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 IBA programme notes that knowledge of UCA cash flow analysis is “an undervalued, yet critical skill for all small business and commercial bankers” . The IBA programme also covers “Key Financial Statement and Cash Flow Drivers” and “Impact of Changes on Cash Flow from the Balance Sheet and Income Statement” .

4.2 Key Cash Flow Metrics

The IBA programme covers:

  • “Calculating Debt Service Coverage and Debt to Income”

  • “Calculating Global Debt Service Coverages for Business Owners/Guarantors”

  • “Analyzing Personal Tax Returns and Key Schedules”

  • “Analyzing Business Tax Returns and Key Schedules” 

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 IBA programme includes a dedicated session on UCA Cash Flow Analysis.

The Connecticut Bankers Association programme covers “The Global Cash Flow Model”  and the SMU Academy programme covers “Cashflow Statement Analysis” as part of its credit risk analysis curriculum .

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