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CHCapitalPartnersLLC

Knowwhoyouareworkingwith
StrivingtoeducateandconsultSmallBusinessandMiddleMarketstohelpcreatejobsfor
ourfellowAmericans

FinancialModelingforSBALoans
WhatSmallandMiddleMarketBusinessesneedtoknow,and
whatfinancialstatementanalysismeans
By
SokH.CordellSr.ManagingDirector

TableofContents

FinancialModel
WhyFinancialModelisneeded?
Whatisafinancialmodel?
FinancialModelingforSBA,Whatisneeded?
FinancialModelingforSBALoan
RealisticFinancialModel
FlexibleFinancialModel
FinancialStatementAnalysis
IncomeStatement
OperationalIncome
BalanceSheet
GlobalIncomeStatement
GlobalBalanceSheet
GlobalOperationalIncome
HorizontalBalanceSheet
UniversalCreditAnalysis
KeyEarningsMeasures
RMAComparisonCommonSize
RMAComparisonRatio
FinancialGrowthEvaluation
DuPontAnalysis
ROAReturnonAssets
RatioAnalysisYeartoYear
TotalConsolidatedFinancialSummary

TableofContentsContinued

Valuation
PresentValue
CapitalAdjustedEarningValuation
DiscountFutureEarningsValuation
GrossMultiplierValuation
FinancialStressTest
StaticStressTest
StaticStressTestIncomeStatement
StaticStressTestBalanceSheet
GlobalStaticStressTestIncomeStatement
GlobalStaticStressTestBalanceSheet
DynamicStressTest
DynamicStressTestonOperatingIncome
DynamicStressTestonNetIncomeSimulation
RandomDistributionfordynamicstresstest
ScenarioandSensitivityDistribution
MonteCarloSimulationonNormalFittingdistribution
InterestRateRiskandSwaps
ReturnonCapitalforBanks
RiskAdjustedReturnOnCapital
InterestRateSwapforBanksforHedging
InterestSwapModelforBanks
SimulationonStochasticInterestRateSwapModel

Vasicek ModelforInterestRateSwapModel
CIRFinancialModelforInterestSwap

FINANCIALMODELINGFORSBA

Section

FINANCIALMODEL

WhyisFinancialModelneeded?

FinancialModelisawaytheCreditAnalystcancommunicatewiththeLendingorFinancial
Institutiontomovetheloanpackagethroughthesystemtoreceivecreditapprovalonaloan
FinancialModelhastotakeaccounttheIncomeStatement,BalanceSheet,CashFlow,andall
theverticalandhorizontaltesttodetermineriskassociatedwiththeloan.
IsthereastandardintheSBA?Yestoadegree.SinceSBAchangedtheguidelinesfrom
lending$2MMto$5MM,differenttypesofloansareenteringthemarket.
TheaverageloansizeforSBAloansareusuallyaround$1.26MM,whichusuallyhaveoneor
twoaffiliateentities,butwhenthenewrulesforhigherloanamount,thecreditanalystare
nowreviewingcomplextaxreturnswithupto10affiliateentities,whichmayormaynot
haveinterrelatedcompanyfinancials,whichismorecomplicatedthentheloanpackage
receivedpriortotheSBAloanlimitchanges
CHCapitalPartnersLLCbelievewemayhaveasolutionforcommongoodtohelpsmall
businessandmiddlemarketclientscreatejobssoourfellowAmericans.
Ifthemarketdoesnotchangeandstartadaptingtonewtechnologiesandnewwayof
reviewingfinancialstatements,packaging,andprocessingSBAloans,wewillcausethesmall
businessandmiddlemarketclientsnottobeabletocreatejobs.
Weaspartofthesolutionneedtohaveabetterwaytoanalyzethefinancialpackagesand
cometoabettersolutionstocommunicatethesecomplexfilestooneanother.Emailhas
becometheprimarymethodofcommunicatingfinancialpackages.Sincemanybankers
receive100to300emailsperday,thedelayisinevitablebecausethemarketcannotprocess
thatmanyemails,properfinancialmodelingandpackagingisthesolution

WhatisFinancialModel?

AFinancialModelistohelpcredit
UnderwritersorAnalystillustrate
therelationshipofinterpretingthe
borrowersfinancialtaxreturnor
financialstatementstodetermineif
theSBAloanisviabletotakethe
risktolendwiththegovernment
guarantee
UseProperMethodstodetermine
liquidationvalue,discountcash
flow,vertical,horizontal,ratios,
collateralanalysistofiguretherisk
thatafinancialinstitutioniswilling
totakeonrisk

Financialand
AccountingTheory

GAAPPrincipals

Financial
Relationshipsof
IncomeandBalance
Sheet

ToDetermineTrue
CashFlowand
EarningsStrengthof
thecredit

FinancialModel

FinancialModelingforSBA Whatisneeded?

ModelExample
Amodelspecificrelationshipshouldbeinput
andoutputs
IncomeStatement,BalanceSheet,ARandAP
analysishastobemodeledcorrectlyforthe
rightoutput.
FurthermoreExcelskillsareneededtofully
comprehendthefinancialmodelthatis
neededtobuildbothsubjectfinancialmodel
andglobalfinancialmodel.
FinancialModelisaskill,butittakesolutions
tocreatetherightone
Stresstestswithstaticnumbersarenot
realisticinnature:exampleiftheinterestrate
inpaymentwillriseby2%,todayprimeisat
3.25%andifthestresstestisbasedonraising
thepaymentwithincreaseinrateof2%,that
isnear60%increasetorate,highly
improbableoutcome,sothereforetherehas
tobeabetterormorereasonablemethodof
stresstestingasubjectloan.
MonteCarloSimulationandStochasticStress
testwilldeterminethefuturevalueofthe
company,orwillhelpfigureoutthestrength
andweaknessofthecreditforthefutureof
thesubjectloan

Input
IncomeStatement
BalanceSheet

Ratios
MonteCarloSimulation

ZTest

StressTest

WorkingCapital

dP= a Pdt+ s Pdz

Variousothertestto
determineRisk

StochasticModel
ARandAPanalysisneedsto
bedeterminedcorrectlyto
determinethemost
accuratefinancialmodel

StressTest

RiskTesthasbothStaticand
DynamicStresstotruly
Determinerisk,raising
interestrateisjustonetype
ofstresstest

FinancialModelforSBALoans

Characteristicsofagoodfinancialmodel
Realistic
ErrorFree
Flexible
Easytouse
Easytounderstand
Canbeaudited
Knowwhattheoutcomeofthemodel
BasicunderstandingofGAAP
BasicKnowledgeofExcel
CompleteunderstandingofBookValue,BookEarnings,M1andM2
reconciliation
AdvancedknowledgeofAssetsandLiabilityforthetruenatureofcash
flow

RealisticFinancialModel

Realistic
Assumptions,relationship,inputs,andmodelmustberealisticsotheoutputsareusablefor
thecreditanalystinthemarketplace
Examples:
Ifaborrowerhasanegativeequityinthebalancesheet,itcanmeanmanydifferent
things.Onecouldmeanthatthebusinessowneristakingdistributionsfromthebusiness
withoutactuallymakingprofit;butalsoitcouldmeanthattheborrowercouldhave
boughtthepropertyforbelowfairmarketvalueortheremaybearelationshipof
depreciationoraccelerateddepreciationthatmayhaveoccurred.
Dependingonthecreditexperienceofthecreditanalyst,heorshemayhaveneverseen
aclientwith10affiliateentitieswithintercompanyrelatedfinancials,auditingaclient
with11differenttaxreturnsofaffiliates,andalsohavingtheinterrelatedfinancials,are
farmorecomplexthenyourtypicalSBAloans,sobuildingafinancialmodelforacomplex
situationisquitedifficultandtimeconsumingforthecreditanalystofacommunity
banks
Furthermore,howwelldoestheSBAsunderwritingreviewtheglobalfinancialpicture,
wearenottalkingabouteligibility,wearetalkingaboutthetrueglobalcashflow,notthe
simplecashflow,truecashflowthattakesalltheassetsandliabilitiesoftheaffiliatedto
combinethetruecashflowgloballyandalsoindividually.
Sowhenthenewwaveofborrowersarecomingintothemarketrequestingtorefinance
orbuyabusiness,areweservicingthemintheproperfinancialmodelsorarewetrying
toforcethesewealthierindividualsonthefinancialsmodelsthatwerebuiltfor$2MM
limitSBAloans.

FlexibleFinancialModel

Flexible
Isthecurrentfinancialmodelsimpleforthecreditanalysttoreview,itwouldhavebeensimple,butifyou
have10affiliates,isitpracticaltohaveaexcelfinancialmodelwithincomestatement,balancesheet,
universalcashflow,operationalcashflowinalldifferenttabs.
AveragefinancialmodelforSBAloanshaveabout6tabs,ifaclienthas10affiliates,woulditbepracticalfor
acreditanalysttoreview60tabfinancialmodel?Probablynot.Mostcreditanalystdonotreceiveenough
compensationtodothattypeofwork.
Wearewhatwesee,ifSBAhasnotseenafinancialmodelwith10or15affiliates,thenhowcanweexpect
thecreditanalysttounderstandaLBO(LeverageBuyOut)FinancialModel,ifthecreditanalystisusedto
seeingoneortwoaffiliatesatthemost,youcannotbuildafinancialmodelwith60tabs,itwillneverwork.
Thefinancialmodelshouldexplainthecredit,affiliatesummaries,financialauditingcapabilitiesforthe
creditanalysttounderstandthedealandinterpretthecreditaccordingtotheinstitutionthatheorshe
mayworkfor,soitwouldbethatmuchfasterthatthecreditanalystgothroughthethoroughcreditmodel
todetermineifitisinthelendingpolicyofthefinancialinstitution.
FinancialModelshouldanswerallthefollowingquestions,eligibility,typeofloan,structureoftheloan,
creditandcharacteroftheborrower,collateralanalysis,liquidationpoliciesincaseofdefault,stresstesting
bothstaticanddynamicusingMonteCarlosimulation,maybebothrandomandhistoricalsampling.
OftenthereisadisconnectbetweenwhattheCCOislookingforincreditvs.whatthecreditanalystis
capableofinterpretingthecredit,soifSBAislookingforstrongerborrowers,thecreditanalystneedstore
traintheircreditandaccountingskillstogetthehigherqualityofassetsthatareavailableinthemarket
place.Therearemanyhighqualityloansinthemarketplace,buttheCreditAnalystmayneedtore
educateonthenewtaxrulesandunderstandthemoresophisticatedtaxdeferralstrategiesthatWealthier
clientswhoareneedingcapitalfromSBAloans.
Weareresponsibleforhelpingsmallbusinessandmiddlemarketretaincreditsotheycancreatejobsfor
ourfellowAmericans.

FINANCIALMODELINGFORSBA

Section

FINANCIALSTATEMENT

IncomeStatement
TypeofStatement
#ofMonths:
DateofStatement:
(InThousands)
INCOMESTATEMENT:

TaxReturn
12
12/31/2008
$
%

TaxReturn
12
12/31/2009
$
%

TaxReturn
12
12/31/2010
$
%

InternallyPrepared
12
12/31/2011
$
%

Projection
12
12/31/2012
$
%

NAICS
Statistics

NetSales
CostofSales
GrossProfit

8,304.0
1,483.0
6,821.0

17.9%
82.1%

7,454.0
1,630.0
5,824.0

21.9%
78.1%

7,725.0
1,124.0
6,601.0

14.6%
85.4%

7,528.0
1,104.0
6,424.0

14.7%
85.3%

8,304.0
1,104.0
7,200.0

13.3%
86.7%

100.0%
100.0%
0.0%

OfficerCompensation
Wages
Rent
Depreciation
Interest
OtherOperatingExpenses
TotalExpenses

0.0
2,780.0
0.0
623.0
538.0
2,096.0
6,037.0

0.0%
33.5%
0.0%
7.5%
6.5%
25.2%
72.7%

0.0
2,998.0
0.0
532.0
531.0
1,936.0
5,997.0

0.0%
40.2%
0.0%
7.1%
7.1%
26.0%
80.5%

0.0
1,981.0
0.0
532.0
524.0
3,043.0
6,080.0

0.0%
25.6%
0.0%
6.9%
6.8%
39.4%
78.7%

0.0
2,009.0
0.0
532.0
524.0
2,680.0
5,745.0

0.0%
26.7%
0.0%
7.1%
7.0%
35.6%
76.3%

0.0
1,981.0
0.0
532.0
524.0
2,500.0
5,537.0

0.0%
23.9%
0.0%
6.4%
6.3%
30.1%
66.7%

0.0%

0.0
349.0
435.0
516.0
81.0

0.0%
4.2%
5.2%
6.2%
1.0%

0.0
0.0%
352.0
4.7%
525.0 7.0%
225.0
3.0%
750.0 10.1%

0.0
306.0
215.0
224.0
9.0

0.0%
4.0%
2.8%
2.9%
0.1%

0.0
306.0
373.0
225.0
148.0

0.0%
4.1%
5.0%
3.0%
2.0%

0.0
306.0
1,357.0
225.0
1,132.0

0.0%
3.7%
16.3%
2.7%
13.6%

OtherIncome
ManagementFee5%
Income(Loss)BeforeTaxes
IncomeTax
NetIncome(Loss)

0.0%
0.0%
0.0%

DividendsPaid

IncomeStatement
Operations
ShouldbeItemizedtohelpdetermineifthecompanyisprofitableornot
Thefigureinthetabledoesnotcategorizetheexpenses,sowhenaddingittogether,creditanalystmaynot
fullcomprehendthenatureofthebusiness
Depreciation,interestrateexpense,wages,andofficerscompensationmaybeapplicableforoneentity
borrowers,buttheincomestatementfailsifyouhavetoreviewmultipleaffiliates,becauseitisinthedetails
ofthebreakdown,wherecreditanalystreallyneedtodothework.

OperationalCashFlow
OperationalCash
Depreciation/Amort.
+InterestExpense
+RentalExpense
+Other:Owner'sDraw
ManagementFee5%
=AvailableCash
ExistingDebtService
InterestonLine
PrincipalonLine
NewDebtService
Other:
=Surplus
CoverageRatio

435.0
623.0
538.0
0.0
0.0
349.0
1,945.0
624.0
0.0
0.0
0.0
0.0
1,321.0
3.12

525.0
532.0
531.0
0.0
0.0
352.0
890.0
624.0
0.0
0.0
0.0
0.0
266.0
1.43

215.0
532.0
524.0
0.0
0.0
306.0
1,577.0
624.0
0.0
0.0
0.0
0.0
953.0
2.53

373.0
532.0
524.0
0.0
0.0
306.0
1,735.0
624.0
0.0
0.0
0.0
0.0
1,111.0
2.78

1,357.0
532.0
524.0
0.0
0.0
306.0
2,719.0
624.0
0.0
0.0
0.0
0.0
2,095.0
4.36

OperationalCashFlow

OperationalCashFlowforDebtService
5.00

3,000.0

4.00

2,000.0

3.00
1,000.0
2.00
0.0
1/1/2008

1/1/2009

1/1/2010

1/1/2011

1/1/2012

1,000.0

1.00
0.00

OperationalCash

CashAvailableforDebtService

ExistingDebtService

SurplusIncomeafterDebtService

DebtServiceCoverageRatio

DSCR
AddBackitemstoreflecttrue
cashflow
ThenewDebtService
Anyotherinterest
Forbankloan,youneedto
addbackmanagementfee,
andbookfactor1.5or2on
thecreditreport.ForCMBS
credit,youneedtousethe5%
formanagement.
Operationalcashflowalso
determineswhichitemsare
fortaxdeferralortax
minimizationstrategiesforthe
subjectbusinessorproperty.
InthecaseforSBA,
operationalcashflowis
importanttodeterminethe
truenatureofcashflow

BalanceSheet
TypeofStatement
#ofMonths:
DateofStatement:

TaxReturn
12
12/31/2008

(InThousands)
ASSETS
Cash&Securities
Receivables
Inventory
Other

TaxReturn
12
12/31/2009
%

TaxReturn
12
12/31/2010
%

InternallyPrepared
12
12/31/2011
%

Projection
12
12/31/2012

NAICS
Statistics

1,400.0
341.0
114.0
224.0

16.9%
4.1%
1.4%
2.7%

83.0
498.0
107.0
316.0

1.2%
7.2%
1.6%
4.6%

212.0
516.0
123.0
0.0

3.5%
8.5%
2.0%
0.0%

212.0
0.0
0.0
0.0

4.4%
0.0%
0.0%
0.0%

2500.0
0.0
0.0
0.0

38.6%
0.0%
0.0%
0.0%

0.0%
0.0%
0.0%
0.0%

CurrentAssets

2,079.0

25.1%

1,004.0

14.6%

851.0

14.0%

212.0

4.4%

2,500.0

38.6%

0.0%

Land
Buildings
LessDepreciation
NetFixedAssets
LongTermAssets

500.0
7,900.0
2,202.0
6,198.0
6,198.0

6.0%
95.4%
26.6%
74.9%
74.9%

500.0
8,056.0
2,690.0
5,866.0
5,866.0

7.3%
117.3%
39.2%
85.4%
85.4%

500.0
8.2%
7,686.0 126.6%
2,967.0 48.9%
5,219.0 86.0%
5,219.0 86.0%

500.0 10.5%
7,342.0 154.0%
3,287.0 69.0%
4,555.0 95.6%
4,555.0 95.6%

500.0
7.7%
7124.0 110.1%
3654.0 56.5%
3,970.0 61.4%
3,970.0 61.4%

0.0%
0.0%
0.0%

TOTALASSETS

8,277.0 100.0%

6,870.0

100.0%

6,070.0 100.0%

4,767.0 100.0%

6,470.0 100.0%

0.0%

LIABILITIES
NotesPayable
AccountsPayable
Taxes
Other
CurrentLiabilities

BalanceSheet
BookValue
CostBasis
FairMarket
BalanceSheet

9,000.0

1,000.0

8,000.0

500.0

625.0
270.0
516.0
288.0

6.0%
2.6%
5.0%
2.8%

625.0
327.0
224.0
0.0

9.1%
4.8%
3.3%
0.0%

625.0
359.0
224.0
0.0

10.3%
5.9%
3.7%
0.0%

615.0
350.0
224.0
0.0

10.0%
5.7%
3.6%
0.0%

615.0
350.0
224.0
0.0

9.5%
5.4%
3.5%
0.0%

0.0%
0.0%
0.0%
0.0%

7,000.0

0.0

6,000.0

500.0

5,000.0

1,000.0

1,699.0

16.4%

1,176.0

17.1%

1,208.0

19.9%

1,189.0

19.3%

1,189.0

18.4%

0.0%

4,000.0

1,500.0

3,000.0

2,000.0

2,000.0

2,500.0

1,000.0

3,000.0

0.0

3,500.0

LongtermDebt

8,185.0

78.8%

8,065.0

117.4%

7,965.0 131.2%

7,865.0 127.5%

7565.0 116.9%

0.0%

LongTermLiabilities

8,185.0

78.8%

8,065.0

117.4%

7,965.0 131.2%

7,865.0 127.5%

7,565.0 116.9%

0.0%

TOTALLIABILITIES

9,884.0

95.2%

9,241.0

134.5%

9,173.0 151.1%

9,054.0 146.7%

8,754.0 135.3%

0.0%

NETWORTH
PartnersCapital
CapitalSurplus
RetainedEarnings
(TreasuryStock)

109.0
299.0
90.0
0.0

1.0%
2.9%
0.9%
0.0%

1,284.0
1,354.0
267.0
0.0

18.7%
19.7%
3.9%
0.0%

650.0
1,723.0
730.0
0.0

10.7%
28.4%
12.0%
0.0%

350.0
2,534.0
0.0
0.0

5.7%
41.1%
0.0%
0.0%

250.0
2534.0
0.0
0.0

3.9%
39.2%
0.0%
0.0%

0.0%
0.0%
0.0%
0.0%

TOTALNETWORTH

498.0

4.8%

2,371.0

34.5%

3,103.0

51.1%

2,884.0

46.7%

2,284.0

35.3%

0.0%

10,382.0 100.0%

6,870.0

100.0%

6,070.0 100.0%

6,470.0 100.0%

0.0%

TOTALLIAB&NETWORTH

6,170.0 100.0%

CurrentAssets

LongTermAssets

CurrentLiabilities

LongTermLiabilities

TOTALNETWORTH

GlobalIncomeStatement
TypeofStatement
#ofMonths:
DateofStatement:
(InThousands)
INCOMESTATEMENT:
NetSales
CostofSales
GrossProfit

TaxReturn

TaxReturn

12
12/31/2008
$

TaxReturn

12
12/31/2009
$

TaxReturn

12
12/31/2010
$

12
12/31/2011
$

13,395.0
4,495.0
8,900.0

14,742.0
5,790.0
8,952.0

14,299.0
5,549.0
8,750.0

14,683.0
5,976.0
8,707.0

OfficerCompensation
Wages
Rent
Depreciation
Interest
OtherOperatingExpenses
TotalExpenses

122.0
3,933.0
963.0
534.0
353.0
1,384.0
7,289.0

320.0
3,892.0
903.0
483.0
355.0
1,595.0
7,548.0

789.0
3,290.0
873.0
409.0
278.0
1,594.0
7,233.0

647.0
3,327.0
749.0
387.0
244.0
1,616.0
6,970.0

OtherIncome
OtherExpenses
Income(Loss)BeforeTaxes
IncomeTax
NetIncome(Loss)

0.0
58.0
1,553.0
0.0
1,553.0

38.0
215.0
1,227.0
0.0
1,227.0

18.0
235.0
1,300.0
0.0
1,300.0

0.0
235.0
1,502.0
0.0
1,502.0

0.0

0.0

0.0

0.0

DividendsPaid

GlobalIncomeStatement
20,000.0

3.50

10,000.0

3.00

0.0

2.50

1/1/2008

1/1/2009

1/1/2010

1/1/2011

NetIncome
TotalExpense
NetIncomeAfterTax
OperatingCashAvailableforDebtService
IncomeAfterGlobalDebtService

NetIncome
CostofGoodsorCostofSales
GrossProfit
OfficersCompensation
Wages
Rent
InterestExpense
Incomebeforetax
Incomeaftertax
DividendPaid
M1andM2ReconciliationonBook
Earnings

OtherExpense
OtherIncome

GlobalBalanceSheet
TypeofStatement
#ofMonths:
DateofStatement:
(InThousands)
ASSETS
Cash&Securities
Receivables
Inventory
NotesReceivable
Prepaids
Other

TaxReturn

TaxReturn

12
12/31/2008
$

TaxReturn

12
12/31/2009
$

12
12/31/2010
$

2,117.0
610.0
419.0
0.0
0.0
0.0

1,429.4
984.0
443.0
0.0
0.0
0.0

2,516.5
558.0
305.0
0.0
0.0
79.0

CurrentAssets

3,146.0

2,856.4

3,458.5

Land
Buildings
Machinery&Equipment
Furniture&Fixtures
Autos&Trucks
OtherFixedAssets
LessDepreciation
NetFixedAssets
IntangibleAssets(net)
Other

1,375.0
6,402.0
0.0
350.0
11.0
438.0
1,836.0
6,740.0
575.0
95.0

1,375.0
6,507.0
0.0
418.0
11.0
475.0
2,326.0
6,460.0
604.0
99.0

1,375.0
6,737.0
0.0
455.0
11.0
495.0
2,681.0
6,392.0
628.0
69.0

LongTermAssets

7,410.0

7,163.0

7,089.0

10,556.0

10,019.4

10,547.5

TOTALASSETS
LIABILITIES
NotesPayable
AccountsPayable
Taxes
PrivateLender(curr)
SBA(curr)
Accruals
Other

GlobalBalanceSheet
GlobalConsolidatedFinancialsshouldbe
analyzedthesamewayasthesubjectproperty
NeedtoreviewtheNetWorth
Needtoreviewglobalcurrentliabilitiesandlong
termliabilities
LoansfromInterrelatedcompanies
GlobalBVBalanceSheet

8,000.0
838.0
257.0
345.0
30.0
0.0
0.0
84.0

857.0
446.0
403.0
0.0
0.0
0.0
65.0

834.0
555.0
280.0
0.0
0.0
0.0
303.0

CurrentLiabilities

1,554.0

1,771.0

1,972.0

LongtermDebt
PrivateLender(LT)
SBA(LT)
SubordinateOfficer
LoansfromStockholders
Other

4,566.0
0.0
0.0
0.0
576.0
40.0

4,303.0
0.0
0.0
0.0
582.0
0.0

4,733.0
0.0
0.0
0.0
616.0
0.0

LongTermLiabilities

5,182.0

4,885.0

5,349.0

TOTALLIABILITIES

6,736.0

6,656.0

7,321.0

NETWORTH
CommonStock
CapitalSurplus
RetainedEarnings
(TreasuryStock)

2,607.0
129.0
1,023.0
526.0

2,077.0
236.6
763.0
861.0

2,015.0
86.5
585.0
580.0

TOTALNETWORTH

4,027.0

3,464.4

3,093.5

10,763.0

10,120.4

10,414.5

TOTALLIAB&NETWORTH

4,500.0

7,000.0

4,000.0

6,000.0

3,500.0
3,000.0

5,000.0

2,500.0

4,000.0

2,000.0

3,000.0

1,500.0

2,000.0

1,000.0

1,000.0

500.0
0.0

0.0

1/1/2008
GlobalCurrentAssets

1/1/2009
GlobalLongTermAssets

GlobalLongTermLiability

GlobalTotalNetWorth

1/1/2010
GlobalCurrentLiabilities

GlobalOperationalCashFlow
TypeofStatement
TaxReturn
TaxReturn
TaxReturn
InternallyPrepared
#ofMonths:
12
12
12
12
DateofStatement:
12/31/2008
12/31/2009
12/31/2010
12/31/2011
OperationalCash
1,553.0
1,227.0
1,300.0
1,502.0
Depreciation/Amort.
534.0
483.0
409.0
387.0
+InterestExpense
353.0
355.0
278.0
244.0
+RentalExpense
144.0
355.0
144.0
0.0
+Other:Owner'sDraw
102.0
157.0
129.0
129.0
+Other:
506.0
102.0
867.0
823.0
=AvailableCash
3,192.0
2,679.0
3,127.0
3,085.0
ExistingDebtService
437.0
437.0
485.0
485.0
Other:OwnersDraw1.5Facto
500.0
500.0
500.0
500.0
=Surplus
2,255.0
1,742.0
2,142.0
2,100.0
CoverageRatio
3.41
2.86
3.17
3.13

3,500.0

3.60

GlobalCashFlow

3,000.0

3.40

2,500.0

3.20

2,000.0
3.00
1,500.0
2.80

1,000.0

2.60

500.0

2.40

0.0

1/1/2008

1/1/2009

1/1/2010

1/1/2011

GlobalOperationalCashFlow

GlobalCashAvailableforDebtService

GlobalExistingDebtPayments

GlobalOwnersDraw1.5%ofCreditReportObligation

GlobalIncomeafterDebtService

GlobalDebtServiceCoverage

GlobalOperationalCashFlow
Majorpartofunderwriting
thecombinedriskexposer
oftheborrower
Viewrelationshipsbetween
oneormanycompaniesand
howitmayaffecttheability
oftheborrowerstopay
mortgage
Answersiftheglobalisa
positiveoranegativetothe
subjectloan

HorizontalBalanceSheetAnalysis
BalanceSheetsSummary
ASSETS
TotalCurrentAssets
%
NetFixedAssets
%
NetIntangibleAssets
%
TotalOtherNoncurrentAssets
%
TotalAssets
%
LIABILITIES&STOCKHOLDERS'EQUITY
TotalCurrentLiabilities
%
TotalLongTermDebt
%
TotalLiabilities
%
Stockholders'Equity:
Additionalpaidincapital(preferred)
%
Commonstock
%
Additionalpaidincapital(common)
%
Retainedearnings
%
(Treasurystockcommon)
%
TotalStockholders'Equity
%
TotalLiabilities&Stockholders'Equity
%

2008

2009

2010

2011

65
1.94%
3,280
98.06%
0
0.00%
0
0.00%
3,345
100.00%

65
2.03%
3,140
97.97%
0
0.00%
0
0.00%
3,205
100.00%

68
2.19%
3,035
97.81%
0
0.00%
0
0.00%
3,103
100.00%

65
2.13%
2,989
97.87%
0
0.00%
0
0.00%
3,054
100.00%

201
6.01%
2,625
78.48%
2,826
84.48%

201
6.27%
2,567
80.09%
2,768
86.37%

201
6.48%
2,489
80.29%
2,690
86.77%

201
6.58%
2,401
78.62%
2,602
85.20%

0
0.00%
144
4.30%
370
11.06%
5
0.15%
0
0.00%
519
15.52%
3,345
100.00%

0
0.00%
74
2.31%
262
8.17%
101
3.15%
0
0.00%
437
13.63%
3,205
100.00%

0
0.00%
107
3.45%
292
9.42%
225
7.26%
0
0.00%
410
13.23%
3,100
100.00%

0
0.00%
199
6.52%
447
14.64%
204
6.68%
0
0.00%
452
14.80%
3,054
100.00%

HorizontalTest
Determiningthefinancialhistorical
numbersfromoneperiodtothenext
Determinethetrendofthefinancial
statement,eitheritistrendingupor
downbetweentwoperiodoftime
Assetsareincreasingordecreasing
CurrentLiabilitiesareincreasingor
decreasing
Isthecompanymakingprofitor
drainingownersequity
RetainedEarningsupordown
TotalEquityorStockholdersEquityup
ordown
TotalLongTermAssets,Current
Assets,CurrentLiabilities,LongTerm
Liabilitiesincreasingordecreasing
NetFixedAssets,NetIntangible
Assets,andpaidincapitalincreasing
ordecreasing

UniversalCreditAnalysis
TypeofStatement
#ofMonths:
DateofStatement:

TaxReturn TaxReturn ernallyPrepar Projection


12
12
12
12
12/31/2009 12/31/2010 12/31/2011 12/31/2012

UCA(UniversalCreditAnalysis)CashFlow

OperatingFlows
NetSales
ChangeinReceivables

7,454.0
157.0

7,725.0
18.0

7,528.0
516.0

8,304.0
0.0

CashfromSales

7,297.0

7,707.0

8,044.0

8,304.0

CostofGoods
ChangeinInventory
ChangeinAccountsPayable

1,630.0
7.0
57.0

1,124.0
16.0
32.0

1,104.0
123.0
9.0

1,104.0
0.0
0.0

CashProductionCosts

1,566.0

1,108.0

990.0

1,104.0

5,731.0

6,599.0

7,054.0

7,200.0

G&AExpense
ChangeinAccruals
OtherIncomeorExpense
ChangeinOtherCurrentAssets
ChangeinOtherCurrentLiabilities
ChangeinOtherNoncurrentAssets
ChangeinOtherNoncurrentLiabilities
ChangeinDeferredTax
IncomeTaxesPaid

4,934.0
0.0
352.0
92.0
288.0
0.0
0.0
292.0
225.0

5,024.0
0.0
306.0
316.0
0.0
0.0
0.0
0.0
224.0

4,689.0
0.0
306.0
0.0
0.0
0.0
0.0
0.0
225.0

4,481.0
0.0
306.0
0.0
0.0
0.0
0.0
0.0
225.0

3,000.0

CashOperatingExpenses

6,183.0

5,238.0

5,220.0

5,012.0

2,000.0

NetCashafterOperations

452.0

1,361.0

1,834.0

2,188.0

1,000.0

InterestExpense
DividendsPaid
CurrentPortionLongTermDebt

531.0
0.0
625.0

524.0
0.0
625.0

524.0
0.0
625.0

524.0
0.0
615.0

0.0

TotalFinancingCosts

1,156.0

1,149.0

1,149.0

1,139.0

CashFlowAfterFinancingCosts

1,608.0

212.0

685.0

1,049.0

200.0

115.0

132.0

53.0

FinancingSurplus(Shortfall)

1,808.0

327.0

817.0

1,102.0

ChangeinShortTermDebt
ChangeinLongTermDebt
ChangeinOfficerorStockholderDebt
ChangeinEquity

0.0
120.0
0.0
3,046.0

0.0
100.0
0.0
265.0

10.0
100.0
0.0
511.0

0.0
300.0
0.0
600.0

TotalExternalFinancing

3,166.0

165.0

621.0

300.0

NetCashFlowAfterFinancing

4,974.0

492.0

196.0

1,402.0

BeginningCashPosition
EndingCashPosition
ActualChangeInCash
CashOutofBalanceBy

1,400.0
83.0
1,317.0
3,657.0

83.0
212.0
129.0
363.0

212.0
212.0
0.0
196.0

212.0
2,500.0
2,288.0
886.0

GrossCashIncome

CapitalExpenditures

StartswithCashFlowfromSales
LessCashPaidtoCostofSalesorCostofGoods
LessCashPaidforOperatingExpense
AccountsforCashInflowandOutflow
NetCashfromOperations
UCAAnalysisChart

1,000.0
2,000.0

Changein
CashPosition
3,000.0

2,500.0
2,500.0

1/1/2009
83.0

1/1/2010

1/1/2011

1/1/2012

2,000.0
1,500.0

1,400.0

3,000.0
1,000.0

4,000.0
5,000.0

212.0

6,000.0
7,000.0

83.0
CashOperatingExpense
TotalFinancingCost
FinancingSurplus(Shortfall)
EndingCashPosition

500.0

212.0
212.0

212.0

NetCashAfterOperation
CashFlowAfterFinancingCosts
BeginningCashPosition

0.0

KeyEarningsMeasure
KeyEarningsMeasuresandCashFlowSummary
HistoricNetIncome
Pl us :Incometa xes
EarningsBeforeTaxes(EBT)
Pl us :Interes tExpens e
EarningsBeforeInterest&Taxes(EBIT)
Pl us :Depreci ati on&Amorti za ti on
EarningsBeforeInterest,Depr.&Amort.(EBITDA)
HistoricNetcashflow
His tori ci ncomefromopera ti ons
Les s :Ta xbas edons el ectedta xra te
Pl us :Depr.&a mort.fromoper.(netofta x)
Les s :Fi xeda s s etpurcha s es
Les s :Cha nges i nnetworkingca pi ta l
FreeCashFlowavailabletoTotalInvestedCapital(FCFTIC)
His tori cNetIncome
Pl us :Depreci ati on&amorti za ti on
Les s :Fi xeda s s etpurcha s es
Les s :Cha nges i nnetworkingca pi ta l
Pl us :Cha nges i ns horttermnotes pa ya bl e
Pl us :Cha nges i ncurrentl ongtermnotes pa ya ble
Pl us :Cha nges i nl ongtermnotes pa ya bl e
Les s :PreferredDivi dends
FreeCashFlowavailabletoEquity(FCFE)

2008

2009

2010

2011

107
20
87
0
87
0
87

66
44
110
0
110
0
110
30
147
0
0
140
0
287
66
0
140
0
0
0
58
0

91
43
134
0
134
0
134
36
169
0
0
105
3
271
91
0
105
3
0
0
78
0

144
46
190
0
190
0
190
168
221
0
0
46
3
270
144
0
46
3
0
0
88
0

148

115

105

KeyEarnings
Enterprise
Value/EBITDA
EnterpriseValue
Enterprise
Value/Revenue
LeveredFree
CashFlow
OperatingCash
Flow
Operating
Margins
FreeCashFlow
toEquity

RMAAnalysisCommonSizeStatement
RMABusinessvs.Industry
CommonSizeStatements,CurrentYear

4YrAverage
Business
2011

Industry

Difference

Variance

Variance

2011

IncomeData:
Netsales

100.00%

100.00%

0.00%

0.00%

0.00%

Grossprofit

100.00%

100.00%

0.00%

0.00%

0.00%
0.30%

Operatingexpenses

78.90%

85.60%

6.70%

7.80%

Operatingprofit

21.10%

14.40%

6.70%

46.50%

1.60%

Allotherexpenses(net)

19.50%

10.40%

9.10%

87.50%

128.70%

1.60%

4.00%

2.40%

60.00% 22989.90%

Cash&equivalents

2.10%

7.80%

5.70%

73.10%

Tradereceivables(net)

0.00%

1.80%

1.80%

100.00%

98.70%

Inventory

0.00%

0.50%

0.50%

100.00%

100.00%

ProfitBeforeTax
Assets:

73.70%

Allothercurrent

0.00%

1.50%

1.50%

100.00%

100.00%

TotalCurrentAssets

2.10%

11.60%

9.50%

81.90%

1686.90%

Fixedassets(net)

97.90%

78.00%

19.90%

25.50%

25.50%

Intangibles(net)

0.00%

3.60%

3.60%

100.00%

100.00%

Allothernoncurrent
TotalNoncurrentAssets
TotalAssets

0.00%

6.80%

6.80%

100.00%

100.00%

97.90%

88.40%

9.50%

10.70%

10977.70%

100.00%

100.00%

Liabilities&NetWorth:
Notespayableshortterm

6.60%

2.10%

4.50%

214.30%

201.70%

CurrentmaturityoflongtermDebt

0.00%

4.50%

4.50%

100.00%

100.00%

Tradepayables

0.00%

1.90%

1.90%

100.00%

100.00%

Incometaxespayable

0.00%

0.00%

0.00%

0.00%

0.00%

Allothercurrentliabilities

0.00%

8.80%

8.80%

100.00%

100.00%

TotalCurrentLiabilities

6.60%

17.30%

10.70%

61.80%

3562.70%

Longtermdebt

78.60%

71.10%

7.50%

10.50%

11.60%

Deferredtaxes

0.00%

0.00%

0.00%

0.00%

0.00%

Allothernoncurrentliabilities

0.00%

5.70%

5.70%

100.00%

100.00%

14.80%

5.90%

8.90%

150.80%

142.30%

100.00%

100.00%

Networth
TotalLiabilities&NetWorth

CommonSizeStatementor
VerticalFinancialAnalysis
RMA(RiskManagement
Association)Statement
Studies
CompareIndustryverses
thesubjectloan
Difference
Variance
4yearaveragevariance

RMARatioComparison
RMABusinessvs.IndustryRatios,
CurrentYear

4YrAverage
Business

Industry

Difference

Variance

Variance

2011

2011

Currentratio

0.3

0.6

0.3

46.20%

45.50%

Quickratio

0.3

0.5

0.2

35.40%

34.60%

Accountsreceivableturnover

0.00%

0.00%

Inventoryturnover

0.00%

0.00%

Accountspayableturnover

0.00%

0.00%

7.7

24.8

17.1

69.00%

73.20%

Timesinterestearned

0.00%

0.00%

Currentportionoflongtermdebtcoverageratio

0.00%

0.00%

FixedassetstoTangiblenetworth

6.6

14.3

7.7

53.80%

51.90%

TotaldebttoTangiblenetworth

5.8

17

11.2

66.10%

64.60%

0.4

13.00%

0.3

223.10%

59.90%

LiquidityRatios:

Workingcapitalturnover
CoverageRatios:

Leverage/CapitalizationRatios:

OperatingRatios:
PercentreturnonTangiblenetworth
PercentreturnonTotalassets

0.1

2.00%

210.00%

42.10%

NetsalestoNetfixedassets

0.4

0.6

0.3

41.70%

51.50%

NetsalestoTotalassets

0.3

0.5

0.2

31.40%

43.00%

PercentDepr.,Amort.toNetsales

9.00%

0.1

100.00%

100.00%

PercentOfficersalariestoNetsales

4.30%

53.50%

54.40%

PeerComparisonReview

FinancialGrowthEvaluation
SustainableGrowthComponents
NetSalesRevenue
NetIncome
TotalAssets
TotalEquity
PreferredDividends
CommonDividends
SustainableGrowthRatios
ProfitMargin(NetIncome/TotalRevenue)a
EarningsRetention(1[TotalDividends]/NI)b
AssetTurnover(TotalRevenue/TotalAssets)c
FinancialLeverage(TotalAssets/TotalEquity)d
MaximumSustainableGrowthinRevenue(a*b*c*d)
HistoricGrowthinTotalRevenue
DifferencefromMaximum
HistoricGrowthinTotalRevenue(RollingAverage)

2008

2009

2010

2011

606
107
3,345
519
0
0

1,015
66
3,205
437
0
0

932
91
3,103
410
0
0

1,046
144
3,054
452
0
0

17.66%
100.00%
18.12%
644.51%
20.62%

6.50%
100.00%
31.67%
733.41%
15.10%
67.49%
52.39%

9.76%
100.00%
30.04%
756.83%
22.20%
8.18%
30.37%

13.77%
100.00%
34.25%
675.66%
31.86%
12.23%
19.63%

67.49%

29.66%

23.85%

SustainableGrowthComponent

NetIncome
AssetTurnOver
HistoricalGrowth

TotalAssets
FinancialLeverage
HistoricalGrowthinTotalRevenue

DuPontAnalysis
DupontAnalysis
NetSalesRevenue
Dividedby:TotalAssets
AssetTurnoverRatioa
NetIncome
Dividedby:NetSales
ReturnonSalesRatiob
DuPontReturnonAssets(axb)

2008
834
9,449
0.09

2009
1,683
8,467
0.2

2010
1,968
7,588
0.26

2011
1,943
6,717
0.29

447
812
398
498
834
1,683
1,968
1,943
53.60% 48.25% 20.22% 25.63%
4.73% 9.59% 5.25% 7.41%

DupontAnalysis
0.00%

10000

10.00%

8000

20.00%
6000
30.00%
4000
40.00%
2000
50.00%

TotalAssets
Dividedby:TotalEquity
FinancialLeverageRatioc

9,449
0
0

8,467
0
0

7,588
0
0

6,717
0
0

DuPontReturnonEquity(axbxc)

0.00%

0.00%

0.00%

0.00%

2008

2009

0.00%

0.00%

0.00%

DuPontAnalysis

2011

2000

DuPontAssetTurnover
FinancialLeverage
DuPontReturnonEquity
AssetTurnOverRatio

60.00%
70.00%

NetSale

TotalAssets

NetIncome

ReturnonSalesRatio

DuPontReturnonAssets

DuPontReturnonEquity(RollingAverage)

2010

ReturnonAssets
ReturnonAssets:
NetIncomeAfterTaxtoTotalAssets
NetOperatingIncometoTotalAssets
EBITDAtoTotalAssets
EBITtoTotalAssets
FCFEtoTotalAssets
FCFTICtoTotalAssets
ReturnonEquity:
NetIncomeAfterTaxtoTotalEquity
NetOperatingIncometoTotalEquity
EBITDAtoTotalEquity
EBITtoTotalEquity
EBTtoTotalEquity
FCFEtoTotalEquity
FCFTICtoTotalEquity
ReturnonTotalInvestedCapital(TIC):
EBITtoTotalInvestedCapital(TIC)
EBITDAtoTotalInvestedCapital(TIC)
FCFTICtoTotalInvestedCapital(TIC)

2008

2009

2010

2011

3.20%
0.87%
2.60%
2.60%

2.06%
4.59%
3.43%
3.43%
4.62%
8.95%

2.93%
5.45%
4.32%
4.32%
3.71%
8.73%

4.72%
7.24%
6.22%
6.22%
3.44%
8.84%

15.10%
33.64%
25.17%
25.17%
25.17%
33.87%
65.68%

22.20%
41.22%
32.68%
32.68%
32.68%
28.05%
66.10%

31.86%
48.89%
42.04%
42.04%
42.04%
23.23%
59.73%

3.43%
3.43%
8.95%

4.32%
4.32%
8.74%

6.22%
6.22%
8.84%

ReturnonAssets
ReturnonEquity
ReturnonTotalInvestedCapital

RatioAnalysisYeartoYear
TypeofStatement
#ofMonths:
DateofStatement:

TaxReturn

TaxReturn

12

12

TaxReturn ernallyPrepar Projection


12

12

12

12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012

LIQUIDITYRATIOS:
WorkingCapital
Quick
Current
Sales/NetWorkingCapital

380.0
1.02
1.22
21.85

172.0
0.49
0.85
43.34

357.0
0.60
0.70
21.64

977.0
0.18
0.18
7.71

1,311.0
2.10
2.10
6.33

19.85
12.45

3.90
2.47

2.96
1.68

3.14
1.58

3.83
1.74

15
28
66
1.00

24
24
73
0.92

24
40
117
0.79

#DIV/0!
#DIV/0!
116
0.63

#DIV/0!
#DIV/0!
116
0.78

82.14
65.20
16.94
7.50
9.44
6.48
2.96
0.98

78.13
73.32
4.82
7.14
2.32
7.12
9.44
10.06
6.93
56.06

85.45
71.82
13.63
6.89
6.74
6.78
0.04
0.12
3.32
7.86

85.33
69.25
16.09
7.07
9.02
6.96
2.06
1.97
6.88
12.46

86.71
60.27
26.43
6.41
20.03
6.31
13.72
13.63
24.15
52.52

LEVERAGERATIOS:
TotalLiabilities/TangibleNetworth
NetFixedAssets/TangibleNetWorth

RatioAnalysis
ProfitabilityAnalysis
GrowthRatio
CoverageRatio
CashPosition

ACTIVITYRATIOS:
ReceivablesinDays
InventoryinDays
PayablesinDays
TotalAssets/NetSales
PROFITABILITYRATIOS:
GrossMargin%
SG&A%
Cushion(GrossMarginSG&A)%
Depreciation%
OperatingProfitMargin%
InterestExpense%
OperatingExpense%
NetMargin%
ReturnonAverageAssets%
ReturnonAverageEquity%
GROWTHRATIOS:

10.24
825.93
17.00
6.51
576.10

NetSalesGrowth
NetIncomeGrowth
TotalAssetsGrowth
TotalLiabilitiesGrowth
NetWorthGrowth

3.64
98.80
11.64
0.74
30.87

2.55
1744.44
21.47
1.30
7.06

10.31
664.86
35.72
3.31
20.80

ProfitabilityAnalysis
100.00

80.00

80.00

60.00
40.00

60.00

20.00

40.00
0.00

20.00

20.00

0.00

40.00

1/1/2008

1/1/2009

1/1/2010

1/1/2011

1/1/2012

20.00

60.00

GrossMargin%

InterestExpense%

OperatingExpense%

NetMargin%

ReturnonAverageAssets%

TotalLiabilities/TangibleNetworth

ReturnonAverageEquity%

NetFixedAssets/TangibleNetWorth

COVERAGERATIOS:
InterestCoverage(EBIT/Interest)
Profit+Dep/CurLongtermMat.
EffectsAfterNewFinancing

2.46
1.69
2.29

0.67
0.01
1.07

1.99
1.20
2.17

2.30
1.47
2.42

4.17
3.07
4.00

0.1

1.4

0.0

0.3

2.1

CASHPOSITION:
NetIncome+Depreciation

TotalConsolidatedFinancialData
SourceDataforRevenue&RatioCalculations:
NetSalesrevenue
CostofSales
GrossMargin
OfficerSalary
NonOfficerWages
TotalWages
Research&Development
TotalGeneral&AdministrativeExpense
TotalOperatingExp.(COGS+Selling+G&A)
NetOperatingIncome
EBITDA
EBIT
EBT
NetIncomeAfterTax
NetCashFlow
CashfromOperations
FreeCashFlowavailabletoEquity(FCFE)
FreeCashFlowavailabletoTIC(FCFTIC)

2008
834
0
834

2009
1,683
0
1,683

2010
1,968
0
1,968

2011
1,943
0
1,943

60
106
166

60
237
297

60
250
310

60
229
289

0
1,249
1,249
415
163
415
415
447

0
2,366
2,366
683
299
683
683
812
822
170
822
951

0
2,237
2,237
269
601
269
269
398
1,140
472
1,140
1,269

0
2,310
2,310
367
504
367
367
498
1,032
373
1,032
1,163

FreeCashFlowtoEquity
FreeCashFlowtoTotalInvestedCapital
EBITDA
EBIT
EBT
NetIncomeAfterTax
NetCashFlow
TotalInterestBearingDebt

CashFlowConsolidated
1400

315

1200

310
305

1000

300
800
295
600

Cash&Equivalents
AccountsReceivable
Inventory
WorkingCapital
NetFixedAssets
NetIntangibleAssets
TotalAssets
TotalInterestBearingDebt
TotalEquity
TotalInvestedCapital(TIC)

450
30
5
900
5,974
0
9,449
8,017
0
8,046

450
30
5
900
4,992
0
8,467
8,017
0
8,046

450
30
5
900
4,113
0
7,588
8,017
0
8,046

450
30
5
900
3,242
0
6,717
8,017
0
8,046

290
400

285

200

280

275

2009

2010

2011

NetCashFlow

CashFromOperations

FreeCashFlowtoEquity

FreeCashFlowtoTIC

TotalWages

FINANCIALMODELINGFORSBA

Section

VALUATION

PresentValue
LTVFinancialModel

$6,000
$4,000
$2,000
$

$(2,000)

10

11

$(4,000)
$(6,000)

TotalPropertyPresentValue
TotalProperty
Mortgage

$6,000

Equity

1.000000

$5,000

0.800000

$4,000

0.600000

$3,000

0.400000

$2,000

0.200000

$1,000
$

0.000000

NOIBeforeDebt

DiscountCashFlow

10

PVFactor

EquityofPresentValue
$2,500

1.000000

$2,000

0.800000

$1,500

0.600000

$1,000
0.400000

$500

0.200000

$
$(500)

NOIEquity

DiscountCashFlow

9
PVFactor

10

0.000000

FinancialModel
LTVChangefor10years
EquityinPresentValue
TotalPropertyPresentValue

CapitalAdjustedEarningValue
Year Earnings
Weight AdjustedValue AdjustedValue/TotalWeight IndicatedValue
1
$412,000.00
1
$412,000.00
2
$465,000.00
2
$930,000.00
3
$470,000.00
3 $1,410,000.00
4
$523,000.00
4 $2,092,000.00
5
$616,000.00
5 $3,080,000.00
Total
$2,486,000.00
15 $7,924,000.00
$528,266.67 $2,641,333.33

CapitalizedAdjustedEarningsValue
$4,000,000.00
$3,500,000.00
$3,000,000.00
$2,500,000.00
$2,000,000.00
$1,500,000.00
$1,000,000.00
$500,000.00
$0.00

$500,000.00

Earnings

3
Years
AdjustedValue

IndicatedValue

CharacteristicofCAEValue
Basedonamajor
operationalfactorearning
power
Fiveyear'searningsshould
beconsidered
Earningsshouldbeadjusted
forextraordinaryandnon
recurringitems
Theadjustedearningscan
beaveragedorweighted
Canusetheprevailingrate
ofreturnforcomparable
companiesoran
appropriatediscountrate
ValueofBusiness=Amount
ofAnnualEarnings/
CapitalizationRate

DiscountFutureEarnings
Year
1
2
3
4
5
6
7
8
9
10

Averageearnings
$58,000.00
$60,900.00
$63,945.00
$67,142.25
$70,499.36
$74,024.33
$77,725.55
$81,611.82
$85,692.42
$89,977.04

Growthrate
ProjectedGrowth
105.00%
$60,900.00
105.00%
$63,945.00
105.00%
$67,142.25
105.00%
$70,499.36
105.00%
$74,024.33
105.00%
$77,725.55
105.00%
$81,611.82
105.00%
$85,692.42
105.00%
$89,977.04
105.00%
$94,475.89
IndicatedValue

Factor
0.8333
0.6944
0.5787
0.4822
0.4018
0.3349
0.279
0.2325
0.1938
0.1616

NetPresentValue
$50,747.97
$44,403.41
$38,855.22
$33,994.79
$29,742.98
$26,030.29
$22,769.70
$19,923.49
$17,437.55
$15,267.30
$299,172.69

DiscountFutureEarnings
$100,000.00

0.9

$90,000.00

0.8

$80,000.00

0.7

$70,000.00

0.6

$60,000.00

0.5

$50,000.00
0.4

$40,000.00

0.3

$30,000.00
$20,000.00

0.2

$10,000.00

0.1
0

$0.00

AverageEaarnings

ProjectedGrowth

NetPresentValue

10
Factors

PresentValue
HistoricalPatternsof
Growth
TheDiscountRate
GrowthRate
Factors
ProjectedGrowth

GrossMultiplierValuation

35

GrossMultiplier

30

30

25
23
20
15
12

9
7

VideoTapeRentalKorean

2
Teriyaki

RestaurantFull

2
RestaurantFastFood

2
Motel&Hotel

Luggage&Gift

Over$30Msales

Under$30Mmonthlysales

JuiceBar

LiquorStore

3
IceCream&YogurtStore

HealthFood&VitaminStore

Over$200M

Under$100M

Over$100M

CourmentCoffeeShop

ShoeStore

7 7

3 2.5
2
GroceryStore(Market)

Florist

3
GasStation

Deli

DrugStore

Over$30Mmonthlysales

Under$30Mmonthlysales

ConvenienceFoodMart

ConvenientStore(Beer&Wine)

CarWash

CoinLaundry

Nursery,Lawn&GardenSupply

Meat&FishMarket

7 7

Candy,Nut&ConfectioneryStore

10

DryCleaner(plant)

5
0

12

10

VideoTapeRentalAmerican

10

Bakerry

Under$30Mmonthlysales4to7plusinven.
Over$30Msales
4to7plusinven.
Luggage&Gift
2to3
Meat&FishMarket
1to2
Motel&Hotel
3to6timesannualsales
Nursery,Lawn&GardenSupply2timesplusinventory
RestaurantFull
10to12
RestaurantFastFood
5to7
ShoeStore
2timesplusinventory
Teriyaki
8to10
VideoTapeRentalAmerican 5to7
VideoTapeRentalKorean
8to9

GrossMultiplierValuation
Method
GrossMultiplier

BookStore

GROSSMultiplier
AutoRepair
3to4
Bakerry
5to6
BookStore
2to3plusinventory
Candy,Nut&ConfectionerySto5to7
CarWash
20to30
CoinLaundry
20to23
ConvenienceFoodMart
4to5
ConvenientStore(Beer&Wine)
Under$30Mmonthlysal 4to7plusinven.
Over$30Mmonthlysale 4to7plusinven.
Deli
6to10
DrugStore
4times
DryCleaner(plant)
10to12
Florist
3times
GasStation
3to5
5to7
CourmentCoffeeShop
GroceryStore(Market)
Under$100M
3timeinventory
Over$100M
2to2.5timesplusinventory
Over$200M
2timesplusinventory
HealthFood&VitaminStore 5to6
IceCream&YogurtStore
7times
JuiceBar
6to8
LiquorStore

$30 (LatestT/R)
7
$2,118

AutoRepair

II.GROSSMULTIPLIER
MonthlyGrossSales
GrossMultiplier
ValueoftheBusiness

FINANCIALMODELINGFORSBA

Section

STRESSTEST

StaticStressTestIncomeStatement

TypeofStatement
#ofMonths:
DateofStatement:
(InThousands)
INCOMESTATEMENT:

Menu
StressTestonRevenue

100.00%

Menu
StressTestonTotalExpense

100.00%

Menu
StressTestonRevenue

100.00%

TaxReturn TaxReturn ernallyPrepar Projection


12
12
12
12
12/31/2009 12/31/2010 12/31/2011 12/31/2012
$
$
$
$

TaxReturn
12
12/31/2008
$

NetSales
CostofSales
GrossProfit

8,304.0
1,483.0
6,821.0

7,454.0
1,630.0
5,824.0

7,725.0
1,124.0
6,601.0

7,528.0
1,104.0
6,424.0

8,304.0
1,104.0
7,200.0

OfficerCompensation
Wages
Rent
Depreciation
Interest
OtherOperatingExpenses
TotalExpenses

0.0
2,780.0
0.0
623.0
538.0
2,096.0
6,037.0

0.0
2,998.0
0.0
532.0
531.0
1,936.0
5,997.0

0.0
1,981.0
0.0
532.0
524.0
3,043.0
6,080.0

0.0
2,009.0
0.0
532.0
524.0
2,680.0
5,745.0

0.0
1,981.0
0.0
532.0
524.0
2,500.0
5,537.0

0.0
349.0
435.0
516.0
81.0

0.0
352.0
525.0
225.0
750.0

0.0
306.0
215.0
224.0
9.0

0.0
306.0
373.0
225.0
148.0

0.0
306.0
1,357.0
225.0
1,132.0

OtherIncome
ManagementFee5%
Income(Loss)BeforeTaxes
IncomeTax
NetIncome(Loss)

CharacteristicsofStaticStressTest
IncreaseMortgageRate
IncreaseOperatingExpense
DecreasingNetIncome
DecreasingNetProfit

StressTestIncomeStatement
8,000.0

2.50

6,000.0

2.00
1.50

4,000.0

1.00
2,000.0
0.50

DividendsPaid

0.0
OperationalCash
Depreciation/Amort.
+InterestExpense
+RentalExpense
+Other:Owner'sDraw
ManagementFee5%
=AvailableCash
ExistingDebtService
InterestonLine
PrincipalonLine
NewDebtService
Other:
=Surplus
CoverageRatio

435.0
623.0
538.0
0.0
0.0
349.0
1,945.0
624.0
0.0
0.0
0.0
0.0
1,321.0
3.12

525.0
532.0
531.0
0.0
0.0
352.0
890.0
624.0
0.0
0.0
0.0
0.0
266.0
1.43

215.0
532.0
524.0
0.0
0.0
306.0
1,577.0
624.0
0.0
0.0
0.0
0.0
953.0
2.53

373.0
532.0
524.0
0.0
0.0
306.0
1,735.0
624.0
0.0
0.0
0.0
0.0
1,111.0
2.78

1,357.0
532.0
524.0
0.0
0.0
306.0
2,719.0
624.0
0.0
0.0
0.0
0.0
2,095.0
4.36

1/1/2008

1/1/2009

1/1/2010

1/1/2011

1/1/2012

2,000.0

0.00
0.50

4,000.0

1.00
NetSales

OperationalCash

TotalCashforDebtService

DebtService

OperationalIncomeafterDebtService

DebtServiceCoverage

StaticStressTestBalanceSheet

TypeofStatement
#ofMonths:
DateofStatement:
(InThousands)
ASSETS
Cash&Securities
Receivables
Inventory
NotesReceivable
Prepaids
Other

Menu
StressTestonCash&Securities

85.00%

Menu
StressTestonNetFixedAssets

90.00%

Menu
StressTestonCurrentLiabilities

115.00%

Menu
StressTestonLTLiabilities
TaxReturn
12
12/31/2008

StaticStressTestBalanceSheet
Example

115.00%
TaxReturn TaxReturn ernallyPrepar Projection
12
12
12
12
12/31/2009 12/31/2010 12/31/2011 12/31/2012

1,400.0
341.0
114.0
0.0
0.0
224.0

83.0
498.0
107.0
0.0
0.0
316.0

CurrentAssets

1,767.2

853.4

Land
Buildings
Machinery&Equipment
Furniture&Fixtures
Autos&Trucks
OtherFixedAssets
LessDepreciation
NetFixedAssets
IntangibleAssets(net)
Other

500.0
7,900.0
0.0
0.0
0.0
0.0
2,202.0
5,578.2
0.0
0.0

500.0
8,056.0
0.0
0.0
0.0
0.0
2,690.0
5,279.4
0.0
0.0

LongTermAssets

5,578.2

5,279.4

TOTALASSETS

7,345.4

6,132.8

625.0
270.0
516.0
0.0
0.0
0.0
288.0

625.0
327.0
224.0
0.0
0.0
0.0
0.0

LIABILITIES
NotesPayable
AccountsPayable
Taxes
PrivateLender(curr)
SBA(curr)
Accruals
Other

$
212.0
516.0
123.0
0.0
0.0
0.0

$
212.0
0.0
0.0
0.0
0.0
0.0

2500.0
0.0
0.0
0.0
0.0
0.0

723.4

180.2

2,125.0

500.0
7,686.0
0.0
0.0
0.0
0.0
2,967.0
4,697.1
0.0
0.0

500.0
7,342.0
0.0
0.0
0.0
0.0
3,287.0
4,099.5
0.0
0.0

500.0
7124.0
0.0
0.0
0.0
0.0
3654.0
3,573.0
0.0
0.0

4,697.1

4,099.5

3,573.0

5,420.5

4,279.7

5,698.0

625.0
359.0
224.0
0.0
0.0
0.0
0.0

615.0
350.0
224.0
0.0
0.0
0.0
0.0

615.0
350.0
224.0
0.0
0.0
0.0
0.0

ReducingCurrentAssets
ReducingLongTermAssets
IncreasingCurrentLiabilities
IncreasingLongTermLiabilities
ChangesinCapital
ChangesinEquity
ChangesinPaidInCapital
StressTestBalanceSheet

10,000.0

1,000.0

9,000.0

500.0

8,000.0

0.0

7,000.0

500.0

CurrentLiabilities

1,953.9

1,352.4

1,389.2

1,367.4

1,367.4

6,000.0

LongtermDebt
PrivateLender(LT)
SBA(LT)
SubordinateOfficer
LoansfromStockholders
Other

8,185.0
0.0
0.0
0.0
0.0
0.0

8,065.0
0.0
0.0
0.0
0.0
0.0

7,965.0
0.0
0.0
0.0
0.0
0.0

7,865.0
0.0
0.0
0.0
0.0
0.0

7565.0
0.0
0.0
0.0
0.0
0.0

5,000.0

LongTermLiabilities

9,412.8

9,274.8

9,159.8

9,044.8

8,699.8

2,000.0

2,500.0

1,000.0

3,000.0

TOTALLIABILITIES

11,366.6

10,627.2

10,549.0

10,412.1

10,067.1

NETWORTH
PartnersCapital
CapitalSurplus
RetainedEarnings
(TreasuryStock)

109.0
299.0
90.0
0.0

1,284.0
1,354.0
267.0
0.0

650.0
1,723.0
730.0
0.0

350.0
2,534.0
0.0
0.0

250.0
2534.0
0.0
0.0

TOTALNETWORTH

498.0

2,371.0

3,103.0

2,884.0

2,284.0

11,864.6

8,256.2

7,446.0

7,528.1

7,783.1

TOTALLIAB&NETWORTH

1,000.0
1,500.0

4,000.0

2,000.0

3,000.0

3,500.0

0.0
1/1/2008

1/1/2009

1/1/2010

1/1/2011

1/1/2012

Current
Assets
LongTerm
Assets
Current
Liabilities
LongTerm
Liabilities
TOTALNET
WORTH

GlobalStressTestIncomeStatement
Menu
StressTestonRevenue

TypeofStatement
#ofMonths:
DateofStatement:
(InThousands)
INCOMESTATEMENT:
NetSales
CostofSales
GrossProfit
OfficerCompensation
Wages
Rent
Depreciation
Interest
OtherOperatingExpenses
TotalExpenses
OtherIncome
OtherExpenses
Income(Loss)BeforeTaxes
IncomeTax
NetIncome(Loss)
DividendsPaid
OperationalCash
Depreciation/Amort.
+InterestExpense
+RentalExpense
+Other:Owner'sDraw
+Other:
=AvailableCash
ExistingDebtService
InterestonLine
PrincipalonLine
NewDebtService
Other:OwnersDraw1.5Facto
=Surplus
CoverageRatio

Menu
StressTestonTotalExpense

115.00%

Menu
StressTestonDebtService

120.00%

TaxReturn

TaxReturn
12
12/31/2008

95.00%

TaxReturn

12
12/31/2009
$

12
12/31/2010

InternallyPrepared
12
12/31/2011
$

12,725.3
4,495.0
8,230.3

14,004.9
5,790.0
8,214.9

13,584.1
5,549.0
8,035.1

13,948.9
5,976.0
7,972.9

122.0
3,933.0
963.0
534.0
353.0
1,384.0
8,382.4

320.0
3,892.0
903.0
483.0
355.0
1,595.0
8,680.2

789.0
3,290.0
873.0
409.0
278.0
1,594.0
8,318.0

647.0
3,327.0
749.0
387.0
244.0
1,616.0
8,015.5

0.0
58.0
210.1
0.0
210.1

38.0
215.0
642.3
0.0
642.3

18.0
235.0
499.9
0.0
499.9

0.0
235.0
277.7
0.0
277.7

StaticStressTest
ReduceRevenueby%
IncreaseTotalExpenseby%
IncreaseMortgagePaymentby%
ChangesinDSCR
ChangesinSurplusIncome

StressTestIncomeStatement
10,000.0

3.00
2.00

5,000.0
210.1
534.0
353.0
144.0
102.0
506.0
1,428.9
524.4
0.0
0.0
0.0
0.0
904.5
2.72

642.3
483.0
355.0
355.0
157.0
102.0
809.7
524.4
0.0
0.0
0.0
0.0
285.3
1.54

499.9
409.0
278.0
144.0
129.0
867.0
1,327.1
582.0
0.0
0.0
0.0
0.0
745.1
2.28

277.7
387.0
244.0
0.0
129.0
823.0
1,305.4
582.0
0.0
0.0
0.0
0.0
723.3
2.24

1.00
0.0
1/1/2008

1/1/2009

1/1/2010

1/1/2011

5,000.0

1/1/2012

0.00
1.00

NetSales

OperationalCash

TotalCashforDebtService

DebtService

OperationalIncomeafterDebtService

DebtServiceCoverage

GlobalStressTestBalanceSheet

TypeofStatement
#ofMonths:
DateofStatement:
(InThousands)
ASSETS
Cash&Securities
Receivables
Inventory
NotesReceivable
Prepaids
Other
CurrentAssets
Land
Buildings
Machinery&Equipment
Furniture&Fixtures
Autos&Trucks
OtherFixedAssets
LessDepreciation
NetFixedAssets
IntangibleAssets(net)
Other
LongTermAssets
TOTALASSETS
LIABILITIES
NotesPayable
AccountsPayable
Taxes
PrivateLender(curr)
SBA(curr)
Accruals
Other
CurrentLiabilities
LongtermDebt
PrivateLender(LT)
SBA(LT)
SubordinateOfficer
LoansfromStockholders
Other
LongTermLiabilities
TOTALLIABILITIES
NETWORTH
CommonStock
CapitalSurplus
RetainedEarnings
(TreasuryStock)
TOTALNETWORTH
TOTALLIAB&NETWORTH

Menu
StressTestonCash&Securities

85.00%

Menu
StressTestonNetFixedAssets

95.00%

Menu
StressTestonCurrentLiabilities

125.00%

Menu
StressTestonLTLiabilities

125.00%

TaxReturn

TaxReturn
12
12/31/2008

TaxReturn

12
12/31/2009
$

12
12/31/2010
$

1,799.5
610.0
419.0
0.0
0.0
0.0
2,828.5
1,375.0
6,402.0
0.0
350.0
11.0
438.0
1,836.0
6,831.8
575.0
95.0
6,751.6
9,580.1

1,215.0
984.0
443.0
0.0
0.0
0.0
2,642.0
1,375.0
6,507.0
0.0
418.0
11.0
475.0
2,326.0
6,576.3
604.0
99.0
6,551.4
9,193.4

2,139.0
558.0
305.0
0.0
0.0
79.0
3,081.0
1,375.0
6,737.0
0.0
455.0
11.0
495.0
2,681.0
6,526.1
628.0
69.0
6,500.7
9,581.8

838.0
257.0
345.0
30.0
0.0
0.0
84.0
1,942.5
4,566.0
0.0
0.0
0.0
576.0
40.0
6,477.5
8,420.0

857.0
446.0
403.0
0.0
0.0
0.0
65.0
2,213.8
4,303.0
0.0
0.0
0.0
582.0
0.0
6,106.3
8,320.0

834.0
555.0
280.0
0.0
0.0
0.0
303.0
2,465.0
4,733.0
0.0
0.0
0.0
616.0
0.0
6,686.3
9,151.3

2,607.0
1,077.0
1,023.0
526.0
3,079.0
11,499.0

2,077.0
1,053.0
763.0
861.0
2,648.0
10,968.0

2,015.0
662.0
585.0
580.0
2,518.0
11,669.3

GlobalStaticStressTestonBalanceSheet
Examples
ReducingCurrentAssets
ReducingLongTermAssets
IncreasingCurrentLiabilities
IncreasingLongTermLiabilities
ChangesinCapital
ChangesinEquity
ChangesinPaidInCapital

DynamicStressTestonNetIncome

NormalRandomDistributionfortheBellCurvetodeterminetherangeofincomefromnon
historicalrangetofindthe95%confidencelevelforpredictingdefaultratepossibilities
MinandMaxistoInfinitywithMeansattheHistoricalNetSales

DynamicStressTestonNetIncomeSimulation

SummaryStatisticsforNetIncome(Loss)/

VaR (ValueatRisk)
DynamicStressTest
Exampleforthe
financialmodel
Finding90%
confidencelevelfor
netincome
probabilitieswithnon
historicaldistribution

RegressionandRankInformationforNetIn

Statistics
Minimum

236.8

Percentile
5% 91.7

Maximum

235.4

Mean

9.0

StdDev

61.5

Variance

3777.120076

25% 32.8

Skewness

0.00692026

30% 23.3

Kurtosis

2.960802516

35% 15.1

NetSales/Tax0.000 0.006389201

Median

9.5

40% 6.8

NetSales/Inte0.000 0.00615364

TotalExpenses 0.000 0.00457497

10% 70.2

Rank
1

Name
Regr Corr
NetSales/Tax0.986 0.985

15% 55.0

TotalExpenses 0.163 0.167

20% 42.9

NetSales/Tax0.000 0.007353246

NetSales/Tax0.000 0.00644023

Mode

14.7

45% 1.1

SimulationSummaryInformation

LeftX

91.7

50% 9.5

WorkbookName

Hotel

LeftP

5%

55% 17.0

TotalExpenses 0.000 0.00425346

NumberofSimulations

RightX

109.8

60% 25.2

TotalExpenses 0.000 0.00254219

NumberofIterations

10000

RightP

95%

65% 32.9

201.5

70% 41.3

TotalExpenses 0.000 0.00106381

11

DiffX

10

NumberofInputs

11

NetIncome(Lo 0.000 0.000266816

NumberofOutputs

SamplingType

DiffP

90%

75% 50.7

#Errors

80% 61.1

LatinHypercube

FilterMin

Off

85% 72.2

SimulationStartTime

4/29/1218:43:26

FilterMax

Off

90% 87.7

SimulationDuration

00:00:36

#Filtered

95% 109.8

Random#Generator

MersenneTwister

RandomSeed

623328357

RandomDistributiononDynamicStressTest
Name
Description
Cell
Minimum
Maximum
Mean
Std Deviation
Variance
Skewness
Kurtosis
Errors
Mode
5% Perc
10% Perc
15% Perc
20% Perc
25% Perc
30% Perc
35% Perc
40% Perc
45% Perc
50% Perc
55% Perc
60% Perc
65% Perc
70% Perc
75% Perc
80% Perc
85% Perc

Net Income (Loss) Net Income (Loss) Net Income (Loss) Net Income (Loss) Net Income (Loss) Net Sales / Tax Re Net Sales / Tax Re Net Sales / Tax Re Net Sales / Tax Re Net Sales / InterimTotal Expenses / TTotal Expenses / TTotal Expenses / TTotal Expenses / TTotal Expenses / InNet Income (Loss)
Output
Output
Output
Output
Output
RiskNormal(606,60RiskNormal(1015,1RiskNormal(932,93RiskNormal(1046,1RiskNormal(289,28RiskNormal(0,10) RiskNormal(0,10) RiskNormal(0,10) RiskNormal(0,10) RiskNormal(216,21RiskNormal(G14,10
IS Risk!E42
IS Risk!G42
IS Risk!I42
IS Risk!K42
IS Risk!M42
IS Risk!E14
IS Risk!G14
IS Risk!I14
IS Risk!K14
IS Risk!M14
IS Risk!E36
IS Risk!G36
IS Risk!I36
IS Risk!K36
IS Risk!M36
IS Risk!M42
-236.8
-302.6
-231.0
-231.1
705.8
379.557
597
580.297
632
168.6
-43.3
-38.1
-37.8
-38.5
131.6
601.1
235.4
486.3
473.4
568.7
1,474.1
837.9567
1,393
1279.927
1,435
399.5
40.0
38.3
38.2
39.1
300.9
1,399.3
9.0
103.0
126.0
175.0
1,072.0
606.0002
1,015
931.9985
1,046
289.0
0.0
0.0
0.0
0.0
216.0
1,015.0
61.5
102.0
93.8
105.0
107.3
60.59236
102
93.19068
105
28.9
10.0
10.0
10.0
10.0
21.6
102.0
3777.12
10413.63
8793.131
11031.09
11519.25
3671.434
10302.87
8684.503
10942.09
835.2991
100.0386
99.98239
99.98991
100.0002
466.5843
10396.92
-0.006920262 0.001444166
0.005323659
-0.005140138 0.02513833
0.00024413
-0.001981249 -0.000605602 -0.000977329 -0.001868625 -0.00133437
-0.000209147 -0.000182751 0.000442673
-0.000574686 0.003335343
2.960803
2.998133
2.990278
2.98906
2.966446
2.991784
2.999088
2.992413
2.998844
3.000496
3.008265
2.993162
2.99462
2.996958
2.998406
3.003831
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
14.7
85.7
122.6
202.5
1,069.8
605.24
1,016
928.4946
1,050
289.4
0.1
-0.4
0.4
0.1
215.2
1,029.3
-91.7
-64.6
-28.0
2.4
896.6
506.3094
848
778.634
874
241.4
-16.5
-16.5
-16.5
-16.5
180.5
847.9
-70.2
-27.6
6.7
40.7
934.8
528.3261
885
812.5376
912
252.0
-12.8
-12.8
-12.8
-12.8
188.3
884.5
-55.0
-2.6
28.7
66.5
961.6
543.1758
910
835.3942
938
259.0
-10.4
-10.4
-10.4
-10.4
193.6
909.2
-42.9
17.2
46.5
87.1
981.4
554.989
930
853.5484
958
264.7
-8.4
-8.4
-8.4
-8.4
197.8
929.3
-32.8
34.8
63.0
104.0
999.0
565.1128
947
869.1371
975
269.5
-6.7
-6.7
-6.7
-6.7
201.4
945.7
-23.3
49.9
76.3
119.8
1,015.2
574.2043
962
883.1166
991
273.8
-5.2
-5.2
-5.2
-5.2
204.7
961.7
-15.1
63.7
89.4
134.0
1,030.3
582.6394
976
896.0869
1,006
277.9
-3.9
-3.9
-3.9
-3.9
207.7
975.5
-6.8
76.9
101.9
148.0
1,043.9
590.6418
989
908.3656
1,019
281.7
-2.5
-2.5
-2.5
-2.5
210.5
987.7
1.1
89.5
114.5
161.6
1,057.9
598.3846
1,002
920.2837
1,033
285.4
-1.3
-1.3
-1.3
-1.3
213.3
1,002.1
9.5
102.6
126.3
175.2
1,071.0
605.9914
1,015
931.9926
1,046
289.0
0.0
0.0
0.0
0.0
216.0
1,015.0
17.0
115.2
137.5
188.1
1,084.8
613.6063
1,028
943.705
1,059
292.6
1.3
1.3
1.3
1.3
218.7
1,028.6
25.2
128.3
149.8
201.4
1,099.0
621.3454
1,041
955.5937
1,072
296.3
2.5
2.5
2.5
2.5
221.5
1,040.5
32.9
143.1
162.2
215.7
1,113.1
629.3452
1,054
967.8937
1,086
300.1
3.9
3.9
3.9
3.9
224.3
1,053.9
41.3
156.8
175.5
230.7
1,128.4
637.7754
1,068
980.8478
1,101
304.1
5.2
5.2
5.2
5.2
227.3
1,069.0
50.7
172.2
189.6
246.2
1,145.3
646.8585
1,083
994.8506
1,117
308.5
6.7
6.7
6.7
6.7
230.6
1,084.2
61.1
189.1
204.7
263.7
1,162.7
656.9895
1,100
1010.408
1,134
313.3
8.4
8.4
8.4
8.4
234.2
1,100.4
72.2
208.9
222.3
284.1
1,182.6
668.8029
1,120
1028.587
1,154
318.9
10.4
10.4
10.4
10.4
238.4
1,120.9

RandomDataGenerationforNetIncome,NetExpense,andNOI(Net
OperatingIncome,andhowitaffectstheDSCR

RandomDistributionofIncomeafterDebtService
MeanofIncomeAfterDebtService/2011H15vsInputDistribution
Percentile

IncomeAfterDebtService/2011

1200
1000
800

IncomeforDebtService(NOI)
/2008E9

600

IncomeforDebtService(NOI)
/2009F9

400

IncomeforDebtService(NOI)
/2010G9

200

IncomeforDebtService(NOI)
/2011H9

120%

Percentile

100%

80%

60%

40%

20%

0%

MeanofIncomeAfterDebtService/2011H15vsPercentageChangeof
Inputs

1000
800

IncomeforDebtService(NOI)/
2008E9

600

IncomeforDebtService(NOI)/
2009F9

400

IncomeforDebtService(NOI)/
2010G9

200

IncomeforDebtService(NOI)/
2011H9

ChangeFromBaseValue(%)

30%

20%

10%

0%

10%

20%

0
30%

IncomeAfterDebtService/2011

1200

ScenarioandSensitivityDistribution
SensitivityTornado

IncomeforDebtService(NOI)/2011H9

IncomeforDebtService(NOI)/2008E9

IncomeforDebtService(NOI)/2009F9

MeanofIncomeAfterDebtService/2011

1200

1100

1000

900

800

700

600

500

IncomeforDebtService(NOI)/2010G9

MonteCarloSimulationBellCurveforNormalDistribution
Mean(Average)
StandardError
Median
Mode
StandardDeviation
SampleVariance
Kurtosis
Skewness
Range
Minimum
Maximum
Sum
Count
95% ConfidenceLevel

4330.4
208.906
4187
#N/A
467.127
1.972662692
3.07190
0.359986
960
3885
4845
21652
5
409.4475004

4,330 mean
467 standarddeviation

Monte CarloSimulation
Median

Average numbersonRandomDistribution

SampleVariance

Howfarthedistributionisspreadout

Minimum

Minimum oftheDistribution

Maximum

MaximumofDistribution

totalarea
shadedarea

1.0000
89.2%

rangedown=mean1.6*std.dev 4,798 5,265


rangeup=mean+1.6std.dev. 3,863 3,396
lowerandupperlimit 3,583 5,078

ProbabilityFactor
Integration of Gaussian (normal) Distribution
0.0009
0.0008
0.0007

f(x)

0.0006
0.0005
0.0004
0.0003
0.0002
0.0001
0

1,995

2,462

2,929

3,396

3,863

4,330

4,798

5,265

5,732

6,199

6,666

FINANCIALMODELINGFORSBA

Section

BANKSRISKANDRETURNON
CAPITAL

RiskAdjustedReturnonCapital
Return
totalavailableequity
EaRofbusiness
EaRoftheBank

US$2,000,000
US$100,000,000
US$1,000,000
US$4,000,000

Outputs(Example1)
RAROC

8.00%

Durationoftheloan(yrs)
LoanAmount
Maximumchangeintheyieldspread
rateonabondissuedbythefirm
Oneyearspreadrate
Oneyearfeesrate
LoanRisk(orCapitalRisk)
Oneyearincomeonaloan

3.6
US$100,000,000
1.2%
12.0%
0.2%
0.1%
US$3,857,142.86
US$300,000.0

TheLoan'sRAROC

The loan's RAROC=

One-year income on a loan


Loan risk(or capital at risk)

7.78%

BanksCapitalRiskExample
ReturnonLoan
Durationoftheloan
DurationoftheInterestRisk
MaximumChargeofYield
Spread
RateoftheIssuedCreditorBond
RiskFreeRate
1Yearofinterestincomeonthe
packagesoftheloan
CapitalRisk
RAROC

FINANCIALMODELINGFORSBA

Section

INTERESTRATESWAP

InterestRateSwapandRisktoBanksLoanPortfolio
AandBcanmakeaprofitbythefollowinginterestrateSWAPagreement:
Fixedrate
3.00%

LenderA

LenderB

InterestSwaps

Whatbanksusetohedge
theportfolioofloans
whichhaveinterestrate
risk,collateralrisk,sector
andbusinesscyclerisk

Libor
Euribor+2.00%

Fixedrate 3.00%

OutsideLender
(Bank)

OutsideLender
(Bank)

Comparingthenetinterestflowsshowsusthatbothcompaniescanwininthearrangement
FloatinginterestforLenderA
FixedinterestforLenderB

FinanceMarket
Euribor+1.00%
6.00%

SWAP
Libor
5.00%

InterestRatesfacedbyLenderB

InterestRatesfacedbyLenderA

11.00%

10.00%

10.00%

9.00%

9.00%

8.00%

8.00%

7.00%

7.00%

6.00%

6.00%

5.00%

5.00%

4.00%

4.00%

3.00%

3.00%
FixedInterestRate
FloatingInterestRate

TrueEuribor+2.00%

FixedInterestRate
Exp.Euribor+1.00%

TrueEuribor+1.00%
Expon.(TrueEuribor+1.00%)

SimulationofStochasticInterestRateSwapandCurve

Numericalexamples(pressF9togeneratenewrandomnumbers)
Vasicek
CIR
8.00%
8.00%
Rater 0 att=0
Totalsimulationtime(T)
2
2 year(s)
"Pullback"a
0.07 0.07
Equilibriumb
6.00%
6.00%
Volatilitys
3.00%
10.61%
Dt
0.0067

r b r t t
Simulationofshortterminterestrates
14.0%
12.0%

Vasicek

10.0%

Coxetal.

8.0%
6.0%

Equilibrium
lineb

4.0%

Rateatt=0

2.0%
0.0%

0.5

1.5

Time

2.5

ShortTermInterestSwap
FinancialModel
Determinethe
equilibriumofthe
interestratevolatility
InterestRatemoveson
adaily,monthlyand
yearlyterm
Createadistribution
basedontimeand
historicaldatato
distributetheinterest
ratemovesto
determinetheswap
costtohedge

Vasicek ModelforInterestRateSwapModel
Term structure in Vasicek Model
t

Rate r0 at t=0

8.0%

Maturity time (T)

Vasicek FinancialModel
OneFactorModelforshortterm
InterestRate

2.0

"Pullback" a

0.15

Equilibrium b

6.0%

Instanteanous StDev. of short rate (

2.0%

Results:
B in Vasicek Model (Hull)

1.73

A in Vasicek Model (Hull)

0.984227

Infinitely-long Rate (Y)

5.11%

Vasicek Discount Factor


Solution with VBA Function
Vasicek Zero Rate
Vasicek volatitility of zero rate Y (t,T)

Vasicek Model: Steady State Probability Density Function for Spotrate


r

0.857161
0.857161
7.706%
1.728%

6.00%
2.35%

Long-term distribution of r (Steady State Probability Density Function)


r

9.65%

5.00%

10.523

Mean of P

6.00%

StDev of P

3.65%

-15%
Vasicek Term Structure of Interest
Vasicek
Zero
Rate
Longterm
equilibri
um rate
r at t=0

10

20

Time to maturity

30

-10%

-5%

0%

-SD

5%

+SD

10%

15%

20%

25%

Vasicek Discount Function

9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
0

Spotrate (r)

Mean

40

1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
-

Vasicek Discount
Factor

10

Time to maturity

20

30

40

CIRFinancialModelforInterestSwap
TermstructureCIRModel
t(nowyear)
Rater 0att=0

8.0%

Maturitytime(T)

2.0

"Pullback"a

0.15

Equilibriumb

6.0%

InstanteanousStDev.ofshortrate(s)

5.0%

Results:
ginCIRModel(Hull)
BinCIRModel(Hull)

0.16583
1.7254

AinCIRModel(Hull)

0.9838

InfinitelylongRate(Y )

9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
0

10

5.70%

CIRDiscountFactor
SolutionwithVBAFunction
CIRZeroRate
CIRvolatitilityofzerorates Y(t,T)

15

20

25

30

35

Timetomaturity

0.856974
40.745515
7.717%
1.220%

Longtermdistributionofr (SteadyStateProbabilityDensityFunction)
r
k=2ab/s

CIRTermStructureofInterest

CIRZeroRate

Longtermequilibriumrate

ratt=0

Infinitelylongrate

6.00%

7.20

17.636

MeanofP

6.00%

StDevofP

2.24%

CIRDiscountFunction

1.0

CIRDiscountFactor

CIRModel:SteadyStateProbabilityDensityFunctionforSpotrater

0.8
6.00%

0.6

8.24%

3.76%

0.4
0.2

Spotrate(r)
Mean

2%

0%

2%

SD
4%

6%

8%
+SD

10%

12%

14%

16%

18%

10
15
Timetomaturity

20

25

30

35

Disclosure

CHCapitalPartnersLLCisholdharmlesstoanyinformationthathasbeenpresented.ItisforeducationalpurposeonlyanditmaynotbecopiedorreplicatedwithoutthepermissionofCHCapitalPartnersLLCamember
ofCordellFinancialGroup.Itisimportanttofullyunderstandthefinancialanalysisthatwassetforthforthemarketplace. Thiswastohelptheindustryunderstandcomplexfinancialmodelstohelpanycreditanalyst.It
isimportanttorealizethatwemakeamajordifferenceinthemarketplacetohelpclientscreatejobsforourfellowAmericans.

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