Every active company must produce scannable records of its financial performance for audit, review, and improvement purposes. Hence, financial statements are written documents that describe a company’s operations and financial performance. Government authorities, accountants, corporations, and others frequently audit financial statements to verify accuracy as well as for taxation, financing, and investment purposes.
Cash flow analysis, common-size income statement analysis, fund flow analysis, cost-volume-profit analysis, networking capital analysis, comparative statement analysis, and trend analysis are all tools and techniques used in financial analysis.
A key sector where financial statements are considered crucial is lending. Let’s understand how.
How Can Banks Benefit from Financial Statement Analysis Tools?
Lending is an age-old tradition that has helped economies grow and proliferate for centuries. Earlier, lending decisions were only based on trust. Things have changed now, and banks now rely on predictive analysis that leads to more trust and transparency while lending.
Analysis of financial statements, drawing insights, running verifications, etc. form the basis of this trust.
Such analysis also gives lending institutions an unbiased picture of an individual or company’s financial health, which is useful when making lending decisions.
The Current Challenges in Lending
For banks, the most significant risk is credit risk. When borrowers or counterparties fail to meet contractual obligations, it is known as default. Borrowers defaulting on a loan’s principal or interest payment is an example. Mortgages, credit cards, and fixed-income securities are all susceptible to default. Failure to meet contractual obligations can also occur in areas such as derivatives and provided guarantees.
Indian public sector banks collectively owed approximately 6.17 trillion Indian rupees in non-performing assets in the fiscal year 2021. This is a slight improvement from 2019 but still an alarming figure.
Another startling figure is that the top 100 wilful defaults in India owe their lenders Rs. 84,632 crores.
Given this, banks’ trust in the applicants is wavering, which in turn is creating uneasiness among the consumers. Add to this the debilitating impact of the pandemic. In such times, manually parsing through pages of financial statements and marking stats on Excel sheets won’t cut the sheet.
The need of the hour is a stable financial tool that can perform error-free analysis, generate predictive scores, and do all that in minutes.
Solution: Financial Statement Analysis Tool
The right financial statement analysis tool can provide you with a summary of multiple pages of financial documents. It is a straightforward system where you need to upload the bank statements, and the tool provides you with all the insights, suggestive actions, and even an AI-powered predictive score of the chances of repayment.
The right tool performs a comprehensive financial statement analysis, with analysts typically analyzing data from multiple years to facilitate horizontal analysis.
Vertical analysis is performed on each financial statement to determine how different categories of the statement influence results. Ratio analysis can isolate some performance metrics in each statement and bring data points from various statements together.
The right tool will provide you comprehensive data about the following things on financial statement analysis, including:
- Overview
- Transactions
- Irregularities
- Circular transactions
- Bounced cheques
- Returns/ charges
- Cash flow
- Business cash flow
- Counterparty
- OD/CC utilization
- Recurring payments
- Recurring deposits
- EMI payments
- Loans
- Daily balance
- Closing balance
- Txns summary
No one can forecast the future of any business and a borrower, but their past behaviour can surely give an insight into what the lender can expect. This simple exercise can help instil mutual trust, accountability, and more transparency in the loan approval process.
How Can Precisa Help?
Precisa is an automated financial analysis tool that many corporations use to make better financial decisions. Precisa’s offering enables a smooth process where all the information is served at your fingertips.
The financial statement analysis allows you to extract perspectives from multiple statements and strategically dissect them in the areas of cash flow-based lending, wealth management, and insurance. It provides you with a real-time picture of the borrower’s financial situation in a matter of seconds.
Precisa has facilitated the lending process for various clients, including Gromor Finance, Credit Enable, Hindustani Financial Services, UC Inclusive Credit, and many more. Join this list of big names today and protect your financial institution from any fraud.
Lending can turn possibilities into realities. The wrong decisions can also lead to huge losses. Contact Precisa today to know how you can utilise bank statements to make better lending decisions!
You can simply integrate Precisa into your existing system through APIs. Learn more.
Mumbai