Banking commercial borrowers require lenders to evaluate both repayment ability, and, in turn, necessitates analyzing both the short-term and long-term potential of borrowers.  Enough positive cash flow to repay creditors and reward owners comes from solid financial performance, sustainable operating performance, and a stable financial condition.

Projecting a borrower’s financial performance means analyzing the underlying assumptions, e.g., revenue growth rate, productivity, profitability ratios, cost of debt and equity capital, etc., and employing these factors to forecast the income statement, balance sheet, and cash flow statement to quantify the future cash flow available for debt repayment, dividends, working capital and fixed asset investment sufficient to keep the borrower operating successfully.

Finally, building shareholder value keeps the owners engaged and committed to sustaining the business. What is the discounted value of those future cash flows? What are the key drivers? See how well working capital management—inventory, receivables, payables—can build up shareholder value faster and how productive capital expenditures can enhance shareholder value.

Building a long-term relationship with a borrower requires a banker to consider borrower needs beyond yearly, seasonal lending.  Does the borrower have the financial performance and financial condition to go the distance? Do the borrower’s financial projections indicate the ability to repay longer-term borrowing? Will the borrower be able to increase shareholder value while generating enough cash flow to repay creditors and lenders, increase working capital and fixed assets to support the firm’s growth, and reward investors simultaneously? This 3-part session will show participants how to answer these questions.