This short training course is for both relatively new analysts and lenders as well as for experienced analyst and lenders who could benefit from a close examination of the process and computations required to estimate a borrower’s capacity to properly service both short and long-term interest-bearing debt from operating profit and subsequent cash flow.
Review and understand the relevance of reported operating profit to a borrower’s debt capacity;
Explore the necessity of adjusting reported operating profit for the sum of distributions and loans to owners that exceed the implied personal income tax on company profit;
Examine the role and impact on debt capacity of income tax set-asides for cash compensation to owners or other related parties that does not reduce taxable income;
Examine the role and impact on debt capacity of income tax set-asides for debt reduction that does not reduce taxable income;
Understand the demands on reported operating profit from owner compensation and income tax set-asides and the resulting impact on debt capacity; and
Understand the linkage between movements in interest rates, income tax rates, and debt repayment obligations and debt capacity.
Course
Materials
Credit Refresher
on Estimating Debt Capacity
Presentations Slides
Online
Closure Questions
Upon
Completion
Participants who successfully
complete the workshop will
be able to:
Understand the relevance of reported operating profit as a starting point in determining a borrower’s debt capacity;
Understand the necessity of (1) identifying owner compensation in the form of distributions and loans to owners that exceed the implied income tax obligation on company profit and (2) adjusting operating profit accordingly;
Understand the role and impact on debt capacity of income tax set-asides for cash compensation to owners or other related parties that does not reduce taxable income;
Understand the role and impact on debt capacity of income tax set-asides for debt reduction that does not reduce taxable income;
Understand the negative impact on debt capacity from excess owner compensation and required income tax set-asides for non-tax deductible cash outflows; and
Understand the linkage between movements in interest rates, income tax rates, and debt repayment obligations and debt capacity.
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