The following analysis of the principles and rules which govern a credit man in his work were suggested by Mr. Cannon: principles:
1. To reduce losses
2. To eliminate disproportionate risks
3. To conserve worthy interests
4. To war on dishonesty and incompetence. mechanism :
1. The statement of condition, including: Assets and liabilities
Annual business or turnover Net result of business Bad debts
Commercial expenses Character and antecedents Special trade conditions. 2. The analysis and study of the above.
GUIDING RULES :
1. Quick assets only are a basis for loans
2. Fixed assets only considered as giving an unknown support to the quick assets
3. The debt limit of the borrower has been exceeded when his liabilities exceed 50 per cent of his quick assets (the so-called 50 per cent credit rule)
4. It should always be borne in mind that there is a cardinal difference between banking credit and other kinds of commercial credit; you can afford to run much less risk in banking than in commerce and therefore you must take much greater precautions.