CCB Week 1

What is Corporate & Commercial Banking (CCB)?

A banking division that provides loans, financial products, and services to businesses.

What companies does Corporate Banking serve?

Large corporations ($500M+ revenue) with complex financing needs.

What does a corporate banker do?

Analyzes company financial health, underwrites credit, structures loans, and manages client relationships.

How do banks make money?

Primarily through Net Interest Income (NII), fee income, and other financial services.

What is Net Interest Income (NII)?

The difference between interest earned on loans and interest paid on deposits/funding.

What is Net Interest Margin (NIM)?

The spread between the interest rate earned on loans and the cost of funding.

What are the main responsibilities of a corporate banker?

Originate loans, analyze credit, structure deals, monitor portfolios, and cross-sell products.

What does the Income Statement show?

Revenue, expenses, and profitability over a period of time.

What does the Balance Sheet show?

Assets, liabilities, and equity at a specific point in time.

What does the Cash Flow Statement show?

Actual cash inflows and outflows during a period.

What is the balance sheet equation?

Assets = Liabilities + Equity.

What is EBITDA?

Earnings Before Interest, Taxes, Depreciation, and Amortization.

How do you calculate EBITDA?

Net Income + Interest + Taxes + D&A OR Revenue − COGS − Operating Expenses.

Why do bankers use EBITDA?

It measures operating performance and allows comparisons between companies.

Why is EBITDA not equal to cash flow?

EBITDA ignores CapEx, working capital changes, taxes, interest, and debt repayment.

What are EBITDA limitations?

It ignores CapEx, ignores working capital needs, and can be manipulated through add-backs.

What is Adjusted EBITDA?

EBITDA adjusted for supposedly one-time or non-recurring expenses.

Why do bankers analyze EBITDA add-backs?

Companies may inflate earnings by labeling recurring costs as one-time expenses.

What is CapEx?

Capital expenditures used to purchase or maintain long-term assets like equipment and buildings.

Why does CapEx matter to lenders?

High CapEx businesses may have less cash available for debt repayment despite strong EBITDA.

What are the three sections of the Cash Flow Statement?

Operating Activities, Investing Activities, and Financing Activities.

What is CFO?

Cash Flow from Operations — cash generated from business operations.

What is CFI?

Cash Flow from Investing — purchases/sales of assets and CapEx.

What is CFF?

Cash Flow from Financing — debt, equity, and dividend activity.

How does Net Income connect the statements?

It flows into Retained Earnings on the Balance Sheet and starts the Cash Flow Statement.

How does depreciation connect the statements?

It reduces PP&E on the Balance Sheet but is added back on the Cash Flow Statement.

How does debt connect the statements?

Debt changes appear on the Cash Flow Statement and Balance Sheet.

What is Working Capital?

Current Assets − Current Liabilities.

What is Net Working Capital?

(Accounts Receivable + Inventory) − (Accounts Payable + Accrued Expenses).

What happens when Accounts Receivable increases?

AR increases on the Balance Sheet and CFO decreases because cash has not been collected.

What happens when Accounts Payable increases?

AP increases and CFO increases because the company delays paying suppliers.

Why is rising working capital a concern?

It consumes cash and may increase borrowing needs.

What is the Cash Conversion Cycle?

The time it takes to convert inventory purchases into collected cash.

What is the CCC formula?

CCC = DIO + DSO − DPO.

What is DIO?

Days Inventory Outstanding= (inventory/COGS) x 365 - how many days sits before being sold

What is DSO?

Days Sales Outstanding= (AR / Revenue) × 365 — how many days it takes to collect from customers

What is DPO?

Days Payable Outstanding= (AP/COGS) x 365 - how many days it takes for you to pay the supplier

What does a lower CCC represent?

It is better as it shows you collect cash quickly and pay supplier slowly

What does Debt/EBITDA measure?

How leveraged a company is.

What does Interest Coverage Ratio measure?

Ability to pay interest obligations.

What is the Interest Coverage formula?

EBITDA ÷ Interest Expense.

What is DSCR?

EBITDA ÷ Total Debt Service.

What does DSCR measure?

Ability to pay both interest and principal payments.

What does DSCR below 1.0x mean?

The company cannot generate enough operating cash to cover debt payments.

Why is debt cheaper than equity?

Debt has repayment priority and provides a tax shield through deductible interest expense.

Why is debt risky for companies?

Fixed payments create financial distress and bankruptcy risk.

Why is equity risky for investors?

Equity holders are paid last and have no guaranteed return.

What is WACC?

The weighted average cost of capital representing the required return of debt and equity investors.

Why do higher interest rates reduce valuations?

They increase borrowing costs and discount rates, lowering present values.

What is goodwill?

The premium paid above the fair value of acquired net assets.

Why do bankers discount goodwill?

It has little liquidation value and usually cannot serve as collateral.

What financial statement matters most to lenders?

The Cash Flow Statement because lenders care about actual cash available to repay debt.

Is EBITDA the same as cash flow?

No. EBITDA ignores several cash expenses and obligations.

How do you evaluate if a company can repay debt?

Analyze EBITDA, FCF, leverage, coverage ratios, working capital, industry, and management.

What is Return on Equity (ROE)

Used to measure risk of specific debt tranches

How do you measure ROE?

ROE = net income / shareholders' equity

How do you calculate the DuPont decomposition?

ROE = ( Net profit margin) x (Asset turnover) x (Equity multiplier)

What does the DuPont decomposition show?

The DuPont equation helps identify how the firm generates ROE, and why a company's ROE is high

What is Net leverage?

How much debt does the company have after considering cash

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