Things Canadian Financial Institutions Look Out For In Your Financial Statement
The importance of the financial statement is, unfortunately, unknown to many of the people who need it the most. Your financial statement is like your financial report sheet and your financial institution uses this to grade you. A pass means you get the loan you are asking for and a fail means you don’t get the loan you are asking for.
Contrary to popular belief, financial institutions actually want to give loans because it is a good way for them to make more money. They, however, only want to give loans that will surely end in them gaining and not losing
Therefore, if they are meant to like giving out loans, why do they refuse many? The answer to that is simple, the financial statement of a person tells them if the risks are worth the benefit i.e. if giving that person a loan will result in them losing or gaining money.
After asking some of our financial advisors, we compiled a list of what is important on your financial statements to financial institutions. These items include:
#1. Liabilities
Your liabilities are simply those things that would take money from you in future. They are your future expenses. They include everything that takes money out of your pocket including your house when you have to pay the mortgage, or insurance, your cars and even the shoes or dresses you bought with your credit card. This is because they take money from you and even if you sell the car or dress or shoes it will be for less than you bought it. The type of liabilities you have, tells the financial institution what you are likely to spend their money on.
#2. Expenses
Although it looks like your expenses are not exactly the same as your liabilities. All your liabilities are expenses but not all your expenses are liabilities. Your expenses are those things you spend money on. They show what and how you prefer to spend.
#3. Income
Financial institutions are also interested in where you plan on getting your money from. How much you get monthly and if you would be capable of keeping to your financial obligations to them. They have to be sure your income is able to cover your expenses as well as pay them.
#4. Assets
Your assets refer to those items that would most likely make future money for you. They are simply the things that can put money into your pocket should you decide to sell them. They include the house you rented out, paper assets, land you sold, and your business (if it is making more money than its using it is an asset). Financial institutions are interested in this because it also shows them your alternative income, it shows them where else you are likely to get money from to pay them.
#5. Cash flow
The last thing financial institutions want to see is how money comes in and out of your hands. What you do with all the money that comes into your hands and what exactly makes them leave your hands. This shows how exactly you are able to manage money. A positive cash flow means you are making money each month and a negative cash flow means you are losing money each month.
Conclusion
Your financial Statement is an important tool. It is possible to tell from it how literate or illiterate you are financially. Take out some time to look at your financial statement and review it. You have time to make better financial decisions.
