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How to use Global Cash Flow Analysis

by | Apr 20, 2022

Global Cash Flow Analysis is a widely used financial analysis tool to evaluate more complex borrowers. The Global Cash Flow Analysis tool included in both the Ag and Commercial versions of FINPACK calculates a global debt coverage ratio when commingling the primary business, any secondary businesses, and personal funds occurring within a closely held business. The performance of each business and individual is first analyzed individually for debt repayment capacity by using the income statement or tax form. Then, the overall (or global) debt repayment is calculated based on the overall sources and uses of cash for all businesses and individuals included in the global analysis. As lenders, you can easily identify the borrowers in your lending portfolio that would be best analyzed using global cash flow analysis, and then it’s just a question of choosing what data sources are needed to complete the analysis.

Step 1: Data Sources

As with all FINPACK analyses, we start with data sources. First, we identify the primary business — in the example below, it’s a farm, so we use the Schedule F — then add any other business(es) they might have. In this case, they have a trucking company, so we add the Schedule C; some rental property, so we add the Schedule E; and then lastly, we add any individual or guarantor tax return information. The input always includes a ‘blank’ field, so you can add as many entities or individuals as you need.

Choose the tax forms or income statements for the primary business and any other related businesses or personal returns

Step 2: Proposed New Income/Debt

We can also add proposed new income or loans to consider the impact this ‘scenario’ would have on the analysis. This ‘scenario’ could conversely include a reduction/refinance of debt or a decrease in income. Including this type of analysis adjusts the global debt coverage calculation for the prior three years to assess the impact of the proposed business decision, like an investment. Then when we go to the output, there will be an additional page showing Proposed New Income & Debt.

Step 3: Analysis Output

FINPACK generates cash available for debt service, factors in debt payments, and provides a Debt Service Coverage Ratio and Debt Repayment Margin for each entity. This is followed by a Global Debt Coverage, showing net global cash available for debt service, total debt payments, and a Total Debt Coverage Ratio.

FINPACK produces a Debt Service Coverage Ratio and Debt Repayment Margin for each entity,
Global Debt Coverage, showing net global cash available for debt service, total debt payments, and a Total Debt Coverage Ratio.

How to use Global Cash Flow Analysis: Summary

Use FINPACK’s Global Cash Flow Analysis tool to assess the Debt Repayment Capacity and get to the end goal of your analysis – your customer’s Debt Coverage. Locate the weak links in your global borrower and assess how these impact the stronger elements. The Global Cash Flow Analysis tool comes with both the Ag and Commerical versions of FINPACK. Contact us today to learn more!

Relationship Manager at | 612-301-1413 | dmaguire@umn.edu | + posts

David Maguire became the FINPACK Relationship Manager in 2021. He helps Ag and Commercial lenders across the country understand the value of using FINPACK for credit analysis and loan management. David has worked in the marketing, training and education fields in Minnesota, Ireland and Germany.

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