Altho for many reasons it is preferable to have a statement rendered on one of the standard forms supplied by a bank, the main object is to obtain information, and frequently a statement made up by a customer along his own lines may disclose weakness which a more formal statement might not reveal. Figure 38 is a comprehensive form combining both a statement and an application, and is adapted to the statements of private individuals, firms and corporations. It will be noted that each partner of a firm is required to sign the statement and application.
The statement generally submitted to a bank is the annual statement of the customer's affairs. This should be made at the end of his fiscal year, when his merchandise and raw material accounts are at their lowest, and his bank loans cleaned up.
In any business there should be at least one period in the year when the direct indebtedness to the bank is fully paid up. This is of vital importance both to the bank and the customer. Under normal conditions inability to clean up bank loans annually points to a lack of working capital, which may be due either to the gradual change of quick assets into fixed assets, or to injudicious buying or selling. To allow this condition to become chronic is fatal; it should be remembered that 50 per cent of the failures in Canada are due to lack of capital.
A brief comment on the information called for by the statement shown in Figure 38 will be instructive. It must first be noted that what are called "quick assets" consist of cash, receivables and merchandise, while "current liabilities" include practically all indebtedness except mortgages. The ratio of liabilities to quick assets is usually the first test of the statement. The two totals are therefore in line with each other for purposes of quick comparison. Except in certain businesses such as lumber, grain or other staples, the liabilities should not exceed 50 per cent of the quick assets, and as a rule the former should not exceed the cash and receivables, thus leaving the amount of merchandise on hand to represent working capital.