Chris Miller knew that he would obtain $190,000 from his personal saving and loans from friends but required $510,000 purchase price for the practice. Miller is in need of information on his likelihood of obtaining a bank loan. Miller does not have any experience in running his own business but has decided to run one because of the experience he has gained in the practice having worked for three different dental practices. It is recommendable for Chris Miller to use the past financial performance – financial ratios of Chang Dental Clinic as well as his financial forecasts to convince the bank to loan him the required funds to purchase the dental practice. The past financial performance of Chang Dental Clinic will be useful to the bank in determining the financial performance and the capacity of the clinic to repay its debts which will then help it to determine whether to loan Miller or not.
Past financial performance of Chang Dental Clinic
1. Financial ratios
Miller should use the past financial performance of the clinic to convince the bank to loan him the required funds to purchase the practice. Liquidity ratios show the financial performance of the firm and also show the healthy level of the firm. The reason as to why Miller should use the liquidity ratios for the clinic is because the loan will be repaid by the money that will be obtained from the clinic. ...