Not all of a company's business transactions are relevant for assessing its creditworthiness. Banks focus on sustainable and calculable factors in order to realistically assess the long-term ability to service debt. Certain transactions are of limited or no relevance to creditworthiness as they do not originate from operating activities, are non-recurring or do not represent a genuine inflow of liquidity.
Proceeds that do not qualify as secured income
Income is a central component of the creditworthiness assessment. However, a bank does not assess every income as a stable source of revenue if it is not permanent or predictable.
- Income from the sale of fixed assets or real estate, as they are not part of the core business
- Compensation payments or insurance benefits that occur irregularly and unpredictably
- Government grants or subsidies, if these are not based on contractual agreements
- Speculative profits from securities, cryptocurrencies or foreign exchange trading that are heavily dependent on market fluctuations
- Sales of investments or capital gains that do not recur as planned
Expenses that have no long-term significance
Certain operating expenses are also examined to determine whether they have a permanent effect or whether they are short-term and therefore have no long-term impact on the economic situation.
- Reversals of provisions whose effect on income is relevant for accounting purposes but has no direct impact on actual liquidity
- Extraordinary expenses, which are a one-off charge and do not provide a permanent indication of the cost structure
- Asset write-downs or value adjustments that reflect valuation changes but are not directly cash-effective
Realistic classification of capital inflows
Capital inflows from financing, deposits or irregular income are part of the normal structure of any balance sheet and can have a positive impact on the equity ratio or liquidity. Nevertheless, banks differentiate between sustainable operating income and irregular cash flows when assessing credit. Capital inflows that appear on the balance sheet but are not considered operating income
- Loans and credits, as they are recognized as a repayment obligation
- Equity contributions by shareholders, as they do not represent sales but long-term financing measures
- Subsidies or funding that are not secured in the long term
- Sale of investments or fixed assets that generate non-recurring income
Internal allocations and accounting adjustments
Not every entry in the company results in an actual cash flow or has a lasting effect on outstanding receivables. Accounting measures or internal offsetting therefore only have limited significance for the creditworthiness check.
- Own work capitalized that is recognized as income in the accounts but does not generate an external cash inflow
- Revaluation of assets that change the balance sheet value but do not directly affect the ability to repay the loan
- Internal cost allocations that shift costs and sales within the company but do not have a lasting effect on the overall earnings situation
Business transactions with uncertain or limited predictability
Certain sales or cost savings can lead to a short-term improvement in key financial figures, but are difficult to forecast in the long term.
- One-off major orders without follow-up contracts that generate high income but do not offer a secure continuation
- Seasonal income without contractual hedging, which is subject to strong fluctuations
- Bonus or discount campaigns that increase sales in the short term but cannot be calculated in a stable manner in the long term
To illustrate these considerations, we use our Booking example of a GmbH. The audit is carried out on the basis of the balance sheet and the statement of accounts in order to identify potential risks and opportunities in financing.
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 only 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.
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