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Credit Risk Memos (CRM's)


For Small Business Debt and Repayment

Credit Awareness Tools & Insights

Financial Analysis

CRM #8 – Cash Flow Analysis


Business cash flow, cash transferred into and out of a business, is generally the primary source of repayment (PSOR) for most loans, and therefore, is very important to the stakeholders. Loans are underwritten with a comprehensive credit analysis to determine the strength and trend of the PSOR. Positive cash flow indicates that a company as the ability to repay future debt payments. Cash flow originates from business activities, including its operations (main activities of company), investing (investments, capital asset purchases) and financing (debt, equity infusions). Cash flow is analyzed primarily in two ways: traditional method, or the uniform cash analysis method. The traditional method is often used because the needed information is easier to obtain and calculate, and when statements are insufficiently detailed. It also does not recognize growth in accounts receivable or inventory, a slow-down in accounts payable, capital expenditures, or additional borrowings.


Traditional Method 

(Earnings before interest, taxes, depreciation, and amortization, or EBITDA, to cover debt service requirements) 


Net Income (Amount of net income reported on most recent annual income statement before taxes)

(+) Interest Expense (Add the total amount of interest expense for the period)

(+) Depreciation/ Amortization (Add all noncash depreciation and principal amortization on outstanding debt)

= Cash Flow Before Debt Service (Indicates net Earnings Before Interest, Taxes, Depreciation, and Amortization, or EBITDA. Amortization should include both principal and interest payments required on debt)

(-) Debt Service (Subtract scheduled principal and interest payments)

= Excess (Deficit) Cash Flow (Total amount of excess or deficit cash flow for the period after debt service)

= Coverage Ratio (Cash flow before debt service divided by principal and interest debt service)


The uniform or accrual method may be more accurate and reliable and utilizes both the balance sheet and income statement:


Uniform Cash Analysis (UCA)

(Cash flow from operational, investment, and financing activities available to service debt)

The cash flow statement will focus on future cash receipts (inflows) and cash disbursements or payments (outflows), from activities in operations, investing, and financing. The net cash position from these activities at the end of the period will be added to the cash at the beginning of the period for the overall cash position for a given period. Specifically, these activities may include:


Operating Activities – Include direct cash receipts from customers, and the collection of accounts receivable. Disbursements will include inventory purchases, general operating and administrative expenses, wage expenses, interest expense, and income taxes. Add the receipts, less the disbursements, to show the net cash flow available from operations.


Investing Activities – Include cash receipts from the sale of property and equipment, the collection of principals on Notes Receivable, or the sale of any investment securities. Disbursements will include cash paid for the purchase of property or equipment, loans made to others, and the purchasing of securities. The difference in receipts and disbursements will be your net cash flow from investments.


Financing Activities – Include cash receipts from any stock issuances or new borrowings, and cash disbursements from any stock repurchases, dividends or loan repayments. The difference in receipts and disbursements will be your net cash flow from financing activities.  


Another way to view the excess (or deficit) cash flow after all these activities, including the ability to service debt:


Sales (Dollar amount of sales in period)

(+/-) Change in A/R, INV., A/P (Represents the absolute difference of the current period from the corresponding period of the previous year in accounts receivable, inventory, and accounts payable). 


(a) An increase in any current asset is a use of cash and is subtracted from the calculation. Conversely, a decrease in any current asset is a source of cash and is added to the calculation; 

(b) An increase in any current liability is a source of cash and is added to the calculation. Conversely, a decrease in any current liability is a use of cash and is subtracted from the calculation.

(-) SGA (Subtract selling, general, and administrative expenses)

(+) Interest Expense (Add interest expense to the calculation if SGA ‘‘expense’’ includes interest expense)

= Excess (Deficit) Cash Flow (Represents cash available after debt service)


Individual Cash Flow 

Personal cash flow for individuals who guarantee commercial loans will be determined by analyzing individual federal tax returns. To calculate the cash flow and debt service coverage using individual tax returns, the actual cash received will need to be determined, together with all debt service requirements paid by the individual(s), taxes and living expenses. For example, using a Federal tax return:



(+) Interest Expense

(+) Dividends

(+) Net Income/Loss + Interest + Depreciation from: Schedule C (Profit or Loss from Business); 

      Schedule E (Supplemental Income and Loss);  Schedule F (Profit or Loss from Farming)     

= Beginning Cash Flow  

(-) Less Taxes (Federal and State Taxes)

(-) Less Living Expenses (Consider reasonable annual living expense amount)

= Cash Flow Before Debt Service

(-) Individual Debt Service: (Subtract individual’s scheduled principal and interest payments)

= Excess (Deficit) Cash Flow (Represents cash available after debt service)

= Coverage Ratio (Cash flow before debt service divided by individual’s principal and interest debt service)




It’s pretty much a given that during an economic downturn, your cash flow will be impaired. Many businesses will lack the cash flow to stay in business. In today’s economic reality, cash flow problems are ‘off the chart’, clearly in unprecedented times and circumstances. So, NCARA appreciates what you too, may be experiencing. Assuming you are in business, and cash flow has been materially impacted, you need to prepare current and accurate financial statements: Balance Sheet, Income Statement, Cash Flow Statement, and a pro forma Cash Flow Statement for the upcoming year. Please see the NCARA post entitled: “Cash Flow Analysis, Pro Forma Projections”, as this is important and will help you to have a successful work-out loan modification plan. Yes, you are empowered to take matters into your own hands.


Utilize your CPA, or google up and review the numerous examples of cash flow statements if you’re not well versed and need additional clarification. When your financial data is prepared, you will need to ensure you are using it from consistent periods (i.e., annually, quarterly, monthly) year over year. Year-to-date financial reporting for the interim period is also important. Consistent financial reporting makes it possible to observe trends and help eliminate any misinterpretation of cash flow for any given business cycle or reporting period. You may request a copy of the ‘financial spreads’ from the creditor showing all your analyzed financial statements. 


When creditors originated your loan, they no doubt had certain debt service coverage (DSC) requirements for your longer-term loans. They usually like to see a minimum DSC ratio of 1.25x; they want there to be $1.25 of available cash flow to service every $1.00 of debt. There needs to be some cushion in there, because if it’s less than 1.00x, you may potentially fall short on being able to repay. Depending on the level of deficit cash flow, it doesn’t necessarily mean that you have a serious financial condition that you can’t work-out of. It may be an indication that your business is in a growth stage and you just need some working capital financing to assist with the growth in assets (i.e., accounts receivable, inventory). But if you are experiencing losses, don’t expect the creditor to fund those losses with additional borrowings. If you understand what’s causing the losses, you should be able to make certain decisions to remediate the same while renegotiating your existing debt. You can do this. It’s your responsibility to do so.


Again, assuming there are some structural issues affecting your cash flow, like a sustained decline in sales revenues, or other increases in operating expenses, this will likely end up being a work-out loan and you’ll need to prepare a repayment strategy using a pro forma cash flow statement. It is what it is, and you need to actually understand your cash flow, and your ability to repay. You have to absolutely know and understand the root cause of there being deficient cash flow. If you don’t understand the actual reason(s) you can’t fix the problem. So, you have to be prepared with a plan to fix the problem, that which caused the stressed cash flow. Again, you have to know that you can fix it, how you will do it, when you will do it, how much it will cost, etc. Ask questions, talk to your CPA; read on. But, don’t stop until you know you understand your cash flow picture, how it came about, how it will be resolved, and document your assumptions, or your way out of it – you have to present a repayment plan to your creditor and convince him to accept it, or otherwise reach a win-win arrangement. 


Your pro forma cash flow statement will be the KEY to getting through this. It will represent your strategy or plan to fix the problem. If you really ‘get it’ and are totally convinced you will bring the plan to fruition, that sir, is the level of ‘ownership’ that will come through loud and clear to your creditor. The creditor needs to get a sense of this level of ownership; he needs to see that you own this. Actually, your creditor should have a strong sense of your ownership in resolving your cash flow issues.


You’re the captain. The creditor needs to feel secure enough that if he decides to ‘jump into the boat’ and do a work-out loan with you, as you ‘head out to sea’, he will be okay. You need to see and appreciate the position he and the other creditors are in as you approach this cash flow dilemma. So that you can quickly see where you stand, take a fresh look at your balance sheet. What’s the relationship of debt (creditor) to equity (you)? If it’s higher than 3:1x or even in the 5:1 plus range, well, you pretty much had better be well-prepared in presenting your repayment plan. Why? Because the creditors have 3x or 5x plus more interest in the business than you do, that’s why. 


When you ask creditors to get in your boat and go out to sea with you, they have a lot more to lose in the business than you do. Yes, the creditors (generally) have much more to lose than you do. So, before you think this is all about you, do your homework and be well-prepared to have a legitimate and compelling conversation. You are empowered to do this. Let your documented debt resolution plan be based on your best efforts pro forma cash flow statement. The creditor will recognize your ownership and effort, although the cash flow will probably not be what he expected (will likely be less), it is your best work, and therefore your plan should be considered to be a prudent plan that both can agree upon. It will be a ‘win-win’.


When you are ‘out to sea’ for a few months with your repayment plan, update your financials and send them to the creditor(s), regardless if there is a financial reporting requirement to do so or not. Take ownership, and show the creditor if you’re on plan or not. Be proactive, and defend your financial performance. If you’re ahead of schedule, explain why. Communicate. Overly communicate. Build a relationship of trust, clarity, and understanding. You may need the creditor’s assistance in the near future, possibly more than once or twice – which is perfectly fine. This isn’t a ‘one and done’ situation. You’re going to stay with this until the issues or problems are resolved, and your loans are repaid – period. 


Creditors will likely have more into your business than you do, and it may always be that way for most small businesses. So, don’t take any of your creditors for granted, be they the vendor suppliers, or the long-term lenders for your office/warehouse. They granted you credit in good faith that you will repay pursuant to the underlying terms and conditions, and likely have charged you a competitive and reasonable market rate of interest and fees. So, when your cash flow is deficient, that’s not the creditor’s fault. If you see yourself blaming your creditors for your problems, then please think again.


Based on experience, NCARA believes you’d be mistaken to not take full ownership for your business, and therefore well-advised to reconsider your relationships with creditors. Seriously, who is responsible for, and regardless for the reason that caused you to experience financial difficulties, the deficient cash flows? If you’re the owner, then you are responsible. You may not have been behind the actual reasons for the deficiency in cash flow, but you own this business and you are responsible for it. So, act like it, especially if you made decisions that negatively impacted your cash flows. And negotiate in good faith; you may not be as awesome as you think you are if you fail to live up to your loan documentation requirements. 


At the end of the day, though, just do your best; that’s all that NCARA is asking. Document your best with current financial statements, and especially the pro forma cash flow statement for the next year. Make your recommendations to the creditor and get the loan modification you actually need. 


As a guarantor, the stakeholder creditors will realize that you can only do so much to support deficit cash flows. Your willingness to do so, however, may be less than you might expect – especially if you’ve had to put money into the business for an extended period already, or because you’re beginning to feel insecure about your own personal financial well-being. You can only do what you can do. In the end, if the cash flows have completely failed NCARA believes it’s not worth your marriage and well-being to have a tax return that shows alimony and child support. Surely, you understand.  


On a more positive note, please reconsider this word of caution. If your DSC ratio is at least 1.25x, and the trend is increasing over the past few years, it shows that your business is functioning as you intended; your ability to repay is stronger and improving. But before you get too confident, and as you likely well appreciate already, anything can be taken from you almost overnight. We seem to be living in uncertain times. So, it’s wise to control the level of debt and the rate of growth of your business, else you run the risk of having too much debt to service if or when those unexpected economic challenges pop-up. The economy is fragile, indeed very, very fragile.


As a reminder, when analyzing the balance sheet, keep in mind how increases or decreases in any balance sheet category is either a source or use of cash. To make this simple to remember, just think of any asset or liability and how cash is affected when it increases or decreases. If you sell a piece of equipment ( decreased asset), you’re going to increase your cash, right? If you obtain a new loan, when the loan is disbursed (increased liability), your cash is also going to increase, right? The following illustration shows whether a change in the balance sheet components is a source (+), or use (-) of cash.




When it comes to things like sources and uses of cash, just realize this is the language the creditor speaks and understands; you should speak and understand it too. Your balance sheet is going to change constantly, the levels will be higher (increase) or lower (decrease) as business decisions are made over time. This simply means that those increases or decreases will result in the cash flow also increasing or decreasing. You want to understand that as you change these levels how it will affect your cash. You’re the ‘pilot’ of your business, your hand is on the ‘throttle’. 


Lastly, using the airplane example, the decisions you make as to how fast and high your ‘plane’ or business flies, that’s totally up to you. Creditors avoid making those decisions for you, as they want to avoid potential lender liability issues. But you need to know that your decisions have an immediate impact on your cash. Rest assured that the creditor can see the effects of your decisions and the impact they have on your cash flow. While he may not fully (yet) understand the drivers or root causes behind your cash flow deficiencies, he can likely see whether or not you are going ‘full throttle’ into a mountain side. Knowing why you have cash flow problems, having a clear solution on how you’re going to solve those issues, and being able to document those assumptions behind the cash flows, on a pro forma cash flow statement to show your best efforts to repay, all these are measures are essential to resolving your debt repayment solutions.


CRM #9 – Cash Flow Analysis: Global


The primary repayment source for most loans are the cash flows generated from the debtor’s business operation over time. The secondary source of repayment is generally the collateral that secures the loan. The third or tertiary source of repayment is often the guarantor(s), be they individuals or other affiliate legal entities, or both. Over time, the guarantor(s) may, or may not, add additional cash flow or collateral support. The collateral aside, unless it is income producing, one way to determine the global financial support beyond the primary cash flow source, is to conduct a global cash flow analysis of all cash flow sources and debt service requirements. 


This global cash flow analysis will include all direct obligors of all related loans, and all the guarantors pertaining to the loans. The result will be a consolidated global cash flow and debt service analysis of the legal entity debtor and any all guarantors, that when analyzed together, will confirm the overall repayment ability in a given loan relationship. A global debt service coverage ratio will be determined, together with a trend analysis from prior financial statement reporting periods. Is the trend improving or declining, and precisely what are the reasons for those changes, and are they systemic or can issues be appropriately resolved?  


The purpose of the global analysis is to determine the overall direct and indirect repayment capacity of the given loans in a credit relationship. It considers all cash flows from all borrowers, legal entities, and their guarantors. Even when a given loan begins to deteriorate, the creditor will seek to understand the entire cash flow picture, those cash flow sources for which he may expect will be available in getting repayment. Indeed, the creditor may have legal recourse to enforce repayment for all such obligated parties. 


The credit analyst will need to also dig for potential contingent liabilities too, like co-signed debt, or general partnership debts that the individual guarantor, or legal entity guarantor, may be liable for. Therefore, it would be necessary to obtain tax returns and their supporting schedules in order to identify all cash flow sources as well as any required and discretionary cash outflows from all activities. This includes IRS Profit and Loss forms for businesses and properties for obligated individuals and legal entities, as well as IRS form K-1 that show distributions and contributions to individual guarantors.


Generally speaking, the debt service coverage (DSC) ratio can be determined by starting with the net profit/loss; adding interest and dividends; capital gains or losses; cash flow from rental properties, partnerships and S-Corps; adding depreciation expense and interest expense, to get the cash available for debt service. Then, subtract federal and state taxes, FICA, other deductions, and annual living expenses, to arrive at cash flow available to service debt. The underlying debt service payment requirements are totaled and then subtracted from the available cash for debt service, to determine the debt repayment margin. Dividing the cash available for debt service by the debt service requirement amount will produce a DSC ratio. Each and every one of the related entities owned by the obligors and guarantors of the subject loans in the relationship, will have their assets, liabilities, and cash flows analyzed, and the cash flows will be consolidated into one global cash flow analysis, and a DSC ratio.


In a global cash flow analysis, the end result will be all the multiple sources of combined cash flow to determine the global cash available to service debt, global debt service payment requirements, global debt repayment margin, and a global debt service coverage ratio.  




Creditors may experience some difficulty getting sufficient documentation in order to perform an accurate global cash flow analysis. It will likely not be because they can’t do the analysis. It’s most likely because there is a lack of sufficient documentation from the debtor. And why might that be?  In all likelihood, it’s probably because of a mutual lack of respect and trust between the debtor and creditor. Stressed relationships mean less transparency, but it doesn’t have to be that way.


Fast forward, NCARA believes it is incumbent on the debtor to step up and take the lead in finding, preparing, and presenting its best-efforts repayment solutions to creditors. Ask the creditor for a copy of its global cash flow analysis for your credit relationship. Follow through until you get a copy. Debtors have the opportunity and responsibility to construct, if necessary, a road across the ‘grand-canyon’ that may exist between debtors and creditors, especially during stress economic times. There needs to be an actual paradigm shift that empowers debtors to own up to figuring out their own repayment solutions on a best-efforts basis. Creditors are expected to be prudent in their lending and work deals that are in the everyone’s best interest. So, there is space and room for you, the debtor, to be forthright with the creditor and provide all the necessary current, accurate, and complete financial statements, pro forma cash flow statements, and copies of Federal tax returns so the creditor can perform a global cash flow analysis. It’s your season to be forthcoming. 


By now, you realize what a global cash flow statement means, at least conceptually. All those sources of cash flow, well, those sources are ‘on the hook’ for your loans anyway should the creditor need to pursue a global repayment solution. And, if you are honest and willing to abide by the loan documents you promised to follow, you will happily accept the financial reporting you’re required to submit to the creditor. So, partner up and give all the required financial information on or before the requested date, and be sure each is signed and dated by you, the owner. Ask to see the creditor’s financial analyses. Sit down with him and ask him to go through it with you, and answer his questions. At the end of the day, wouldn’t it be nice to be on the ‘same page’ and have a mutual understanding of the resources that are subject to getting the loan repaid? And you have your proposal for utilizing your cash flow as you best see fit?


You want to repay. You want to cooperate. You need the creditor’s help to do a loan modification, forbearance, etc. And, if you think and know your repayment ability is weak at best, that’s okay. It is what it is, right? It’s your very best effort. You and the creditor want to see and understand together your global cash flow picture, and overall ability to repay. Prepare a pro forma cash flow statement too, to help see more clearly from ’30,000 feet’ your projected cash flows. Surely you will have a greater sense of peace of mind, not to mention the wherewithal to negotiate the best deal you might recommend. Creditors can be tough, but they are also reasonable people with well supported and document repayment solutions that come from a well-prepared debtor.

CRM #10 – Cash Flow Analysis: Pro Forma Projections


A pro forma cash flow statement is a hypothetical projection of your future cash flows, based on certain business activity assumptions for operations, investing, and financing. Assuming a deteriorated financial condition, the cash flow statement will be used to specifically impact your negotiations with the creditor by showing the cash flow levels you absolutely expect to generate over the next year to repay debt. It is expected that you and the creditor will come to a consensus on loan repayment terms that align with your projections, especially as you articulate your assumptions that drive the activities – a win-win. There’s nothing quite like a well-supported, documented, repayment plan that is originated, presented, and sold by the debtor. 




NCARA believes, at the end of the day, a well-prepared business cash flow pro forma statement is one of the best tools to use when negotiating a workout situation, loan modification, extension, or payment deferral. Special attention must be paid to your actual and expected cash flows in a potential workout situation; it’s the ability of the company to meet its estimated operational, investment, and financing activities. If you’re in a deteriorating financial condition, analyze your financial statements and identify precisely why and for what reason the deterioration happened. If you can identify the actual reason, you can apply the appropriate corrective action to fix the problem. You may have to make material adjustments to these activities, and those changes will be reflected in your pro forma cash flow statement. 


You will show the creditor the availability of cash flow, and when he can expect to receive loan repayments. You will have documented, perhaps not what the creditor expected to see, but your best-estimated or most accurately estimated cash position for the next 12 months, month by month, quarter by quarter. Make sure it is reasonable and that, barring any unforeseen emergency, you will hit those numbers. Be detailed, and explain, specifically, the material assumptions behind achieving the projected numbers. There needs to be a thorough mutual understanding of your assumptions, between you and the creditor. If they’re deemed to be reasonable, the plan should materialize, right?


Again, depending on the severity of your financial condition, you may need to prepare the cash flow statement to include amounts, by month, for the next 12 months, quarterly, semi-annually, or annually. If there’s risk of imminent failure, cash flow statements may be prepared daily as well. Cash flow statements will show the stakeholders your estimated cash position, but be sure to not just appease the creditor by showing the cash position you think the creditor wants or expects to see; rather, make sure you estimate precisely the numbers you are very confident you can actually produce, regardless of how bad or good that may be. If it’s bad, then so be it. That’s why it’s called a ‘workout’, meaning that there will need to be modifications to your loan documents that reflect your ability to repay. 


The cash flow statements can be regularly refreshed and additional modifications be made as well. Make sure you clearly understand that the cash flow statement reflects what you are comfortable with, because lenders are not all that forgiving (i.e., if you fudge and put numbers you think they expect to see there), especially when there’s a downturn. Their job is to ensure your loans are returned to an acceptable “Pass” risk grade as soon as possible, or to a $0 balance. You get the picture; there’s going to be pressure coming from their end, and thus on you. Doing this wrong, by overestimating your cash position, will likely result in a stressed relationship, if not worse. So, tell it like it is.


For smaller, less complex small businesses, it’s reasonable to simply prepare, say a single cash flow statement, by month, for each of the next 12 months (plus the 12-month total), and simply list all cash receipts (inflows) together: Cash sales/collections from accounts or notes receivable, sales proceeds from property and equipment, sale of investment securities, issuance of stock, proceeds from new borrowings, and cash from other sources. The same holds true for the cash disbursements (outflows): property and equipment purchases, investment securities purchases, inventory purchases, general operating and administrative expenses, wage expenses, interest expense, principal payments, and income taxes.


To recap, when timely repayment is questionable or uncertain, it’s your responsibility to demonstrate to your creditors the ability to repay the money you promised to repay – whatever that is.  A debtor-prepared pro forma cash flow statement is the central bridge between the debtor and creditor; it’s all about the cash. The pro forma cash flow statement will show the projected receipt of cash on a monthly basis, inclusive of all cash disbursements to vendors and operating costs, and debt repayment. 


This bridge, together with supporting financial documentation, should enable debtors to readily cross-over what can feel like a ‘grand- canyon’ between themselves and their creditors. During times of economic stress, effective repayment solutions are important to the financial well-being of all stakeholders, as the repayment of your loans are in the best interest of the creditor too. Lenders need to avoid credit losses or charge-offs, and business owners want to stay in business. 


There needs to be a win-win, and the empowered debtor’s best-effort and candid inputs are critically important to the repayment process. When modifications or loans are restructured, it is imperative to repay the enhanced contractual terms on a timely basis. Refreshed financial reporting is warranted anytime there are material changes to your operations, favorable or otherwise. The level of detail (i.e., monthly or quarterly reporting) will likely depend on the level or severity of credit risk and size of the loans, and will either increase or decrease as conditions merit. 


The creditor will also be assigning a ‘risk or loan grade’ to your credit relationship, and you should also ask what your risk grade is – as you’ll need to learn why this is important to you – this will allow you to understand where you really sit in the eyes of the creditor. See NCARA CRM: Risk Ratings, Loan Grades. Meanwhile, it’s acceptable to revisit or make revisions to already modified repayment terms, if necessary, with refreshed financial reporting.


You own this, and your candor will hopefully payoff in your favor. Again, debtors should repay their obligations in full, as this is not an exercise to see what debt you can get out of paying. Liquidation strategies are a different story. But remember that you should have the opportunity to make your case on a best-effort basis, getting to a win-win solution, including terms you propose.


CRM #12 – Contingent Liabilities


In the traditional sense, contingent liabilities are the potential liability of uncertain events in a future period. For example, a small business may have product warranties, or a pending lawsuit, whose outcome is uncertain. Depending on the probability of the event happening, the liability may be recorded as an accrued but unpaid expense, or listed as a footnote in the financial statements. 


Another important way to view contingent liabilities is those unknown, underestimated, or misunderstood liabilities a debtor has that may affect his relationship with a given creditor. Creditors can fail to fully understand a debtor’s actual liability profile, and debtors may fail to fully disclose their actual liability profile. Creditors can be surprised to learn about other debts the debtor has that he was not fully unaware of at loan origination – call that a contingent liability too. Debtors don’t always disclose their full financial picture in their financial statements. 


An individual debtor may be a general partner/investor in a certain unrelated large commercial real estate (CRE) development in another State. Assume that he has joint and several unconditional liability, or 100% liability for 100% of the entire underlying debt, even though he only owns 40% of the asset being financed. Intentionally or not, the debtor may disclose to a given creditor his ‘40%’ interest of the CRE liability, and not disclose his actual 100% liability for the entire debt. He may only disclose a 40% interest in the net profit too, and the creditor may think there is only a 40% liability interest; he fails to understand that he is 100% personally liable on a very large mortgage debt. If that large CRE project fails, and there’s a material short-fall after the collateral is liquidated, that creditor will likely pursue a deficiency judgement against the debtor. That pending litigation, and eventual judgment, could be considered to be a contingent liability that none of the parties gave enough attention to. 


Finally, maybe a debtor is a co-signer on another loan not listed on his personal financial statement (PFS) with another creditor. If the loan goes into default, the creditor may pursue collection against the cosigner debtor, perhaps to the surprise of the original creditor.




A perfectly good lending relationship can be upended when a debtor walks into the creditor’s office and drops the keys on the desk and says he effectively bankrupt. The creditor may be surprised and asks how could that be? The credit file shows a strong financial statement, abundant liquidity, and even strong cash flow for debt service coverage. Yes, and now the debtor is now essentially bankrupt? The creditor thought he had a customer who was a well-seasoned investor, so what could possibly have gone wrong? Answer? 


The debtor said that he was a party to a large medical center building in a neighboring state and the project failed and the underlying mortgage went into default earlier in the year. The creditor sued the partners for very large sums, and was awarded a $2 million judgment against the debtor. The debtor would be unable to ‘hide’ or shield his liquidity and assets, and if he did, the preferential treatment of those asset transfers would be unwound by a bankruptcy trustee anyway. The debtor’s liquidity was effectively wiped-out on account of the judgment and now the current creditor is sitting there in a state of disbelief, realizing that the collateral on the debtor’s loans was the only remaining viable repayment source. Maybe the creditor could exercise the right of off-set on deposits with the creditor, but that too, may be subject to further review and recapture, if bankruptcy were filed. 


The key take-away here is the fact that when financial deterioration occurs, the financial status of the debtor may take on unexpected changes. The business and personal financial statements on file may, in reality, take on a whole other look when push comes to shove, and unknown contingent liabilities are identified. NCARA believes the debtor needs to be exceptionally clear with his creditors as to its full debt profile and be sure to explain all legal obligations in sufficient detail so there’s no misunderstanding.


CRM #17 – Financial Statements, Tax Returns: Analysis


Creditors expect to review typical financial information such as an income statement, balance sheet, reconciliation of equity, cash-flow statement, and any applicable notes to financial statements. Other documentation will include current personal financial statements for individual guarantors, along with copies of business and individual Federal and State income tax filings for all obligated legal entities and individuals. Supplemental statements such as detailed accounts receivable and payable reports, and inventory reports may be necessary. At loan origination, it is customary to request the last three fiscal year-end business financial statements and business and individual Federal and State tax returns. These financial reports will need to be signed and dated by the obligors, often with a stamp that states the signatures affirm the data therein are true and accurate. 


A comprehensive analysis will measure the business’ operating performance from the income statement, as well as how well the assets and liabilities were managed from the balance sheet. The cash flow analysis will be critical because it determines the debtor’s ability to repay debt now and the prospect for future repayment. A determination will be made to identify recurring vs. non-recurring cash flow. A thorough analysis will help identify other sources of repayment for the creditor, if need be. Documentation supporting valuations for commercial real estate would consist of operating statements for each  operating entity, plus tax return filings, and current rent rolls. For cash deposits, bank statements can be obtained, and for public stocks there can be online quotes. Individual credit reports will be used to verify information on individual (guarantor) personal financial statements. Pending or actual legal action or litigation must also be disclosed, together with the potential outcome and impact on the business. 


Furthermore, with three years’ worth of financial statements and tax returns, a credit analyst will prepare a ‘spread sheet’ analysis showing the year-over-year trend analysis, and how the performance matches up with industry peers. A ratio analysis will determine the level and trend of profitability, operational efficiency, leverage financing, and liquidity. Weight will be applied to the financial statements with support coming from the tax returns. The analyst will be able to understand the differences between the results of the financial statements and tax returns. Financial statement ‘spreads’ will be common-sized, where each line item on an income statement, for example, is expressed as a percentage of the value for sales. This will show performance over several periods (i.e., years, quarters), and can be used to compare to peers or competitors in the same industry.  


Financial analysis, over time, will often identify weaknesses which may affect the internally assigned loan risk grade. Current assets such as accounts receivable may experience a slowdown in the collection period due to account debtors failing to pay on time, or from the easing of collection periods beyond the original terms, or even a loosening of credit standards. Inventory can also experience increasing levels in both the dollar amount or as a percentage of assets. This can be problematic if inventory isn’t selling as expected, as the accounts payable due the trade suppliers still need to be paid on time too. Perhaps the inventory or materials are too excessive for certain products due to overbuying, or it’s becoming obsolete; hence, liquidity may suffer too in order to maintain profit margins. 


A company may also use secondary financing to finance operations as evidenced by junior lien holders; this is likely an indication that the debtor is now unable to obtain conventional financing. The level of long-term debt may also increase indicating an increasing reliance on recurring cash flow over the long-term for repayment. Analysts will also measure the costs and expenses on the income statement to determine if the cost of goods sold is increasing, and if other overhead expenses are increasing as a percentage of sales.  




Does it come as a surprise to you that the creditor does such an in-depth credit analysis of your financial statements and tax returns? Creditors really do attempt to understand the root causes for your financial performance, and can readily determine the prospect of repayment. Creditors are required to risk-rate or assign the appropriate loan grade to match the credit risk for your loans. You should find out what your current risk grade is, and ask to be notified when that grade changes. Please see NCARA’s Credit Risk Memo: Risk Ratings, Loan Grades. It helps to know what the creditor is possibly thinking when economic conditions have deteriorated and are negatively impacting your business. If you understand your duties and responsibilities as an obligated debtor (per your loan documents), have a trusted and well-developed relationship with the creditor, you should make preparations to propose your own debt repayment solutions.


The creditor should not be the only one who understands the ‘why’ behind the numbers on the financial statements. You too, probably already know exactly why performance is lagging, and you know what needs to be done to remediate or correct the problems. If you do not, however, NCARA believes that you can quickly come up to speed, and with the help of your CPA, prepare the appropriate documentation to show how and when you will effectuate repayment. You are empowered to repay your debt, on a best-efforts basis; after all, it is the best you can do. That, is something the creditor should be able to concur with, as it is ‘prudent’ lending.


You are fully transparent, honest, willing, and hopefully able to present current, complete, and accurate financial reporting. Of significance will be your pro forma cash flow statement, together with well-documented and supportable ‘assumptions’ to show the cash flows you will need in modifying the terms of your loan. Call it a debtor-initiated workout plan. Empower yourself if you have to. Show more ‘ownership’ than you ever have in your life, if you have to. You’ll quickly learn that your relationship with the creditor will be meaningful and better than ever, even during an economic downturn. It’s the better way.


CRM #18 – Financial Statements: Interim, Stale


Interim financial statements, usually less than one year, are used by creditors until a full annual financial statement is issued. It will provide valuable information that allows the credit analyst to compare performance during similar interim periods, and thus be able to identify any positive or negative trends – and ask why the trends are happening. For example, the 1Q sales of the current year can be compared to the 1Q sales of the prior year; the same holds true for the gross, operating, and net profit margins, not to mention working capital, cash flow, leverage, and debt service capacity. Current personal financial statement of the principals of the company will also be used by the creditor to assess the level of combined liquidity there is to sustain repayment, if needed.  


Unlike the typical three years of required financial statements and tax returns due at loan origination, current financial information reporting will be required throughout the lending term. When the debtor fails to submit signed and dated financial reports when required, the financial information on file will be considered to be stale. Financial reporting may be due, for example, each month, or quarterly, semi-annually, or annually usually within 30 days of each period-end. Annual reporting may be due within 90 days of the fiscal year end, and tax returns within 30 days of their being filed. 


As part of the creditor’s credit administration practices, he will likely ensure the debtors receive notice of any pending reporting due dates, and will certainly send notices when the debtor has failed to remit required financial reporting, as per the reporting covenants. Not submitting financial reporting when due would constitute an ‘event of default’ under most Loan Agreements, even if the loan payments are current. Stale financial information is unacceptable to the creditor as no creditor appreciates ‘lending with the lights off’ – unless, perhaps, the loan is secured by cash. 


Without current information, there is a material lack of communication, and the creditor may feel like there may be a character issue, or a breach of trust. Without the ‘lights being on’, the creditor has no way of ‘seeing clearly’ what is happening. Loans subject to renewal will require current and timely financial statements, tax returns, credit reports, etc., and won’t be underwritten on stale financial information if at all possible.   




Right now, do you know what financial reporting is due, and when? Are you current on that reporting, or are you shying away from submitting current interim financial statements because you don’t want the creditor to see what’s happening? Do you know what your Loan Agreement specifically states, covenant-wise, as it relates to what financial statements and other documents are due, and when? You can rest assured that the creditor will read the Loan Agreement and clearly understand what constitutes an event of default. If you’re not fully aware, today, of what events trigger a condition of default, you should take 20 minutes and read the Loan Agreement again. Notice the ‘covenant’ section, specifically.

When is the last time you read the ‘events of default’ on your Loan Agreement, and does it state that not remitting such documents is an event of default? If so, what are the stated remedies available to the creditor in order to cure the default? Does the Loan Agreement also state that the underlying interest rate on your loan can be increased to the ‘default rate’ if you fail to submit financial statements? If so, what would that interest rate be? Indeed, creditors are both able and willing to declare a default and increase the interest rate accordingly. If paying the default rate doesn’t get your attention, what will? To pay unnecessarily hundreds and possibly thousands more dollars in interest expense at the default rate is clearly a waste of resources.


Better yet, keep in mind the word ‘ownership’ when it comes to dealing with your creditor. For example, while you have your Loan Agreement in hand, spend another 20 minutes or so reading it. Take it in. Besides reading the events of default, look at all the covenants, including those agreements for financial reporting, financial performance ratios, affirmative and negative covenants. If any subject doesn’t make sense to you, talk it up, look it up, and satisfy yourself of the expectations set forth in the loan documentation. If you will understand and recommit to the commitments you’ve knowingly or unknowingly entered into, it’s more likely than not that any ‘grand-canyon’ size misunderstandings with your creditor will be minimized. 


In periods of economic downturn, there is every expectation that you will comply with all the terms and conditions of your loan documentation. Obviously, there will be times when you cannot do so, regardless of your best intentions. That is when you will want to take charge and be empowered to repay your debt obligations as best you can. Make sure you lead out with current and accurate financial reporting that states the facts. Forward looking, use your pro form cash flow statement to show the creditor how and when you intend to repay your debts on a best-efforts basis; make it the best you can. Own it. Own all of it. Build a relationship of trust and make sure all your financial statement information is submitted on time and that your credit file is never stale.  


Finally, there is no need to inflate or underestimate the values of assets or liabilities on one’s personal financial statement. The creditor has tools and methods available to help confirm the veracity of the amounts therein listed. He will look to see if there are assets that might be available to help shore up credit risk by having you pledge unencumbered assets to secure the loan – which you may be perfectly willing to do.


CRM #19 – Financial Statements, Tax Returns: Requirements


Creditors will require both a certain type or quality of financial statement reporting, together with the frequency of such reporting. These include company-prepared financial statements all the way to CPA-prepared audited financial statements. Financial statement quality reflects the level of ‘assurance’ needed by the creditor, and financial statements that actually require a level of assurance will be prepared by an independent Certified Public Accountant (CPA) according to a required accounting framework (i.e., Generally Accepted Accounting Principles, or GAAP). The financial reporting frequency can be monthly, quarterly, or annually, and will typically include at least the balance sheet, income statement, reconciliation of equity, and cash flow statement. The required type of financial statement, and tax return submission, is often matched up with the loan amount and consideration of the corresponding collateral – as follows: 


Company-Prepared Financial Statements / Tax Returns – Loans up to $1 million

Management-prepared financial statements carry the highest degree of risk in terms of the creditor not being able to rely on the accuracy and completeness of the financial statements. The quality of the financial statements can vary significantly. For very small companies, if a CPA assists in the preparation of company-prepared financial statements, there will be no verification of accuracy or completeness of any of the information. Nor will there be any assurances provided by the CPA. Typically, CPAs will perform this service in conjunction with other bookkeeping, accounting, tax, or transaction processing services he might also be providing the small business owner. Company-prepared financial statements may not be worth much more than the paper they’re written on if the creditor does not have confidence and trust in the debtor. Tax returns will serve as documented support for such statements. 


CPA-Compiled Financial Statements  / Tax Returns – Loans from $1 million to $3 million

Compiled statements are based on the amounts provided by the business owner. They also offer no assurances or opinion from the CPA because there is no verification needed for this statement type. That said, the CPA is required to read the statements and consider whether the format is appropriate, and that there are no obvious material misstatements. Small businesses generally use accounting software to generate their internal financial statement reporting, but creditors will generally require these small companies (smaller loans) to have their statements compiled by a CPA. Naturally, a compiled financial statement is less expensive than a ‘reviewed’ financial statement. 


CPA-Reviewed Financial Statements  / Tax Returns – Loans from $3 million to $5 million

Creditors will often require reviewed financial statements where there are certain limited assurances provided by the CPA as to the accuracy of the information, and that there are no material modifications needed to bring them into compliance with the applicable financial reporting framework. CPAs will perform analytical procedures and inquiries to verify information in accordance with accounting principles generally used in the business, and have a sufficient level of knowledge of the business’ industry. A reviewed financial statement is less expensive than an audited financial statement. 


CPA-Audited Financial Statements – Loans over $5 million

Creditors who require the highest level of assurances will require audited financial statements and their accompanying disclosures. Audited financial statements add credibility to the reported financial condition of the debtor. The CPA will issue an opinion as to if the information was prepared, in all material aspects, with applicable financial reporting requirements. It offers reasonable assurance that the information is free from material misstatements. The CPA will perform internal controls testing (safeguarding assets, segregation of duties), and get confirmation and evidence of the amounts and disclosure listed in the statements (i.e., cash, securities, accounts receivable, inventory, fixed assets, accounts payable, debts, revenues, and expenses) based on procedures for inquiry, inspection, 3rd party verifications, and analytical analysis. Audited statements take the most time and are the most expensive. 


Financial statements should be prepared on an accrual basis, unless the statements are for a single entity commercial real estate holding company, or for small commercial loans. Schedules for accounts receivable, payable, and inventory should also be made available, if applicable. The schedules and the financial statement dates should all match. Most financial statement packages will include pro forma projections or budgets for the upcoming year, and year-to-date interim financial statements. Asset-based lines of credit may necessitate a correspondingly higher quality financial statement than what appears above as pertaining to loan sizes. All business financial statements and business tax returns, including personal financial statements (PFS), will need to be signed and dated. A creditor will usually affix a signature stamp on the documents for the owner to certify the statements are true and accurate for the purposes of the creditor lending the debtor the money.


Personal financial statements (PFS) are required for all ‘individual’ obligors or guarantors. Such debtor guarantors will be asked to complete creditor-provided PFS forms as they contain certain affirmative attestations which will bind the debtor. For new loan requests, the PFS should be ‘current’, although a PFS that is dated within the last 30 plus days would likely be acceptable. PFS’ are expected to be thorough, and detail all assets with the dates of acquisition, original cost, market value, underlying debts, etc. Liabilities should clearly state all contingent liabilities of any general partnership liabilities, and other personal guarantees. Personal tax returns need to be current as well and include the most recent three years of filings. Federal tax returns should include the various schedules (i.e., Schedule C, E, F) for other income and losses. The tax returns should include Schedule K-1 as well, unless ownership in a given business is 25% or more, then the entire tax return for said business would likely be requested.  




A reminder may be in order. Financial statements, the language of business used to determine whether you are financially sound or not, are fully relied upon by the creditor as being complete and correct in all material respects. Your required signature, usually in the form of an attestation that the information is valid, gives the creditor your good faith assurance that his lending decision is based on the truth, the facts. 


The creditor will be making his lending decisions, whether in a workout mode or not, based on the information he has received from you. In most instances, the creditor will require verification documentation to support the cash or near cash liquidity listed on the financial statements, and other valuations of the assets. Of course, audited financial statements are subjected to certain testing procedures, and are not as likely to be confronted by the creditor. 


Now, fast forward to a very difficult and financially challenging time where your business is in serious financial jeopardy. How easy would it be to provide financial statements that a debtor knows are not accurate or are otherwise misleading as to their preparation date and the amounts listed? While creditors are not ‘perfect’, debtors may become less than forthright when ‘push comes to shove’. Don’t go there.


Debtors have purposely delayed submitting requested financial statements; it happens all the time – it doesn’t mean it’s right, because it’s not. They may ‘re-age’ accounts receivable (A/R) on the detailed A/R aging report – showing otherwise materially past due A/R and showing them to be ‘current’. Or a debtor can list inventory that is not actually there (i.e., sold). That’s why an asset-based lending creditor will order an A/R and inventory audit regularly, to ensure there are actual A/R accurately portrayed on the books, with actual inventory in the boxes on the shelves – and not just empty boxes (which happens). A debtor might be willing to skim inventory on a regular basis and hide it in a neighboring storage unit and claim it was employee theft. Do you think a creditor can or should trust company-prepared financial statements? Creditors can easily spot inconsistencies, and will question anything that doesn’t make sense. Debtors and creditors do stupid things when they are in trouble. 


NCARA believes that all debtors and creditors must deal in good-faith, always. Regardless. Integrity is paramount in managing debt repayment solutions. Rather than provide squishy financial statements, no, don’t go there. Rather, prepare the statements, head-on, whatever the facts show, and then offer solutions that are grounded, solid, and best-case, even if the numbers are ‘bad’. This approach satisfies the requirements in the Loan Agreement. Nobody said you can’t submit ‘bad’ financial statements (accurate, but lousy numbers), as it is what it is, right? And, to save a few dollars, what would it hurt to ask the creditor if you could prepare a less expensive type of financial statement, right? It doesn’t hurt to ask.


At the end of the day, use a pro forma cash flow statement and show the creditor exactly how you intend to support repayment on a monthly basis. If things change for the better or worse, then adjust your repayment plan, and offer to repay accordingly. Make sure your financial statements are as solid as gold, even if they are not audited, to the point the creditor would otherwise have the confidence that they were one in the same (i.e., as reliable as audited financial statements). The better approach is to just do your best, regardless of what the financial statements show. When you sign your name to a financial statement it is to be truthful. Otherwise, don’t sign and tender it.


CRM #32 – Ratios: Financial


Analyzed financial ratios are widely used tools to assess the performance status of small business. Ratios are the numerical or quantitative relationship between certain variables. The ratios will help determine, in this case, the credit repayment risk of a debtor’s business, and comparable performance from similar-sized peers in the same industry. Ratios can be influenced by certain adjustments, and decisions by management. Examples of key financial ratios, their general meaning, and how they are calculated include the following: 


Profitability Ratios

These ratios indicate a company’s financial health, and to assess a company’s ability to efficiently manage its sales revenue and profits, control its operating costs or expenses, and generate return on investment over time. Examples of these ratios include gross margin, operating profit margin, net profit margin, profit to total assets ratio (ROA), and direct cost and expense ratios (expense/net sales).


Gross Margin – The spread between the sales prices and the cost of the goods sold:

  • Gross profit/net sales x 100


Operating Profit Margin – The profit percentage after the cost of goods sold, and selling/general/administrative (SG&A) expenses:

  • Operating profit/net sales x 100


Net Profit Margin – The net profit from each dollar of sales:

  • Net profit/net sales x 100


Return on Assets (ROA) – Shows the rate of return on average assets. Use the earnings before interest and taxes (EBIT) to total average assets; this is also an efficiency ratio: 

  • Net profit before interest and taxes/total average assets x 100


Note: EBIT is used instead of net profit to keep the metric focused on operating earnings without the influence of tax or financing differences when compared to similar companies. The average assets amount is determined by adding the beginning total assets plus the ending total assets and dividing by two.


Efficiency Ratios 

These ratios are used by creditors to measure a company’s current performance in generating income from the use of its assets. They measure management’s ability to manage and control its assets, include sales to assets, inventory days on hand, accounts receivable days on hand, accounts payable days on hand, sales to net fixed assets, and return on equity. These ratios can be compared with peers in the same industry.


Sales to Assets (also known as the Asset Turnover ratio) – Shows the dollar amount of sales generated by each dollar invested in assets:

  • Net sales/total assets


Inventory Days on Hand (INVDOH) – Shows the average number of days of holding inventory:

  • Inventory/cost of goods sold; x 365


Accounts Receivable Days on Hand (ARDOH) – Shows the average number of days in the receivables collection period:

  • Net accounts receivable/net sales; x 365


Accounts Payable Days on Hand (APDOH) – Shows the average number of days to pay payables (suppliers):

  • Net accounts payable/cost of goods sold; x 365


Sales to Net Fixed Assets – The dollar amount of sales generated for each dollar invested in fixed assets:

  • Net sales/net fixed assets


Return on Equity (ROE) – Measures the rate of return on the owner’s equity:

  • Net profit before taxes/tangible net worth; x 100


Operating Cycle – The number of days financing is needed:

  • INVDOH + ARDOH - APDOH = Operating cycle


Leverage Ratios

These ratios provide insight into how the company’s assets and business operations are financed, either by debt or equity. They compare the funds supplied by business owners with the financing supplied by creditors, and will be used to measure debt capacity and the ability to meet obligations. These ratios may include debt to total assets, debt to net worth, debt to tangible net worth, debt to EBITDA, and interest coverage.


Debt to Total Assets – Represents the how much external debt is used to fund assets:

  • Total liabilities/total assets; x 100


Debt to Net Worth – The relationship between outside debt vs. owner’s equity:

  • Total liabilities/net worth


Debt to Tangible Net Worth – A more accurate leverage analysis due to the elimination of intangible assets:

  • Total liabilities/tangible net worth


Debt to EBITDA – Compares total obligations (and debt) to generated cash; the capability of making payments; earnings before interest, taxes, depreciation and amortization (EBITDA):

  • Total liabilities/EBITDA


Interest Coverage – Determines how easily a company can pay interest on outstanding debt:

  • EBIT/interest expense


Liquidity Ratios 

These ratios are used to measure a company’s ability to payoff current debt obligations (without raising external capital). They show current liabilities in relation to liquid current assets and the coverage that exists to cover short-term debts, if needed. These ratios include the current ratio, quick ratio, and working capital ratio. 


Current Ratio – The ability of the current assets to pay current liabilities:

  • Current assets/current liabilities


Quick Ratio – The ability of the current assets, less inventory, to pay current liabilities:

  • Cash + marketable securities + account receivables/current liabilities


Working Capital – The dollar amount of current assets over current liabilities:

  • Current assets - current liabilities




NCARA believes it is imperative that you understand the root causes behind declining financial performance that may lead to a loan modification or workout with your creditors. 

Of course, you understand what is happening in your business (i.e., declining sales, margins), but what are the core reasons behind the same? Financial ratios are helpful in understanding what trends are developing as you compare the ratios period over period. The creditors will analyze dozens of financial performance ratios from your last three year-end financial statements; the analysis will also include the most recent quarter compared to the same quarter from the prior year, based on your most recent interim financial statements. These ratios will allow the creditor to determine how well, or if you have or will likely have, the ability to repay your loans. Your financial performance, using ratios, will also be used in the creditor’s credit risk rating of your loans.  


Your strategic decisions may be compared to the many instruments in an airplane cockpit (i.e., your business). You’re the pilot; the controls, buttons, and dials are the tools, or decisions you make in order for you to successfully navigate or fly the plane. If you fail to get enough speed, or altitude, well, you know what will happen. Some debtors are flying their planes forthwith into the side of a mountain and they haven’t a clue that they’re doing so. And guess, what? Creditor are not perfect either, and you have to wonder what causes some financial institutions fail, right? 


That said, your company’s working capital is critical to your flying experience, as without sufficient cash reserves to meet current payment obligations, the plane won’t make it and will run out of gas – even if its profitable. If you sell your products to clients that can’t really pay you on account, it won’t be long before you damage your working capital. What would happen if you purchased some company’s obsolete inventory, inventory that you got at a hefty discount, but couldn’t sell yourself? There are numerous examples of where your plane’s dials and controls might be misused or abused whether you realize it at the time or not. But that’s the beauty of owning your own plane. In the end, you have to make the creditor willing to get on board with you. The same analogy could be made for a boat too.


Especially in an economic downturn, is there any excuse for you not to know and understand key ratios and the root causes behind your company’s performance? Do you think your creditor will sit down, give you a copy of the credit analyst’s ‘financial statement spread’, and discuss with you, your financial performance? Of course; he’s looking for a parachute, right? To the extent you’re unfamiliar with certain ratios, could you not conduct additional research online and become conversant? 


Credit related ratios are going to be used in the administration of your lending relationship and may already be included in your Loan Agreement in the form of financial performance covenant requirements. Creditors will use them by setting benchmarks, minimum or maximum levels of performance, so that they can ‘call a time-out’, a technical violation, and address the performance issues with you. You absolutely have to understand what and how financial ratios and trends work so you can use them to your advantage when offering debt repayment solutions.

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