Tax Returns vs. Accrual Statements in Assessing Borrower Risk
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In this 2nd course of the Credit Risk Analysis Skill Series, participants will explore the risks of ignoring distributions, limiting cash flow analysis, using unadjusted tax returns, and the importance of incorporating balance sheets into business analysis for non-Subchapter C companies.
Certificate
1 credit or $295
Cost
1.5 - 2 Hrs.
Duration
1 hr.
Prep Time
1
Quiz
Overview
Participants explore risks associated with overlooking the role and impact of distributions and withdrawals in assessing borrower profitability and business cash flow for non-Subchapter C companies. In addition, they examine risks associated with limiting cash flow analysis to traditional cash flow - net income + non-cash charges - thereby ignoring the impact of changes in balance sheet accounts on a borrower's ability to service its interest-bearing debt from business cash flow. Further, Participants address risks associated with use of unadjusted business income tax return information in conducting ratio and cash flow analysis. Finally, they review and examine the importance of fully incorporating the balance sheet into commercial business analysis using accrual financial statements rather than business income tax returns.
Who Should Attend
This Course is ideal for participants currently in or aspiring to enter the following job functions:
- Commercial Credit Administration
- Commercial Real Estate Administration
- C & I Lending
- Private Banking
- Credit Analysis
Prerequisites
Familiarity with business income tax returns and accrual financial statements, including the FASB 95 Statement of Cash Flows.
Objectives
By the end of the webinar, participants will be able to:
- Review and understand the four essential issues that must be addressed in every credit analysis and included in every credit write-up.
- Identify and assess information in business income tax returns necessary to fully address one or more of the essential issues.
- Identify and assess information in accrual financial statements necessary to fully address one or more of the essential issues.
- Examine the benefits from use and application of true cash flow statements, such as the FASB 95 statement of cash flows and the Uniform Credit Analysis (UCA) cash flow statement, in identifying borrowing causes and cash sources of repayment - two of the four essential issues.
- Identify differences in performance ratios and cash flow statements based on business income tax returns and accrual financial statements, respectively, the reasons for the differences, and their relevance in conducting credit analysis.
- Examine the risks of using business income tax returns as the source document in assessing borrower risk.
Materials(access provided with registration)
- Credit Refresher on The Credit Write-Up
- Financial Statements for D & J Installation Contractors
- Excerpts from Form 1065: U.S. Return of Partnership Income for D & J Installation Contractors
- Exercise for the Webinar
- Webinar Presentation Slides
- Webinar Poll Questions
- Webinar Poll Solutions
- Exercise Solutions
This is Course 2 of 3 in the Credit Risk Analysis Skill Series
Minimum Financial Data for Assessing Borrower Risk
Tax Returns vs. Accrual Statements in Assessing Borrower Risk
Borrower Performance, Loan Classification, and the Risk Grid
