Corporate Credit Analysis

Corporate Credit Analysis - A Foundation Course to develop core credit skills

Introduction

This foundation course is a highly-acclaimed programme for the development of core credit skills. It provides an understanding of risk analysis techniques and it addresses the critical importance to financial institutions of a strong credit culture. The need for these skills has been recently highlighted in a Bank of England report on financial stability, which has drawn attention to the fact that “downside risks facing creditors of the corporate sector may have been greater in recent years than suggested by aggregate performance alone.”

Two presenters, Martin Russell and Ian McIsaac, will jointly deliver the course. With their experience as corporate treasurer and lending banker respectively, they bring a unique perspective to the topics covered during the course. Using an interactive and practical style, they have delivered together many successful introductory credit and other courses to financial institutions around the world over the past few years.

Aims

The course will provide participants with an understanding of the principles and practice of corporate credit analysis together with a comprehensive framework to assess the critical risk factors affecting corporate borrowers.

Objectives

At the end of the course participants will:-

• Understand the process by which credit decisions are made and the critical risk factors that need to be considered.
• Appreciate the purpose of financial statements and the limitations of published information.
• Understand the main components of an annual report and how to extract key data.
• Be fully appraised of the non-financial factors affecting corporate borrowers, including management competence.
• Be able to apply the techniques of credit analysis including the calculation and interpretation of key ratios.
• Be familiar with constructing and interpreting cashflow statements and understand the critical importance of cashflow in a risk assessment.
• Understand the sources of finance available to companies and how gearing and leverage impact on financial performance and debt-service capacity.
• Be aware of the reasons for corporate failure and how to identify relevant warning signals.
• Have considered how key risks can be mitigated through, for example, the use of facility structuring techniques, including covenants.

COURSE PROGRAMME

The first part of the course will examine how basic accounting concepts impact on credit and will highlight the advantages and shortcomings of published financial information. The content of the course will not assume a detailed knowledge of accounting but some pre-course reading up to a basic level is recommended for those with no previous experience of financial statements.

The credit analysis framework will focus on both business risk and financial risk and will show how non-financial factors set the expectations for the level of financial risk that a company can afford. The analytical framework will be forward-looking and will cover cashflow, liquidity, efficiency, risk and profitability. The course will demonstrate how these can be used to assess debt-service capacity and how key risks can be effectively mitigated.

Accounting concepts and the techniques of credit analysis will be examined in the context of a well-known UK company. Extensive use will be made of exercises, quizzes and practical case studies. At the end of the course participants will have the opportunity to apply the techniques learned during the course to make a credit judgement.

Who should attend?

This course will appeal to a wide range of professionals involved in the assessment of credit risk. These include:

New entrants into banking
Staff in lending or credit roles
Graduate trainees
Relationship managers and junior credit analysts
Research and administration officers
Corporate financial executives
Lawyers who wish to understand more of the commercial motivation behind financing transactions

Successful participation in this course will qualify for Law Society CPD points

Timetable

Day One

• Credit risk framework

• Credit culture

• Purpose of financial statements

• Key accounting issues in credit

• Working capital

• Ratio analysis

Day Two

• Content of the annual report

• Spreadsheets

• Accounting standards

• Limitations of financial information

• Structure of companies

• Gearing and leverage

Day Three

• Annual report quiz

• Introduction to business risk

• Competitor analysis

• Business risk and financial risk

• Cost structures and breakeven

• Rating agencies

Day Four

• Cash versus profit

• Cashflow construction

• Interpretation of cashflow statements

• Financial flexibility

• Risk mitigation: structuring techniques

Day Five

• Cash drivers and forecasting

• Case study: application of credit analysis framework

• Credit presentations and summarising risks

• Identification of warning signals

• Course review

Corporate Credit Analysis - A Foundation Course
- an historic justification:

From a Commons Select Committee enquiry into the Stock Exchange in 1875:

"Do you make any enquiry whatever as to the probability of the State repaying that loan; does that come within the scope of your investigation? - 'No'..

Neither as to the reasonableness nor as to the unreasonableness, of the amount? - 'No'.

Do you require any proofs as to the bona fides of the allotment? - 'I cannot say that we do; as we take the assurance of the contractor that such and such an amount has been allotted; we do not ask for proof; we have no means of getting the proof, in fact…'

Am I right in assuming that if you were to make a more searching examination, you would be taking upon yourself too heavy a responsibility? - 'I am afraid we should never get through the business'."