Looking at financial statements;

              ATLANTA
BALTIMORE
BIRMINGHAM HASKINS & SELLS PHILADELPHIA
PITTSBURGH
PORTLAND
BOSTON CERTIFIED PUBLIC ACCOUNTANTS BUFFALO SPAROINVTID LEONUCEIS
CHICAGO SALT LAKE CITY
CINCINNATI SAN DIEGO
CLEVELAND BULLETIN SAN FRANCISCO
DALLAS SEATTLE
DENVER TULSA
DETROIT WATERTOWN
KANSAS CITY LOS ANGELES MINNEAPOLIS HAVANA
NEWARK LONDON
NEW ORLEANS EXECUTIVE OFFICES PARIS
NEW YORK HASKINS & SELLS BUILDING
37 WEST 39TH ST., NEW YORK SHANGHAI
VOL. V I I N E W Y O R K , AUGUST, 1924 No. 8
Looking at Financial Statements
BY JOHN R. WILDMAN
A Talk Given Before the National Institute of Credit, New York
THE test of a good credit risk is the
credit seeker's willingness and abil­ity
to pay. Willingness alone prof-iteth
little. Willingness coupled with
ability to pay is the true foundation on
which credit granting should rest. Will­ingness
is an attribute of disposition. It
may be determined from reputation and
from one's experience with another. Char­acter,
integrity, and general standing in a
business or social community bear on the
point. Generally speaking, a reputation
for unwillingness to pay or disposition to
avoid one's legal obligations are fatal to
successful credit seeking. Willingness, in
the last analysis, is something concerning
which relatively little tangible evidence
may be obtained.
Ability to pay, on the contrary, may be
determined more readily by investigation
of the credit seeker's resources. Banks
which loan funds on collateral security look
to the security for evidence of the bor­rower's
ability to pay. Notwithstanding
the remarks attributed to the late Mr. J .
Pierpont Morgan that he would rather loan
a million dollars on the word of a man in
whom he had confidence than a thousand
to a man on the best security in the world,
there is a comfortable feeling attaching to
the collateral back of a loan.
The commercial organizations which ex­tend
credit, like some banks which carry
commercial lines, are not as a rule, in the
fortunate position of having their accounts
secured. Credit is extended and goods are
sold with the idea that the transaction will
result within a reasonably short time in the
conversion on the part of the seller of mer­chandise
into cash. Notwithstanding the
statement frequently made, in a pictur­esque
way, that the seller of merchandise
on credit furnishes capital to the buyer,
imagination may not run so far as to con­sider
the seller as becoming a partner in a
business. It is of the essence of merchan­dising
procedure that cash will flow back to
the seller in a reasonably short time.
Again, generally speaking, the buyer who
lacks ability to pay promptly, according to
the terms of the sales contract, is not a
desirable credit risk.
Lacking specific collateral, the seller
must needs seek some means of forming a
judgment as to the buyer's ability to pay.
Obviously, a statement of the buyer's re­sources
would throw some light on this
matter, but at the same time it must be