What company accounts tell you about credit risk

Start with the basis of the accounts

Before comparing numbers, confirm the company, currency, units, reporting period and accounting basis. Figures shown in thousands cannot be compared directly with figures shown in millions. A shortened accounting period also needs context.

Check whether the statements are consolidated or relate to the individual company. When your contract is with a subsidiary, group accounts describe a wider perimeter. Record the audit status where disclosed and distinguish filed financials from estimates.

Income statement: how is the business performing?

Where available, read revenue, operating results and financing costs across comparable periods. Investigate material changes rather than interpreting growth as reassurance on its own. A large contract, acquisition or change in reporting scope can affect comparability.

Profit is not the same as cash collected. Consider how the business finances the period between paying suppliers and receiving customer payments. If the public filing does not disclose revenue or an income statement, label that limitation clearly.

A worked example: growth and liquidity move differently

The report example contains five years of company-only accounts. Turnover rises across the series, while cash falls between the endpoints. The calculated EBITDA margin also changes. Explore each series before deciding which additional evidence to request.

Read the full analysis of this report for the questions these movements raise.

Balance sheet: what supports the obligations?

The balance sheet shows the position at a particular date. Review the mix of cash, receivables, inventory, debt and other liabilities. Current assets may contain balances that take time to collect or sell.

The current ratio is current assets divided by current liabilities. It is one snapshot of liquidity, not a prediction of collection or payment. The quality and timing of those assets and liabilities still need examination.

Cash flow: where does the money come from?

If a cash flow statement is available, distinguish cash from operations, investment and financing. A positive closing cash balance may have been supported by borrowing or an asset sale. Read the explanation in the accounts and the underlying business context.

If cash flow is not disclosed, do not present a guessed figure as a filed fact. Ask for additional information proportionate to the proposed exposure. The absence of a statement is a limitation of your evidence.

Connect the statements to the decision

Compare several periods where possible, with a note on restatements or changes in scope. A ratio matters because of the question it helps answer: whether there is sufficient liquidity for near-term commitments, how operations are funded or what changed since the previous review.

Use the financial position alongside your requested terms, order size and actual payment experience. For a supplier, the question may include whether disruption would affect your operations. For a customer, it may focus on how much receivable exposure you are prepared to carry.

Explore the sample report’s financial statements to see how years, units and company context should remain visible together.