Learning Objectives:

  • Analyse a borrower’s ability to generate cash flow.

  • Calculate and interpret Debt Service Coverage (DSC).

  • Apply UCA cash flow analysis to business borrowers.

4.1 The Importance of Cash Flow Analysis

Cash flow analysis is the most critical component of credit analysis. The Illinois Bankers Association course states that knowledge of UCA cash flow analysis is “an undervalued, yet critical skill for all small business and commercial bankers” . Repayment capacity is assessed through cash flow analysis .

4.2 Key Cash Flow Metrics

The Illinois Bankers Association course covers “Calculating Debt Service Coverage and Debt to Income” and “Calculating Global Debt Service Coverages for Business Owners/Guarantors” . Debt Service Coverage Ratio (DSCR) measures the borrower’s ability to cover debt payments. The course also covers “Analyzing Personal Tax Returns and Key Schedules” and “Analyzing Business Tax Returns and Key Schedules” . The “Global Debt Service Coverage” analysis combines business and personal cash flows .

4.3 UCA Cash Flow Analysis

UCA (Uniform Credit Analysis) cash flow analysis is a specific method of constructing cash flow that adjusts the traditional Statement of Cash Flows to better reflect “cash available for debt service” . The Illinois Bankers Association course includes a dedicated session on UCA Cash Flow Analysis . The FFIEC course requires a “solid foundation in… the sources and uses of cash” .

 
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