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Cashflow Forecasting

To improve your cash flow forecasting skills

Cashflow Forecasting Training Course

A two-day course

  • Instils a discipline in the delegate to assess credit risk analysis on the basis of cash flow forecasts and not on profit and EBITDA.
  • Provides an integrated programme of holistic credit risk analysis using cash flow forecasts to assess the impact of credit risk
  • Enables the delegate to identify leading and external risk factors and assess how their crystallization can affect company cash flow
  • Ensures that the delegate will be able to sculpture the debt structure for a client company based on the future cash flow forecasts
  • Develops an applied understanding of the process of auditing key revenue and cost drivers of client forecasts and the need for zero-based as opposed to incremental forecasting.

  • Appreciate the importance of cash flow generation for the successful development of the client company;
  • Construct cash flow statements for forecasting purposes using the client’s income statement and balance sheet;
  • Construct forecast cash flow models in excel and use sensitivity analysis to understand the potential impact of risk crystallization on the company’s ability to service its debts;
  • Understand why cash flow and the DSCR is the prime financial ratio in understanding the client’s ability to honour its debts;
  • Assess how company liquidity and cash flow generation;
  • Use cash flows to assess the impact of company strategy on the ability of the company to generate cash flows going forward;
  • Use the base case and downside cash flow forecasts to structure a company’s optimum repayment schedule given the anticipated challenges of its future operating environment;
  • Use the cash flow forecasts and the financial modelling in the context of drafting the term sheet for the loan document;
  • Use cash flow models and forecasts to monitor the performance of the company during its debt repayment period and to identify Early Warning Signals for potential problem loans

Day 1

AM Sessions

Importance of cash flow analysis in corporate lending:

  • Motives behind the Increasing regulatory emphasis on cash flow-based lending
  • Why cash flows matter to managers and to debt and equity providers
  • Why cash flow is essential for the successful operation of the SME
  • Why cash flow analysis reveals more than income statement and balance sheet analysis
  • The rationale for increased cash flow based lending particularly for SMEs in service industries, IT and trading companies
  • The difference between cash flow and profit
  • Identifying Non-cash items
  • Assessing accruals and funding
  • Cash inflows and outflows (sources and uses)
  • Timing differences
  • Understanding why profitable SME’s can still default.
  • Why EBITDA does not spell cash flow
  • Distinguishing cash flows from operations, investing and financing
  • Review of Cash flow statements in IFRS in the light of accounting changes in Egypt
  • The three blocks of cash flows under IFRS / IAS 7 and the six blocks
  • The use of the debt service coverage ratio as the principal credit risk ratio from forecast cash flow analysis
  • Proxy ratios (for DSCR) include debt to EBITDA and their limitations

Workshop: During the morning we will examine a sample of cash flow statements from a range of international corporate clients including InBev and Nestle. We will compare these accounts compared to IFRS accounts. Using these cash flow statements we will analyse the respective company’s ability to honour their debt service repayments.

PM Sessions

Challenges facing SME financing and Cash flow analysis and construction

  • Challenges faced in SME management and SME understanding of cash flow statements
  • The need to create cash flow statements and forecasts for the client SME
  • The importance of working capital changes on net operating cash flow
  • Constructing the SME cash flow
  • The difference between the Indirect and Direct methods of cash flow statements

Cash flow workshops: During the afternoon sessions we will construct a number of cash flow statements for SME’s from the income statement and balance sheet of SME companies using both the indirect and direct methods. The aim of the workshop is to increase the delegate’s speed and technical skills in cash flow creation.

Day 2

AM Sessions

Credit risk analysis using cash flow forecasts

  • Assessing the impact of risk crystallization events on the borrower’s ability to honour its debt service through cash flow generation
  • Reviewing an international risk management framework to manage potential SME risks by:
    • Identifying risks
    • Assessing risks through their probability and impact and
    • Mitigating risks using the risk mitigation model TARA model
  • Application of the risk management framework to a potential client company in the tourism industry
  • Sensitivity analysis using cash flow forecasts in an excel model to assess which risks provided the greatest downside impact on the company’s projections and its ability to service debt.

Cash flow workshops: During the day, the delegates will work through the cash flow forecasts of a major case study of a company based in the European tourist industry. The case study centres on a family-run boutique hotel which is looking to expand its operations and improve its profitability.

Firstly the delegates, working in workshop project teams will use the international risk management framework to identify and assess the principal risks that will affect the company’s forecast cash flows and its ability to service its debts.

Once the project teams have identified the key potential risks affecting the case study they will use the excel financial model of the company’s cash flow forecasts to undertake a sensitivity analysis to assess the impact on the company’s DSCR of risk crystallisation. The delegates will create different scenarios based on differing downside assumptions of the key cost and income drivers associated with company’s forecasts. They will then use the ‘downside scenario’ as the basis for lending to the company and assessing the company’s potential debt capacity.

PM: Assessing the impact of working capital management on cash flow forecasting

  • Assessing the risks of overtrading in SME’s and its impact on cash flow forecasts and the company’s DSCR
  • Assessing the importance of good working capital management in corporate financing
  • How bad working capital management can impact the credit risk of the corporate client
  • Using cash flow analysis and sensitivity analysis to assess the gross and networking capital needs of the client
  • Developing concepts in guaranteeing working capital financing through the client’s working capital assets
  • Assessing the importance of cash flow forecasting even when only providing working capital financing to corporate clients

Cash flow workshops: During the morning sessions the delegates will be introduced to a new food producer case study operating in the meat production industry. In their project groups, and using the company’s cash flow forecasts, the delegates will assess the principal risks associated with the company and assess the impact of changing working capital management on the company’s DSCR and its ability to honour both long term and short term financing.

Using excel cash flow forecasts to structure the SME debt facility

  • Using sensitivity analysis of the project’s key sales and costs assumptions to assess the impact of risk events on the company’s ability to service debt
  • Creating a base case and a downside case cash flow model against which the delegates would then assess a variety of lending options to potential provide the company
  • Using the cash flow forecasts to assess how restructuring the company’s existing book could improve company performance and generate a return for a lending organization
  • Structuring the repayment schedule in the light of the company’s credit risk rating and its interest charges in line with forecast DSCR year on year
  • Creating a term sheet for the prospective financing options for the case study
  • Using the cash flow forecasts to assess the level of financial ratios that should be included in the structured loan documentation in order to act as Early Warning Signals post drawdown.
  • Presenting the different financing options created by the project teams to the rest of the delegates who will act as a credit committee.
  • Using the cash flow forecasts to assess the company’s potential Enterprise Value.

Cash flow loan structuring workshop: During the final afternoon sessions the delegates will use the forecast cash flow model of the meat producer to structure new loans for the company. They will be free to use the excel model to assess which type of loans to provide the company, including long term loans as well as short term working capital facilities. They will use the model to assess the overall debt capacity of the company to honour their new loan book, based on their new forecast cash flow assumptions.

We will also discuss a draft Term Sheet for the company including the key covenants and conditions that the delegates would include as part of their loan agreement. As part of that exercise, the delegates will sensitise the forecasts in order to derive the levels of key financial ratios that they will include in the loan documentation.

Finally, we will briefly review how we can calculate the estimated Enterprise Value of the company using the same cash flow forecasts discounted to reflect the time value of money and assess the impact on the company’s valuation in the event of changing business and financial assumptions.

Course conclusion and evaluations

The trainer is a professional banking and finance trainer who for 15 years has been training students in banking, finance, credit analysis, debt restructuring and loan workout, risk management, strategic management and corporate governance compliance. Cooperating with some of the world’s leading training companies, he has trained delegates from some of the largest industrial and financial institutions across Europe and the Middle East. In parallel to his lecturing career, the trainer has a 25-year career in banking and finance, initiated in the City of London. A core element of his work through Capital Advisers is helping companies to restructure their debt and equity position with a view to strengthening company viability through their restructured Balance Sheets. It is this practical hands-on experience of balance sheet restructuring that he brings to the courses and workshops that he develops for clients.

In 1993 he joined Hill Samuel Bank, the London based merchant bank in, covering International Project Finance and later became a credit analyst in Asset Based Finance, lending directly to international shipping companies. He briefly joined N M Rothschild in London as a member of the bank’s LBO credit team analysing clients and providing leveraged debt facilities to UK corporate, before joining Charterhouse Bank in 1997, where he began his Corporate Finance career. Assisting companies to strengthen their balance sheets through debt and equity restructuring has been part of his professional work since he started in banking.

In late 1999 the trainer joined EBRD as the bank’s acting deputy director for Romania. In this role he led teams of credit analysts in identifying and completing a significant number of credit facilities for Romanian and international companies. During his last year in the post in 2002, EBRD financed a total €500million in debt and equity financing for projects in the country.

In 2003 he established his own investment banking advisory firm which focuses on credit arrangement, capital restructuring, M&A, private placements and IPO’s. He and his team work with regional and international clients in firstly restructuring client company balance sheets. Central to this role is identifying companies with good potential credit ratings that will be become attractive clients for international banks and financiers. In 2006 his advisory became the exclusive representatives of HSBC Investment Bank in Romania.

In parallel, he initiated his career as a professional lecturer in 2003 applying much of the knowledge that he has built up over his extensive banking career to training and developing banking delegates. He is currently developing a number of tailored courses for leading banking and financial institutions across China, Europe, the Middle East and the Far East. He trains in both English and Spanish.

Companies can collapse for a myriad of different reasons, but the majority default on their loans because they run out of cash. In describing the failure of his eponymous restaurant chain recently, the world-famous British chef Jamie Oliver said: “We had simply run out of cash”. In business cash is king and in finance, cash flow is king.

In the wake of the global financial crisis, the international banking regulators in Basel have increasingly emphasised the need for corporate bankers to focus principally on the future cash flows generated by their corporate clients, as their principal source of debt repayment.

This greater move toward a reliance on future cash flows and away from the securitisation of loans by the fixed assets of the client to protect the bank’s exposure, has meant that bankers need to develop a detailed knowledge of future cash flow forecasting for their client companies and cash flow sensitivities as a central part of their credit risk analysis and debt structuring.

This need for cash flow forecasting is particularly important when lending to corporate companies which traditionally do not have large asset bases, such as trading and distribution companies or those in FMCGs as well as SMEs. This is equally important in terms of long term lending for corporate expansion as well as for short term working capital financing.

This course is therefore designed especially to assist banking relationship managers, corporate financiers and credit analysts at an intermediate to the advanced stage of their debt financing careers, to increase their cash flow forecasting skills, in a shorter time frame, while still undertaking a thorough credit risk analysis to protect the bank’s exposure going forward.

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