The Lending Decision
You are a long-term lender at a major bank. Two companies — Tesla and Apple — have each asked for a substantial long-term loan. Using what you have learned in Chapter 1, analyse their financial data and decide which company you would prefer to lend to.
🏦 Stage 1: The Lender's Perspective
Before looking at any numbers, think about what a long-term lender actually needs to know.
Chapter 1 introduced four fundamental financial questions. Rank them from most to least important from a long-term lender's perspective using the arrows:
Match each piece of information to whether a long-term lender would consider it essential, useful, or less relevant:
📊 Stage 2: Real Balance Sheet Items
Now look at actual items from Tesla's and Apple's balance sheets. Can you tell which are assets and which are liabilities?
✅ Assets
🔴 Liabilities
🔢 Stage 3: Reading the Ratios
Ratios turn raw numbers into meaningful comparisons. We will learn three key ratios that lenders use, then apply them to Tesla and Apple.
⚖️ Stage 4: Your Lending Decision
Based on everything you have learned, which company would you prefer to lend to — and why?
🔴 Tesla
Low leverage, high liquidity, strong equity buffer — but high capital intensity and cyclicality risk
🟣 Apple
Powerful cash flows, strong brand — but thin equity, negative working capital, and shareholder-first policy
💡 Reflect & Review
Review the model feedback, then assess your confidence.
🏦 On the lender's perspective
A long-term lender's primary concerns are:
- What does the company owe? (liabilities) — Can it handle more debt?
- What does it own? (assets) — Is there security if things go wrong?
- Cash flow — Can it service interest and repayments over time?
Profit matters, but a lender cares more about ability to repay than about growth or market share. This is different from an equity investor's perspective.
🔢 On the ratios
Current Ratio: Tesla (~1.9×) has comfortable short-term liquidity. Apple (~0.9×) deliberately runs negative working capital — it pays suppliers slowly and collects from customers quickly. This works when cash flows are strong, but increases risk if revenues drop.
Debt / Total Assets: Tesla (~11%) carries very little debt relative to its assets. Apple (~27%) uses more leverage. Lower is generally safer for a lender.
Equity / Total Assets: Tesla (~60%) has a thick equity cushion — losses would be absorbed by shareholders before affecting lenders. Apple (~21%) has thin equity, meaning lenders are more exposed to losses.
⚖️ On the lending decision
There is no single right answer — both companies are creditworthy. But they represent different types of borrower:
- Tesla is a balance-sheet-strong borrower: low leverage, high liquidity, strong equity buffer. Main risks: cyclicality, capital intensity, technological disruption.
- Apple is a cash-flow-strong borrower: enormous, predictable revenues. Main risks: thin equity, high shareholder payouts (buybacks/dividends), and fixed commitments from leases and debt.
A lender who values downside protection (asset backing) might prefer Tesla. A lender who values earnings stability might prefer Apple — but would want tighter loan covenants.
📋 On the qualities of useful information
The ratio data is relevant — it directly addresses a lender's needs. It is comparable — both companies are measured the same way for the same year. However, rounded/indicative ratios are not reliable enough for a real lending decision — a bank would need audited financial statements, detailed cash flow projections, and legal due diligence. This connects to Chapter 1's point that information must be accurate and reliable as well as relevant.
🎯 Self-Assessment
✅ Activity Complete
You have applied key concepts from Chapter 1 — stakeholder needs, assets and liabilities, the qualities of useful information, and the functions of accounting — to a real-world lending decision using actual company data.
Save your lending decision and reasoning in your learning journal.