Semester 2 

This module's main focus is the mid-capitalisation segment of corporate analysis and lending.  It covers and develops the principles of advanced analytical frameworks necessary to analyse and evaluate information in corporate financial statements, to provide both the theory and practical tools to analyse and evaluate lending propositions.  In semester one, it will deepen the student’s ability to analyse how financial information captures and reflects the critical factors of risk and success in the competitive environment of corporate firms.  The module focuses on the linkage between competitive dynamics in an industry, firm strategy, accounting quality and financial analysis, forecasting future earnings and cash flows, and decision-making. 
In semester two, students will apply and reflect upon advanced methods of analysing financial information based within modern risk management techniques.  The concept of value creation will increasingly be a central theme throughout the module.  This module will not only broaden students’ knowledge and understanding of the financial services industry but also further develop their intellectual, practical and decision-making skills via the analysis and evaluation of the lending process.

The syllabus is designed to develop students’ corporate analysis/lending skills and knowledge.  The focus of the module builds a student's core understanding of bank lending techniques and develops these further into the mid-cap market, with typical corporate revenues of £50-250 million.  Students will apply more sophisticated techniques to analyse complex financial statements and evaluate the associated risks to all stakeholders.  The underlying credit analysis will increasingly trend away from accounting fundamentals and into the shareholder value arena.  This will deepen students’ understanding of corporate business models and allow appropriate reflection and evaluation of such models.  There is also an increasing emphasis towards cash flow-based analysis, and how this can be better evaluated, which will enable lending decisions to be based on the sustainability of value-based strategies rather than asset/security-backed support. 

On completion of this module, students will be able to: 
·              analyse the issues involved in lending to corporate clients in different industry sectors. 
·              analyse and interpret financial information in order to inform and justify lending decisions. 
·              evaluate free cash flow and the principal factors that drive shareholder value within a specific business. 
·              assess the relevance of capital structure and its impact on the cost of capital. 
·              analyse both capital and interest gearing in order to determine the ability of a company to service and repay its debt. 
·              evaluate and discuss the various types of financial and non-financial risk underlying corporate lending relationships. 
·              analyse the underlying purpose of the loan requirement and evaluate the options available to appropriately structure the facilities. 
·              assess the appropriate use of security in order to support particular facilities. 
·              apply appropriate techniques to monitor and control existing facilities.

An Overview of Corporate Lending: Industry Sector Analysis and Organisation Structure 
This section of the syllabus will build on the student’s understanding of financial analysis with deeper integration into the larger corporate (mid-cap) segment.  There will be emphasis on the different analytical issues and critical success factors associated with an industry sectoral approach, e.g. manufacturing, retail and service. 
·              review and analysis of principle corporate lending criteria – core building blocks 
·              assessment and evaluation of funding requirements of a potential corporate borrower 
·              analysis of  risks associated with specific types of organisation and the alignment of borrowing requirement to industry expectations/norms 
·              evaluation of supply chain operations and impact on operational cash flow needs 
A Framework for Business Strategy and Financial Analysis 
This section of the syllabus develops students’ ability to analyse and interpret financial information, contained within larger corporate annual reports, within a decision-making context.  Underlying analytical skills will be developed to a higher level with a focus on earnings management, cash drivers and corporate valuation. 
·              analysis of business strategy and the relationship with finance 
·              advanced practical tools application including analysis of earnings quality, earnings management and free cash flow analysis 
·              evaluate how financial statement information captures and reflects the critical success factors of risk in the competitive environment and strategy of firms 
·              critique and evaluation of techniques with respect to empirical evidence 
Cash Flow Drivers and Shareholder Value 
This section of the syllabus develops the concept of shareholder value and analyses the associated cash flow drivers that dictate value creation for both debt and equity holders. 
·              anaIyse the development of ‘shareholder value’ 
·              examine the importance of cash flow measurement and reflect upon the flaws of using traditional accounting performance measures 
·              evaluate the nature of  ‘free cash flow’, the principle cash flow drivers and examine the relationship with value creation 
Debt Structure and Capacity/Sources of Payback
This section of the syllabus focuses on both capital and interest gearing implications for a large corporate customer.  The importance of corporate equity and debt structure mix are analysed, as are the implications for the underlying ‘cost of capital’ of a company.  Repayment capability and capacity is assessed and evaluated using alternative techniques. 
·              analysis of capital structure, the debt versus equity debate and the nature of the ‘cost of capital’ 
·              application and evaluation of conventional approaches to assessing payback through debt structure and linkage into corporate financial strategies and external growth 
·              application and evaluation of alternative approaches to assessing payback through reliability and quality of earnings, earnings generation, repayment capability and the underlying risks for lending bankers 
·              critique and evaluation of techniques with respect to empirical evidence 
Analysis of Risk Exposure 
This section identifies and analyses the nature of the underlying risks associated with corporate relationships and alternative lending propositions.  The relative importance and propensity of these risks (both financial and non-financial) are examined in light of empirical evidence.  Such risks include: credit risks, operational risks, market risks, reputational risks, environmental risks and regulatory risks. 
Structuring and Presentation of Facilities
This section of the syllabus focuses on analysing the underlying purpose of the borrowing, developing options to structure the facilities and evaluating the alternatives.  There will be a technical emphasis on ensuring the facility structure reflects the underlying reason for the borrowing, the nature of the corporate client and subsequent source of repayment.  Application and reflection upon alternative finance solutions will also be required. 
·              analysis of the underlying need for finance 
·              development and justification of suitable alternatives involving different terms and products (including cash flow lending, mezzanine and venture capital/equity-type funding etc.) 
·              evaluation of alternative finance solutions and alignment of risk/return models
Documentation, Covenants and Security Analysis 
This section of the syllabus examines the nature of lending contracts and documentation.  It then analyses the appropriate use of security and covenants to support a higher level of primary bank debt finance. 
·              discuss documentation considerations to align with facility structure and underlying risks 
·              analysis of financial and non-financial covenants, their purpose, relevance and use
·              evaluating alternative covenants with reference to industry differences in covenant structures and market/empirical evidence 
Monitoring, Control and Risk Awareness 
This section of the syllabus focuses first on monitoring and controlling lending.  Students will identify, analyse and interpret trends against forecast trading/cash flow and underlying financial covenants.  In addition students’ will formulate a system for identifying early warnings signs of financial distress.  Evaluate underlying reasons for business failure and assess the consequences of default to ensure a consistent approach is adopted to manage and protect a Bank’s capital commitment. 
·               examine, apply and appraise techniques for internal and external monitoring
·               evaluating underlying reasons for business failure and formulating a system for identifying early warning signs - critical sources of information and sectoral differentiation of industry failures 

The teaching and learning strategy is designed to ensure that the students achieve the learning outcomes by the end of the module. 
The teaching and learning methods include formal lecture and tutorial, private study of text and other supporting materials, formal coursework assignments, informal exercises, both individual and group-based and pooling of experience and knowledge through class and individual discussion. 
Assessment Strategy: 
The assessment strategy is designed to achieve a balance between testing the student's skills of knowledge recall and understanding and those of evaluation, analysis, research, reflection and application.  This distinction is reflected in the different assessment instruments and the balance between the coursework assignment and the final written examination. 

Essential Reading 
Coyle, B. (2008) Applied Credit Analysis.  ifs Schoolof Finance. 
Recommended Reading 
Bender, R. and Ward, K. (2003) Corporate Financial Strategy. Butterworth-Heinemann. 
Coyle, B. (2004) Corporate Credit Analysis: credit risk management. Financial World Publishing. 
Ganguin, B. and Bilardello, J. (2004) Fundamentals of Corporate Credit Analysis.  McGraw Hill. 
Mills, R., Print, C. and Rowbotham, S. (2002) Managerial Finance, Shareholder Value and Value-Based Management. Mars Associates. 
Background Reading
Additional reading sources (and links thereto) will be available through ifs Knowledgebank.