Cash Flow Proxies, Debt Capacity, and the UCA Cash Flow Statement
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In this 4th and final course of the Cash Flow Statements Vs. Proxies for Risk Assessment Skill Series, participants will explore debt capacity, its importance in servicing debt, and the roles of dividends, distributions, taxes, and loans to owners. They address conflicts between debt capacity and cash flow and review corrective measures.
Certificate
1 credit or $295
Cost
1.5 - 2 Hrs.
Duration
1 hr.
Prep Time
1
Quiz
Overview
In this fourth session in the Course, which runs approximately two hours including a rest break, participants explore the concept of debt capacity, based on simple adjustments to the cash flow proxies, and its importance in assessing a borrower's prospects for properly servicing its interest-bearing debt. They identify the roles of dividends, distributions or withdrawals, income taxes, and loans to owners or partners in arriving at an estimate of existing and prospective debt capacity. In addition, participants determine reasons for apparent conflicts between debt capacity estimates and actual operating cash flow and explore how the two risk metrics work in tandem in assessing borrower risk. They review the importance of quality financial information in validating debt capacity estimates, and they identify the range of corrective measures available to both borrower and lender should a borrower's debt capacity fail to support outstanding, or proposed, interest-bearing debt.
Who Should Attend
This Course is ideal for participants currently in or aspiring to enter the following job functions:
- Credit Management
- Commercial Credit Administration
- Commercial Real Estate Administration
- Commercial Loan Administration
- C & I Lending
- CRE Lending
- Corporate Lending
- Private Banking
- Loan Review
- Special Assets
- Internal Audit
- Construction Lending
- Non-Profit and Municipality Lending
- Health Care Provider Lending
- Specialized Lending
- Credit Analysis
Prerequisites
Familiarity with financial statements, ratio analysis, cash flow proxies such as EBITDA and traditional "cash flow", and the UCA cash flow statement and, preferably, participation in Sessions 2, 3, and 4 of the Course.
Objectives
By the end of the session, participants will be able to:
- Understand and state the concept of debt capacity and its importance in assessing a borrower's ability to properly service its interest-bearing debt.
- Identify and understand the necessary adjustments to the cash flow proxies that transform them to a measure of debt capacity.
- Identify the role that dividends, distributions, withdrawals, and loans to owners and partners play in estimating debt capacity.
- Identify the reasons for differences in cash flow proxies and the UCA cash flow statements in measuring a company's ability to service its interest-bearing debt.
- Assess the importance of apparent conflicts between estimates of debt capacity and operating cash flow performance in a given period of time and explore the complementary use of both risk metrics working in tandem to assess borrower creditworthiness.
- Identify the possible corrective measures at the disposal of a borrower and its lender should the borrower lack sufficient debt capacity to properly service its debt.
Materials(access provided with registration)
- Credit Refresher on Debt Capacity
- Excerpts from Financial Statements - Information Access, Inc.
- Excerpts from Financial Statements - Sandover Contractors, Inc.
- Exercise for the Webinar
- Webinar Presentation Slides
- Webinar Poll Questions
- Webinar Poll Solutions
- Exercise Solutions
This is Course 4 of 4 in the Cash Flow Statements Vs. Proxies for Risk Assessment Skill Series
UCA Cash Flow, Traditional Cash Flow and EBITDA
Cash Impact Analysis and Management Assessment
FASB 95 Cash Flow Statement conversion to UCA
Cash Flow Proxies, Debt Capacity, and the UCA Cash Flow Statement
