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Asked by Deledai Johnson on May 02, 2024

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Financial ratios help lenders quantify a potential borrower's default risk before a loan decision is finalized.

Default Risk

The possibility that a debtor will fail to fulfill their financial liabilities as agreed upon.

Financial Ratios

Financial ratios are quantitative measures derived from financial statement analysis to evaluate the financial performance, condition, and valuation of a company.

Loan Decision

The process undertaken by lenders to determine whether to make funds available to borrowers under certain terms.

  • Understand the utility of financial ratios in assessing a borrower's default risk and a company's performance.
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Diana SinghMay 06, 2024
Final Answer :
True
Explanation :
Financial ratios provide important information on a borrower's financial health and ability to repay a loan, which helps lenders assess the default risk associated with lending to that borrower. This information is used by lenders to make informed decisions about whether to approve a loan request and to set appropriate loan terms and interest rates.

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