In our last podcast we described the market environment and emphasized how important it is for lenders to understand the position that a business has in its market.  As part of that analysis we should also be thinking about the competitive aspect of the market since that can have a significantly positive or negative effect on the business’s sustainability in the future.  In the market environment, a tool that can be used to assess some of the potential threats and opportunities for the business is called the Porter’s Five Forces Model.

Using Porter's Five Forces Model

In the macro-environment, new risk factors are constantly appearing but they are difficult to identify by the managers of the business as well as by bankers.  As the major changes or developments in the macro-environment are usually outside the business’ control, it’s essential that the managers of the business are able to anticipate the impact of these changes on either the business itself or on its market before they actually happen, so as to be able to adjust the business’ products or processes accordingly.  In this podcast we consider the analysis of the macro-environment through the use of the PESTEL framework.

Understanding The Macro - Environment

One measure that is used extensively by lenders is EBITDA but it’s limitations and effective use are not always fully understood.  This podcast shows how to calculate EBITDA and how to use it in credit analysis.

EBITDA

A business’ gross profit margin is a major indicator to analysts about its overall profitability and long-term sustainability.  It’s critical that the margin is understood as well as what drives it and why analysts should be worried if it drops.  This podcast explains why the margin is so important and how to analyse it.

Analysing The Gross Profit Margin

There’s a lot of confusion about what depreciation actually is. Some think it has something to do with an asset losing its value while others think that it’s a mechanism for a business to create a fund for the replacement of the asset when it’s no longer functional.  Over the next few episodes, let’s take a look at what depreciation really is, how it’s calculated and what impact it has on the income statement, the balance sheet and the cash flow statement.  In this episode, we’ll define depreciation and clarify the concept.

Depreciation Part 1

There are several ways in which depreciation can be calculated but the most common is called the straight-line method. In this podcast we discuss the methodology in some detail.

Calculating Depreciation - The Straight Line Method

In this episode we talk about two less-commonly used methods of calculating depreciation.  These are called the units of production method and the reducing balance method.

Calculating Depreciation  - Units Of Production And Reducing Balance

Working capital is present in every business and it's essential that lenders understand what it is and how it affects credit risk.  In this presentation we start with a basic introduction to working capital and its components.

Introduction To Working Capital

Working capital is a vital element in any business and has to be managed carefully to optimise its value to the business and to lower the risk for lenders.  This podcast is an introduction to the topic and explains what effective working capital management is and why lenders should pay attention to it.

Introduction To Working Capital Management

A business' investment in current assets has to be funded somehow so it pays to keep the level of assets as low as possible.  This podcast looks at how that can be done and explains how that affects a lender's risk.

Managing Current Assets

The investment in working capital has to be funded somehow and it's usually the current liabilities that are used for that purpose.  This podcasts looks at which current liabilities are affected and how they should be managed optimally.

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