Benefits of Spreading Financial Statements
The primary goal of spreading financial statements is to assess a company's current financial health, trends, and ability to meet commitments by standardizing key balance sheet, income, and cash flow items.
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The two most common challenges businesses face with spreading financial statements are:
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Time Consuming
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Analyst Interpretation
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CreditKernel's template solves both challenges, plus provides the best practices in financial statement spreading:
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The spreading template standardized financial data and key ratios, ensuring consistent, fair, and unbiased comparisons between companies.
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Quickly identify red flags using predefined categories and calculations. Deviations from industry norms or trends signal further investigation. ​
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Financial spreading templates provide a documented analysis record, essential for internal review, compliance, and future reference.
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Need help requesting counterparty financial statements?
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Check out our financial statement request letters that can be used immediately.
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Spreading Categories and Line Items
1. Balance Sheet
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Assets are what a company owns and can use to generate revenue. They include items such as cash, accounts receivable, inventory, plant property & equipment, and intangible assets.
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Liabilities are what a company owes to others. They include items such as accounts payable, amounts outstanding on a line of credit, current portion of long-term debt, long term debt, and leases.
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Shareholder Equity represents the net worth of the company and includes the capital contributed by shareholders and retained earnings (profits not distributed as dividends).
2. Income Statement
An income statement summarizes a company's performance, detailing revenues, costs, expenses, and net income over a specific period.
The main line items of an income statement include:
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Revenue: Represents the income generated from the company’s primary operations, often referred to as sales.
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Costs of Goods Sold (COGS): The direct costs of producing the goods or services the company sells.
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Gross Profit: Calculated as Revenue minus COGS, gross profit reflects the profitability of the company’s core business operations.
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Operating Expenses: These include administrative and selling expenses, depreciation, and other costs not directly tied to production.
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Operating Income: Also known as operating profit or earnings before interest and tax (EBIT), it is calculated by subtracting operating expenses from gross profit.
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Interest Expense: These are the costs of borrowed funds.
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Net Income: This is the bottom line of the income statement, reflecting the company’s profit or loss after all expense, including taxes and interest, have been deducted from revenue.
3. Cash Flow Statement
A cash flow statement shows cash inflows and outflows, assessing liquidity and how the company generates and spends cash.
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The cash flow statement is divided into three sections:
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Operating Activities – Indicates the cash generated or spent from the company’s ongoing business operations, such as collection of revenue, payment to suppliers, and changes in working capital.
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Investing Activities – Includes cash spent or generated from long term assets, such as plant, property, and equipment, or investments in other businesses.
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Financing Activities – Shows cash flows from activities related to issuing debt, paying down debt, and paying dividends to shareholders.
4. Off Balance Sheet Items
Available in the accompanying notes of the financial statements. Refers to assets, debt, or other financing activities not included on the company balance sheet.
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5. Debt Maturity Schedule
A table lists debt repayment dates, detailing debt type, principal amount, and maturity date. Maturities are typically categorized into periods: less than 1 year, 2 - 5 years, and over 5 years. ​
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The debt maturity schedule is beneficial in credit analysis for several reasons:
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Liquidity Risk: The schedule shows the company’s debt due within 1 year. If the company has significant debt maturities in the near term, it may face liquidity risks, especially if its cash flows are uncertain, tight, or access to credit is suspect.
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Refinance Risk: For longer-term debt, the schedule indicates when the company will need to refinance its obligations. Refinancing risks arise when the company might be unable to secure new financing on favorable terms, perhaps because of changes in credit markets or its own financial condition.
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Interest Rate Risk: The schedule can also highlight the company’s exposure to changes in interest rates, particularly if it has variable-rate debt. If interest rates rise before the debt matures, the company will face higher financing costs.
Overall, using a financial spreading template helps maintain a structured, efficient, and reliable approach to understanding counterparty credit ratings.
How Financial Ratios Influence Credit Decisions
Spreading financial statements establishes a baseline for understanding credit risk, industry financial benchmarks, and identifying trends.
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CreditKernel calculates 20+ Liquidity, Leverage, and Profitability ratios. We also provide industry averages for select ratios.
It is encouraged to spread at least two years of financial statements to track historical performance and compare financial ratios with industry averages.​​​