Assume a banker is interested in finding answers to the following questions about a company applying for a loan. In each case, indicate which of the four financial statements the banker should examine first to answer the question. If appropriate, also indicate which other financial statement(s) would provide further support for the answer.
1. What percent of earnings was retained in the business during each of the last three years?
2. What percent of sales revenue is spent on employee compensation?
3. How has the mix of assets and liabilities, both short-term and long, changed over the last two years?
4. How much cash has the company spent on new long-term assets?
5. What sources of capital does the company use to finance its operations?
6. Is the company growing?
7. How much above the cost of its products does the company charge its customers?
8. How quickly does the company pay its debts?