Assets and the Credit Manager
by ORESON H. CHRISTENSEN Partner, Cincinnati Office
Presented before the Cincinnati Association of Credit Management, Cincinnati—February 1963
ONE OBJECTIVE of the Certified Public Accountant is to have financial statements presented in such form that reasonably informed readers will not misunderstand them. For a number of reasons this objective is not easily attained.
One reason is that there are many different classes of readers of financial statements—credit men, bankers, stockholders, potential stockholders, managers, financial analysts, and so on. Each of these groups has a somewhat different purpose in mind when studying and interpreting financial information.
Another reason is that although CPAs are guided by what are called generally accepted accounting principles, such principles are not magical formulas ensuring that all CPAs will come up with exactly
the same answer under similar circumstances. The principles are general guides to accounting treatment but do not supply ready-made answers to reporting the complex transactions of today's business.
Credit men likewise, it is safe to say, have no set formulas to answer the difficult questions arising in the credit-granting process. The activities of each group call for the exercise of analytical judgment.
Both are vitally interested in what is behind the figures appearing
in the financial statements, but in the interest of brevity only some of the possibilities of genuine pertinence to a credit manager will be mentioned here, and an indication given of what can be expected from a CPA in reporting on those figures. A good guess is that the credit man's major concern is what lies behind the figures in financial statements not accompanied by a CPA report. No special solution for such concern will be offered except to point out that an awareness of the various possibilities puts the credit manager in a better position to ask some pertinent questions of the potential credit customer.
Receivables and inventories are often the most important of the current assets included in current ratio computations and in measures of working capital. The assumption is that credit grantors still attach some importance to these items, although the many possibilities lying behind such figures render somewhat hazardous too great or sole reliance on these measuring sticks of credit risk.