Why Banks insist Audited Financial Statements every year before renewal proposals are sanctioned with them?

Banks are interested in assessing financial position of the company to evaluate the ability of the company to pay back their loans. Specifically they are interested in cash and bank balances and other current assets and current liabilitiies in the balance sheet to assess liquidity of the company. They alos compute current and quick ratios to check the liquidity position. Banks are also interested in cash-flow statement to see the company's ability to generate enough cash inflows to pay back thier debts.

• Banks are interested to check the liquidity of the comapny
• They calculate the acid test ratio and current ratio of the company
• Bank are also interested to see the cashflow of the company.Either the company has ability to payback its debts from it operations or not.

I think it is something related to the Tax.

Only audited finacial statements (audited by an external CA firm) will guarantee the stablility of the firm on a yearly basis.

I agree with the answer given by Mr. Muhammad Ahmed

Agree with answer Mr. Muhammad Ahmed

because banks rely on audited financial statement which give the real financial situation of a company but its proposal not.

Bank's primary intrest in any company is its financial ability to generate income and its ability to pay off the bank in longer run. This is reflected in financial statements of the company. Therefore they need audited financial statements to ensure the accuracy of the numbers presented in the financial statement.

Bank need to know the financial condition of their customer and the best evidence to support is external audited financial statement from the independent profession firm expertised in auditing. If the audit is done by Big4 Audit firm then this is plus point.