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THE MECHANICS OF
CREDITRISKANALYSIS
POSTGRADUATE CERTIFICATEDELIVERED BY DISTANCE LEARNING OVER 14 WEEKS
Contact:Tel: +44(0)20 7017 7190 Email: [email protected]
Learning partner of
WHAT YOU WILL LEARN On completion of this distance learning course you will have a comprehensive understanding of all the key aspects of successful Credit Risk Analysis. With continued pressure to ensure the right lending decisions are being made and with increasing focus on risks and potential exposure, this course will ensure your skills and knowledge are up to date and cutting edge.
This course will enable you to:
• Gain a clear understanding of best practice process fromboth a qualitative and quantitative perspective
• Understand the environment and industry a potential clientoperates in, from a macro level and appreciate the specificrisks associated
• Review a company from a strategic perspective as well asmanagement competencies
• Determine how to interpret financial statements for creditwith a focus on the quantitative risks
• Project and forecast cash flows and financial statements
• Accurately review and understand different pricing methods
• Understand how to structure covenants which are beneficialfor both the lender and borrower
• Develop international best practices for writing credit reports
COURSE AT A GLANCEUnit 1 – An Introduction to Credit Risk Analysis Unit 2 – Credit Risk Applicable to Corporates Unit 3 – Financial (Quantitative) Risks Unit 4 – Cash Flow Forecasting and Modelling Unit 5 – Pricing Credit Risk Unit 6 – Collateral and Covenants Unit 7 – Writing a Credit Report
COURSE LEADERANDRE LANSER Andre Lanser qualified as a Chartered Accountant, completing articles with PricewaterhouseCoopers. He started his career with a subsidiary of Commercial Union, involved in the steel manufacturing industry. His experience ranged from systems implementation, credit assessment of the highly risky construction industry customers and heading up the finance functions to successfully turning the business around and then selling the company through a trade sale. He later joined Commercial Union in the investment back-office function, reengineering the investment back office and later headed-up a team who implemented a new investment management system for both the back office and the front office.
His career then spanned over 12 years in the Venture Capital and Private Equity arena, where he has gained a vast amount of experience in the corporate analysis and valuation field.
For the past 15 years he has specialised in developing and training finance related courses, for banks around the world and excels in the areas of Corporate Finance, Valuation, Financial Modelling and Credit Risk.
HOW YOU WILL LEARN• A new module is released every two weeks• You can study the units online, save them to your
computer or print them out• You set the pace for yourself• No need to travel or take time off work – cost effective• Apply the knowledge, skills and expertise to your work
straight away
POSTGRADUATE CERTIFICATETo make your studies more relevant and valuable, the course is validated by the Business School at Middlesex University at a Postgraduate Certificate level. For those wishing to receive a Postgraduate Certificate from Middlesex University, an additional marked assignment of 5000 words will need to be submitted, based on a continuing case study that runs throughout the duration of the course.
PRICE
Standard Price – £1799With Postgraduate Certificate- £2159
* VAT may be payable depending on your location –
see online booking page for details
HOW TO APPLYTel: +44 (0)20 7017 7190 Email: [email protected]
CUSTOMISED TRAININGIFF’s bespoke digital training solutions will help you address your specific key business challenges. The programme is designed for you, with content focusing on the issues you and your teams are facing. The fully branded digital course will be hosted by us, and unlike other online courses, your employees will receive a specialist qualification at the end of the programme from a London University.
• Tailored content - 100% targeted to cover yourbusiness needs
• No travel or time out of the office – 100% DistanceLearning
• Value for money – train teams of staff at the same time• Risk free – we’ve been doing this for 30 years
We will meet you anywhere in the world. If you would like one of our consultants to talk about your needs in more detail or if you would like more information on our customised training solutions, please contact us on +44 (0)20 7017 7190 or email: [email protected]
COURSE INFORMATIONDELIVERED BY DISTANCE LEARNING OVER 14 WEEKS
APPLY ONLINE HERE
COURSE SYLLABUSUNIT 1 AN INTRODUCTION TO CREDIT RISK ANALYSISUnit Learning Aims and Objectives. Understand the essence of credit and
how the credit market works. Learn how to clear process that is
foundational for credit risk analysis set out
. Gain the ability to apply the key issues around the strategic intent of credit risk management
UNIT CONTENTUnderstanding the Foundation of Credit• What is credit• How does the credit market work• The advantages of credit• The disadvantages of credit• The banks and credit
The Foundations of Credit Risk Analysis• The risk and return profile in the context of
credit risk analysis• How is credit risk undertaken• The 5 Cs of credit risk• Why the banks undertake credit risk
analysis
The Role of Credit Risk Management• What is credit risk management• How does credit risk management differ
fromcredit risk analysis• The structure of credit risk management• The objectives of using credit risk
management• The appetite for credit risk• The process and stages of credit risk
management
UNIT 2CREDIT RISK APPLICABLE TOCORPORATESUnit Learning Aims and Objectives. Gain a clear understanding and
approach to the credit process from both a qualitative and quantitative perspective
. Obtain an understanding of the environment in which a potential client operates in from a macro level
. Understand the industry in which the corporate operates and the specific risks in which the client operates
. Ability to review the company from both a strategic perspective as well as from an understanding of management competencies.
UNIT CONTENTMacro Risks• PESTEL analysis:
– political– economic indicators
• Government spending• Consumer consumption• Investments (Foreign Direct Investments
– FDI)• Exports vs. imports• National income• Inflation and deflation• Monetary policy
– social – demographics– technology– environmental– legal – regulatory
• Economic cycles
Industry Risks• Industry life cycles• Product life cycles• Understanding the industry:
– understanding the market andcompetitive strategies
– drivers of the sector – earnings,working capital and capital expenditure
– sector dynamics and corporateperformance
– asset conversion cycle• Different types of industry• Risks specific to the industry• Understanding competition• Porters Five Force’s (tool for evaluatingcompetitive position):
– bargaining power of suppliers– bargaining power of buyers– threat of new entrants– threat of substitutes– rivalry
• Benchmarking and comparable analysis• Company specific challenges:
– regulations– concentrated vs. fragmented– overtrading
Company Risks• Understanding the business model• Revenue and cost drivers – the business
activities• Key Performance Indicators (KPIs)• Strategic analysis:
– SWOT analysis – internal vs. externalperspective
– Porter’s Model• Differentiation• Cost leadership
– Ansoff’s Model• Product penetration• Market penetration• Diversification
– Boston Consulting Matrix– organic vs. acquisition
• Management analysis:– corporate governance
• Strategy and impact of change to creditrisk
UNIT 3FINANCIAL (QUANTITATIVE) RISKS
Unit Learning Aims and Objectives. Establish the principles on which the
financials have been prepared and on what basis can they be relied on for credit (the auditor’s report)
. Determine how to interpret the financial statements for credit with a focus on establishing the quantitative risks
. Ability to use financial ratios to obtain additional insight to the financial statements
. Ensure there is a sound understanding of working capital and the impact on the business and the cash flow
UNIT CONTENTUnderstanding the Business• Understanding the business in terms of a
business model• The generic business model• Deriving the revenue drivers and cost
drivers• Critical success factors
Financial Regulations and the Auditors• Regulatory framework• Corporate governance• Chairman’s statement• Operating and financial review• Directors report• Audit report and the role of auditors• Format of the annual report:
– statement of financial position– income statement– statement of comprehensive income– statement of changes in equity– statement of cash flows– notes to the financial statements
• International Financial ReportingStandards (IFRS)
• Use of IFRS for domestic reporting• Review of major IFRS pronouncements
The Statement of Financial Position(Balance Sheet)• The accounting equation• Structure of the balance sheet and salient
features• Non-current assets• Investments• Current assets:
– inventory – slow moving, differentpolicies
– receivables – ageing, provisions,collections, working capital cycle andworking investment cycle
• Non-current• Liabilities:
– current – short-term
COURSE SYLLABUS– non-current – long-term, depreciation
methods• Accruals and provisions• Equity• Investments:
– investments at cost of fair market value– associate companies– subsidiaries and consolidated financial
statements• Goodwill• Reading the footnotes in conjunction with
the balance sheet• Special situations and red flags and off
balance sheet items• Analysing the balance sheet• Key analysis question formation and
list from the balance sheet – riskidentification
Income Statement and Statement ofComprehensive Income• Revenue model• Revenue and receivables quality:
– ageing– provisions– collections
• Compound Annual Growth Rate (CAGR)• Cost structure:
– fixed and variable costs– break-even analysis
• Defining expenses• Comprehensive Income Statement• Reading the footnotes in conjunction with
the income statement• Segment reporting• Profitability:
– gross margins– operating margins
• Growth margins• Analysing the income statement• Benchmarking• Key analysis question formation and
list from the income statement – riskidentification
Statement of Cash Flows• Cash vs. accrual• Direct and indirect cash flow statement• The structure and content of the cash
flow statement:– operating cash flow– investing cash flow– financing cash flow
• Analysing the cash flow statement• How to use the cash flow statement for
projections• Cash flow calculations• Financial ratios and the statements of
cash flows• Relationship of income and cash flows• Free cash flow• How to use the cash flow statement to
quantify debt capacity – Debt ServiceCover Ratio (DSCR)
Ratio Analysis• Ratios used in operating performance and
profitability:
– turnover– EBITDA– net working capital– cash flow
• Ratios used in capital structure:– leverage vs. gearing– debt coverage ratios– discretionary vs. non-discretionary– off-balance sheet funding inclusions
• Asset efficiency ratios• Credit ratios: liquidity, solvency and fixed
charge coverage• Capital return ratios (Return on Capital
Employed vs. Return on Equity)• Du pont ratio analysis (Profitability,
Efficiency and Leverage)• Interpretation of ratios, what each ratio is
really telling• When are ratios useful• What are their limitations• Trend analysis• Industry comparisons• Key analysis question formation and
list from the cash flow statement – riskidentification
Working Capital• The working capital cycle• The link of the working capital cycle with
liquidity and cash flow• Ratios which are relevant to working
capital• Working capital vs. working investment• The structure for financing working capital• Factors influencing working capital:
– demand and supply– change in volumes– price changes– trade terms
• Potential risks in working capital:– inflation– overtrading– incorrect impairments– margin squeeze and cash flow
reductions– inappropriate financing
• Risk mitigants in working capi
UNIT 4CASH FLOW FORECASTING ANDMODELLING
Unit Learning Aims and Objectives. Learn how to project and forecast the
financial statements – using concepts in earlier units
. Understand that cash flow pays back the loan – incorporating the business model to the cash flow forecasts established the ability of the borrower to pay back the loan
UNIT CONTENTProjections and Forecasts• Tools for projecting financial statements
• Defining assumptions• Which dependent variables do we want to
project• Projecting the income statement• Seasonality• Using value drivers to make decisions on
future business profile• The key cash drivers• Forecasting cash flows• Looking at historical cash flows as basis
for future cash flow• Forecasting the balance sheet• Assessing a company’s financing needs• Working capital projections• New funding requirement and affordability• Ratios in projections• Sensitivity analysis – adjusting critical
assumptions and value drivers
Building the Business Model andProjections• Limitations on the information provided
through financial accounts• Understanding the reliability of financial
data• The five cash drivers:
– profits – profitability ratios, salesgrowth, gross margin, operating margin,interest cover ratios, return on capitalemployed
– asset cash conversion cycle – salesvolume and growth, accountsreceivable days, inventory days,accounts payable days
– capital expenditure – mandatory,maintenance and discretionary (andwhy discretionary often isn’t), delays,cost overruns, completion risk, FX risks,use of the asset turn ratio
– equity – access to equity capital,dividend policy, leverage ratios
– debt – access to debt capital, maturityprofile and cash flow subordinationissues, contingent exposures, leverageratios, current and quick ratios
– key balance sheet and incomestatement ratios
• Direct and indirect presentations of cashflows – variety of cash flow statements tobe assessed and analysed; approaches tocash flow calculation and interpretation
• Different cash flow definitions – FFO, RCF,FCF, RCF, levered and unlevered cash flowmeasures
• Methodology for assessing corporateprojections and/or to prepare them forless sophisticated clients:– background to projections– projection methodology– setting meaningful forecast
assumptions for growth, margins andfinancing requirements
– determine assumption set and forecastthe 5 cash drivers and debt servicecapacity for the next two years
COURSE SYLLABUSUNIT 5PRICING CREDIT RISK
Unit Learning Aims and Objectives. Gain an understanding of the how credit
pricing is established in a bank. Review and understand the different
pricing methods
UNIT CONTENTThe Principles of Credit Pricing• Risk return profile• Premium for taking on more risk• Cost of capital and the Capital Asset
Pricing Model (CAPM)• Risk and the loan portfolio• Risk and the related sectors• The structure – interest rate and fees• What type of loan facility is suitable for
borrowing:– seasonal lending– term lending– permanent asset based working capital
finance– bridging loans
• Understanding how debt structure andsecurity should be linked to the reason forthe borrowing
• What is the source of repayment• A borrower’s status and credit• The role of maturity in pricing
Methodologies for Credit Pricing• Using the Micro Finance model• Establish the capital structure of a bank
and the Basel III idea of capital• Return on Risk Adjusted Capital (RORAC)• Pricing and the market• Different types of pricing methods
UNIT 6COLLATERAL AND COVENANTS
Unit Learning Aims and Objectives. Understand what collateral is and how it
works as a credit enhancer. Learn how to structure covenants which
are beneficial for both the lender and borrower
UNIT CONTENTCollateral• What is collateral• The characteristics of good and bad
collateral• Practical issues of taking, valuing and
enforcing collateral• Basis of valuation
– market values vs. book values vs.liquidation values
– collection costs– realisation as a going concern vs. wind
up
• How robust is a security charge overcommercial real estate?– commercial property prices– what is an asset worth?– cash flows and discount rates– all lending is ultimately based on cash
flow• The need to think about alternative
sources of collateral and security to realestate
• Security interests and general obligations• Guarantees – key issues to consider
about both guarantee and guarantor whentaking this form of protection
• How collateral impacts pricing debt• Methods of security:
– mortgages– lien– pledge
Covenants• Non-financial clauses and conditions.• Negative Pledge, Cross Default, Material
Adverse Change• Change of control clauses: definitions,
strengths and weaknesses• Financial covenants – when and how do
they protect the bank• Balance sheet and income based
covenants• Cash flow covenants in detail• Designing intelligent covenant packages
that provide timely early warning ofproblems and allow the bank to act toprotect its interests
UNIT 7WRITING A CREDIT REPORT
Unit Learning Aims and Objectives. Gain the techniques to plan and write
the credit information memorandum which should capture all of the analysis work in one document with the view to be used for making the final credit decision
UNIT CONTENTThe Contents of the Credit Report• Purpose of the loan facility• Structure of the facility• Review of the client• Financial information• Review of financial information• How will the loan be repaid• Company risks and mitigants• Covenants• Collateral• Decision
OPTION OF A POSTGRADUATE CERTIFICATE WITH MIDDLESEX UNIVERSITYYou have the unique opportunity to choose a validatedoption for this course and receive a postgraduatecertificate on completion. This programme is qualityassured by Middlesex University and you will receive aMiddlesex award on successful completion. However, ifuniversity validation isn’t important to you there is still theopportunity to take the standard non-validated course.
WHAT DOES THE CERTIFICATE ENTAIL?In addition to studying all the units and passing the short self assessment tests after each unit, you will need to submit a 5000 word assignment at the end of the course which will be assessed. The assignment will be a cumulative project that you will work through and build upon during each stage of the course.
If you wish to book on the certification course there willbe an assessment fee of £360.
ENTRY REQUIREMENTSParticipants wishing to undertake the Postgraduate Certificate are required to have a degree or equivalent qualification (or relevant work experience).
Participants wishing to undertake the course but not receive the Postgraduate Certificate are not required to have any formal qualifications.
ABOUT OUR PARTNER MIDDLESEX UNIVERSITY
HistoryMiddlesex University is a large London based university with a history in higher education dating from 1878. In 1992 it was granted the Royal Charter making it a university. The university offers a broad range of courses through four academic schools of Arts and Education; Business; Engineering and Information Sciences; Health and Social Sciences and their Institute for Work Based Learning.
Middlesex University has over 34,000 students studying on its courses worldwide, both at its own campuses and also with partner institutions, making it one of the largest providers of British university education to international students. Middlesex University has a long history of successful collaborations with the corporate sector. It was the first academic institution to develop industry specific MBA programmes (Shipping & Logistics and Oil & Gas) delivered 100% by distance learning.
INTERNATIONAL REACHMiddlesex University is committed to meeting the needs and ambitions of a culturally and internationally diverse range of students by providing challenging academic programmes. It has a major international business school based in London with overseas campuses in Dubai and Mauritius and a global portfolio of partnerships delivering high quality validated programmes in business and management.
Staff and students come from a wide spectrum of cultures and backgrounds with a common interest in executive education that is world class, modern and applicable. Middlesex University Business School is proud of its dedicated teachers and its rich range of learning resources including distance learning and virtual learning environments.
BENEFITS OF STUDYING FOR A POSTGRADUATE CERTIFICATE WITH US
A MIDDLESEX POSTGRADUATE CERTIFICATE:n Is project based and practicaln Offers networking opportunities during and
after the coursen Provides exceptional teaching staffn Delivers applied learning experiencesn Combines academic rigour with individual
support
HOW IS THE COURSE VALIDATED?*This programme is quality assured by Middlesex University and after successfully completing your studies you will receive a Postgraduate Certificate from Middlesex University. Middlesex Certificates are recognised worldwide.
QUALITYThe Quality Assurance Agency (QAA) visited Middlesex in 2015 and noted in its report that its auditors had confidence in the University’s current and likely future management of its academic standards and of the learning opportunities available to students.
THE UNIVERSITY IS A MAJOR PROVIDER OF BUSINESS AND MANAGEMENT EDUCATION, WITH AN IMPRESSIVE TRACK RECORD OF WORKING IN PARTNERSHIP WITH THE PUBLIC AND THE PRIVATE SECTOR, AS WELL AS INTERNATIONAL ORGANISATIONS
IFF is the learning partner of
THE MECHANICS OF
CREDIT RISKANALYSISPOSTGRADUATE CERTIFICATEDELIVERED BY DISTANCE LEARNING OVER 14 WEEKS
Contact: Tel: +44(0)20 7017 7190 Email: [email protected]
Duration:14 Weeks
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