Using Financial Information to Assess Risk Assume you are the credit manager for a manufacturing company that sells its products to retail businesses. One of your company’s sales representatives has been working hard to establish business relationships with two different retailers. Both businesses are interested in marketing your products. Summary earnings information is presented below for each business.
|
Profits (losses) |
||||
|
2001 |
2002 |
2003 |
2004 |
|
|
Company A |
80,000 |
20,000 |
10,000 |
70,000 |
|
Company B |
30,000 |
32,000 |
40,000 |
43,000 |
Required
A. Based on the summary financial information, which company is a better credit risk?
B. When a new relationship is established between two businesses, would the customer be interested in information about the supplier’s financial condition? Why or why not?