Financial Statement lending: profitability ratio

On the other hand, profitability ratio can be computed using return on assets and return on common equity. The return on assets ratio is the link of net income in excess of total assets or total assets. The ratio, which is the relative amount, determines the wide-ranging productivity of employed assets. To such an extent, the ratio which is likewise the relative amount determines the disposable income. This disposable income or profit is actually the per dollar sales turnover. Banks do not usually loan money to borrowers whose cash flow is zero valued or negative valued as it is an obvious manifestation of non-profitability (Hunt, Weygandt, Kieso, and Kimmel, 2003, Berger & Udell, 2003).