Credit analysis – level two

This intermediate level five day course develops a more detailed understanding of the components of the financial statements and the operating dynamics of companies.

We recommend that you do not attend credit analysis level 2 immediately after having attended credit analysis level 1. An interval of a few months between the two courses will give you valuable time to put into practice all the skills you learned at level 1.

This course will be of benefit to those with 1-2 years' experience of credit analysis. A familiarity with financial statements is assumed. It is also suitable for investment analysts who wish to understand a company's financial standing from a credit perspective. Those who have attended the credit analysis level 1 course will be well prepared for this course.

Learning outcomes include obtaining a greater understanding of:

• framework for credit analysis
• components of credit analysis
• risks to the business
• tools for evaluating corporate strategy
• analysis of the financial statements
• understanding the business
• the dynamics of cash flow
• forecasting
• corporate failure
• collateral supporting the debt
• covenants to protect the lender
• structural subordination.

The speaker will be drawn from a pool of subject specialists who are qualified professionals. Having worked for leading organisations they will bring their subject to life by relating the course content to real life case studies.

Framework for credit analysis:

Components of credit analysis: assessment of management, analysis of a company's ability to repay and protection for the lender; collateral and covenants.

Risks to the business:

• macro factors: political, economic, environmental and demographic
• industry factors eg: growth trends, exposure to economic cycles, barriers to entry and regulation
• corporate speciifc risks eg: product/geographic diversification, support levels, strength of major customers and suppliers.

Tools for evaluating corporate strategy:

• PEST analysis
• product mission matrix
• market life cycle
• product portfolio matrix
• porter's model of competition
• SWOT analysis.

Analysis of the financial statements:

• accounting principles
• overview of main differences between UK GAAP and IFRS
• critical areas for review in the financial information
• review of balance sheet and profit and loss account
• off-balance sheet items
• adjusting the accounts for analytical purposes
• areas of flexibility in acounts eg: off-balance sheet financing, stock values, capitalisation of expenses and revenue recognition.

Understanding the business:

• interpretation through ratio analysis
• liquidity and the cash cycle
• working investment as a measure of liquidity
• identifying company dynamics

The dynamics of cash flow:

• construction and format of cash flow statements
• understanding and interpretation of cash flows
• calculation of free cash flow
• debt capacity

Forecasting

• uses as a management tool
• forecasting key assumptions
• projection of the balance sheet and profit and loss account
• forecasting cash flow
• sensitivity analysis

Corporate Failure

• identifying warning signs
• reasons for corporate failure
• the critical role of management

Collateral supporting the debt

• why take collateral?
• priority of creditors' claims
• insolvency law and how it affects lenders' rights

Covenants to protect the lender

• affirmative/negative covenants
• financial covenants

Structural subordination

30 CPD hours (where applicable)