can be found

Positive aspects of creditworthiness

High equity ratio

• The GmbH has subscribed capital of € 1,000,000, which is fully covered by the property.
• The net profit for the year amounted to € 3,508.75, which shows a positive business development.
• The high equity ratio reduces dependence on external financing.

No long-term liabilities or bank loans

• The company has no bank loans or other long-term debt.
• All trade payables were settled.

Solid profitability thanks to positive earnings situation

• The company generates an operating profit before taxes of € 5,000.
• The gross margin is 50 % based on sales of € 20,000 and material costs of € 10,000.

Sufficient bank balances to cover short-term liabilities

• The GmbH has a bank balance of € 5,000.
• The remaining liabilities of € 1,491.25 are offset by sufficient cash and cash equivalents.

Negative aspects of creditworthiness

Low liquidity and lack of current assets

• The bank balance of € 5,000 is limited for business operations.
• No other current assets such as inventories or liquid receivables.

Fixed assets are immobile and cannot be realized in the short term

• The property of € 1,000,000 cannot be sold or mortgaged in the short term.
• The capital tied up in real estate assets makes it difficult to raise capital in the short term.

Lack of reserves for risk protection

• The company has not formed any retained earnings or reserves.
• Little financial leeway for future losses or growth investments.

Limited growth potential

• The annual turnover is only € 20,000, which is not sufficient for expansion.
• Fixed assets are not used to carry out major transactions or investments.

Balance sheet analysis and effects on creditworthiness

Equity ratio

Equity ratio = equity ÷ balance sheet total
1,005,000 € ÷ 1,005,400 € = 99.96 %

A high equity ratio indicates stable financing for the company.

Liquidity ratio 1 (cash ratio)

Liquidity ratio = bank balances ÷ current liabilities
5.000 € ÷ 1.491,25 € = 3,35

Bank balances cover current liabilities more than threefold, which is positive in the short term.

Return on sales

Return on sales = profit before tax ÷ sales
5,000 € ÷ 20,000 € = 25 %

25 % of turnover remains as profit, which speaks for profitability.

Asset intensity

Asset intensity = fixed assets ÷ balance sheet total
1,000,000 € ÷ 1,005,400 € = 99.46 %

Almost all of the capital is tied up in fixed assets, which limits financial flexibility.

Effects on lending

Potential for favorable credit conditions

• The company has no existing debt financing.
• The high equity ratio is viewed positively by banks.
• Mortgaging the property could lead to favorable conditions.

Restrictions on short-term financing

• The low liquidity makes it difficult to borrow quickly.
• Banks could demand additional collateral or guarantees.

Opportunities to improve creditworthiness

• The company should aim for higher sales in order to strengthen its capital base.
• Building up liquid reserves would increase future financing security.

Advantages of the proof of account for the creditworthiness check

Overview of the difference between the balance sheet, income statement and statement of accounts

A creditworthiness check can be carried out on different bases.

• The balance sheet and income statement provide a summarized presentation of a company's net assets, financial position and results of operations.
• The account statement goes beyond this and shows the individual account movements and their exact composition.

The main difference is that the balance sheet and income statement only show closing balances, whereas the statement of accounts enables a detailed analysis of movements within a financial year.

Advantages of the proof of account in the creditworthiness check

Precise assessment of liquidity movements

• In the balance sheet, total bank balances are recognized as a single figure.
• The statement of accounts shows how this credit balance came about, whether it is the result of constant payments or one-off special effects.

Relevance for the credit check

A bank can see whether liquidity is sustainable or merely a snapshot in time. A regular supply of liquidity through recurring income signals financial stability.

Detailed analysis of the receivables

• The balance sheet only shows the total amount of receivables.
• The statement of accounts shows what type of receivables exist - those that can be realized in the short term or those with long payment terms.

Relevance for the credit check

A high level of receivables can put a strain on liquidity if customers pay late or there are receivables from problematic sources. The statement of accounts shows whether these are active business receivables or disputed amounts that are difficult to collect.

Traceability of operational cost structures

• The income statement shows the total operating expenses, but not their individual composition.
• The account statement shows specifically which suppliers, cost types and purchases represent the highest charges.

Relevance for the credit check

A bank can recognize whether cost management is efficient or whether the company has high operating expenses without sufficient income. This is crucial for assessing financial sustainability.

Transparency regarding operating liabilities

• Total liabilities are summarized in the balance sheet without identifying the source from which they originate.
• The statement of accounts reveals whether the liabilities result from supplier credits, outstanding tax obligations or structural liquidity bottlenecks.

Relevance for the credit check

A significant tax liability or regularly late payments to social security institutions may indicate structural payment problems. This could increase the credit default risk.

Recognition of one-off or irregular business transactions

• Non-recurring income or extraordinary expenses do not appear separately in the balance sheet or income statement.
• The statement of accounts reveals whether a profit was generated by operating income or merely by non-recurring special effects.

Relevance for the credit check

A one-off profit from a single sale cannot provide a reliable basis for the long-term repayment capacity of a loan. Banks therefore check whether profits are recurring and result from the core business.

Restrictions on a credit check without proof of account

Limited informative value about cash flows

The balance sheet and income statement only show inventory figures and balances, but no cyclical payment movements. This means that a bank cannot recognize whether the company has a regular cash flow or only holds short-term liquidity.

Lack of transparency regarding financing and investments

Without an account statement, it remains unclear whether investments were made using own funds or external financing. A high level of investment activity can be positive or negative, depending on the underlying financing.

No detailed analysis of the liability structure

A high liability item in the balance sheet can result from long-term, well-structured debt capital or from short-term pressure from outstanding liabilities. Without a statement of accounts, this distinction is not possible.

Effects on lending

Influence on the credit conditions

If the bank recognizes through the proof of account that the liquidity comes mainly from regular income, this could lead to more favorable credit conditions.

Risk assessment through detailed creditor structure

A bank can use the proof of account to assess which creditors have priority and whether a potential loan would be jeopardized by existing obligations.