Cash Flow Forecasting & Modelling
Course Overview
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Cash Flow Forecasting & Modelling requires informed judgement and sound knowledge of the business of borrowers, taking into account industry, economic, climatic, market, environmental, and political factors, and the likely impact these factors may have on future debt service. It is impossible to make budget/meet targets if you have credit problems.
The purpose of this training program is to equip Commercial, Business, and Corporate bankers, as well as Credit Officers with the tools to more accurately analyse lending proposals in order to identify the key drivers of future cash flow, to service future debt repayment obligations.
Following completion of this training program, participants will be able to:-
Develop a better insight into forecasting principles and modelling techniques. This model format is very powerful, but also very flexible (it is not a ‘fill in the blanks’, ‘cookie-cutter’ model, as different industries have different drivers), and encourages managers and analysts to understand the borrower and the industry/economy in which they operate.
Focus on the prospect, adequacy, and alignment of future cash flow for future debt service (which is critical to all lending proposals), whilst many lenders still focus on historical financial data, as well as amount/type of security, in assessing lending proposals.
Appreciate that loans have already defaulted by the time lenders revert to security/guarantees for loan repayment.
Identify the future critical risks in a business, as well as the likelihood (and timing) of a potential/future default occurring.
Align credit submission proposals with their Cash Flow Forecasting & Modelling exercise (the credit proposal and recommendations will be consistent with the modelling outcomes).
Determine the ability of borrowers to withstand adversity under a future operating environment.
Highlight sensitivity to various risk factors (incl. ‘breakpoint’/’break-even’ analysis).
Anticipate problems (rather than react to them), as well as a better understanding of the timing of cash flows (cash inflows/cash outflows), and how this impacts on working capital and liquidity.
Improve the quality of loans provided, resulting in an enhanced quality of loan portfolio, which ultimately impacts on the level of risk capital which lenders need to observe and manage.
Enhance banker-customer relationship (by asking relevant questions).
Assist to identify how economic and industry conditions/trends/events can influence:-
Revenues and Expenses.
Operating Cycle (including liquidity); and
Capital Investment Cycle.
Management decisions.
Predict cash flow requirements at different intervals (and how this should be controlled).
Distinguish between:-
‘Net Profit’ and ‘Cash Flow’.
Cash flow that is the result of Profit.
Cash flow that is the result of Balance Sheet changes.
Understand that profits don’t necessarily translate to cash flow (for future debt service).
Identify cash flow shortages (and how to address or mitigate – e.g. provision of overdraft, Line of Credit, or Trade Finance Facility).
Assess how to operate in an increasingly volatile & unpredictable environment.
Identify ‘Early Warning Signals’ and ‘Key Success Factors’, and the impact these may have on future cash flows, and debt service obligations.
Assess the impacts of seasonality and cyclical demand on the working capital cycle, as well as focus on the ‘cash conversion cycle’ (and have those discussions with the borrower).
Demonstrate whether a loan will help the business grow and prosper;
Identify the type of loan best for the business, as well as the duration/amortization/timing/when the loan is needed;
Structure a loan, including aligning amortisation with projected cash flows, application of relevant covenants, etc.
Undertake comparative analysis – by assessing actual performance against previous projections, and making any necessary adjustments to the model, and then re-evaluating the model outcomes.