Overview

This eCourse consists of two modules. Module 1 looks at the statement of cash flows, and describes the cash conversion cycle and its impact on working capital ratios. Working capital days measures are also covered, including the use of such measures to identify the drivers of cash flow from operations. Other measures, such as EBITDA, are also explained, along with balance sheet structural elements – such as overleverage – that can have adverse cash flow implications. Finally, the topic of cash flow forecasting and associated stress testing are also introduced.

Module 2 looks at how information from financial statements can be used to calculate key financial ratios such as return on equity. It also explains other ratios that can be calculated using information from other sources such as share prices.

Objective

On completion of this course, you will be able to:
- Construct a typical statement of cash flows
- Recognize the importance of the cash conversion cycle
- Calculate the impact of changes to key parameters on a company’s cash flow
- Define EBITDA and recognize its limitations as a measure of cash flow
- Identify the structural features of balance sheets that can have adverse cash flow implications
- Recognize the value of cash flow forecasts and the need to stress test such forecasts
- Estimate return on equity and recognize the key drivers associated with it
- Calculate return on total assets, identify its key components, and assess the effectiveness of cost controls
- Interpret market-related measures, such as earnings per share and the price-earnings ratio

Content

Module 1: Credit Analysis – Cash Flow Analysis
Topic 1: Statement of Cash Flows
Topic 2: Cash Conversion Cycle
Topic 3: EBITDA
Topic 4: Other Cash Flow Considerations

Module 2: Credit Analysis – Performance & Other Measures
Topic 1: Return on Equity (ROE)
Topic 2: Return on Total Assets (ROTA)
Topic 3: Market-Related Measures