It's All About the Cash

February 28, 2021
Corporate Finance

It’s All About the Cash

I remember the exact moment. At 2am on a Wednesday morning sitting at my desk in the offices of one of Europe’s largest investment banks. I was a junior banking analyst under serious pressure to deliver a piece of analysis on a company that our client was considering acquiring and my bank was in competition to finance the acquisition. My boss had asked me a deceptively simple question – how much debt could the acquisition target sustain? But the situation was complicated. The target was part of a loss-making conglomerate on the verge of bankruptcy.

Even after going through the bank’s six-month financial training programme, I was struggling. The data staring me in the face seemed miles away from the general finance theories I had learned in the classroom. I had spent the entirety of the previous day trying to find an answer, knowing that my boss expected one at 8am sharp. Then the light bulb clicked on: it’s all about the cash. This was a seminal moment in my career, the moment which I believe was the foundation on which I have been able to build a 20 year plus career as a successful transactor. Someone with a reputation for delivering innovative and pathfinding transactions across the fields of corporate and project finance as well as debt capital markets.

I have had the privilege of working in the banking and capital markets in both developed and developing countries. What I have found is that the fundamentals of credit analysis, like the laws of physics, are universal. The skill of a good banker/investor is understanding these fundamentals well enough so that they can be shaped into solutions which solve different problems in different contexts. This is our objective at Creditstory.org, we want to help you as a future bankers/investors deeply understand the fundamentals of credit analysis so that you can apply them to create financing solutions which are innovative, responsible and sustainable.

So, let’s get back to talking about cash. If we understand that every financial system exists to enable the transfer of value between parties within that system, then we must look at cash as the most reliable method of transferring of value. Hence the commonly used expression “Cash is King!”. Consequently, if we can understand how a company generates and manages cash, we are able to better understand the credit quality – the ability to repay debt – of that company.

This realisation led me to successfully identifying the cash generation capacity of our target and putting forward a proposal to my boss at 8am that morning. As it happened my analysis resulted in me making my boss think about a different financing solution to that he had originally been contemplating. We won the competition to finance the transaction which was later highlighted by the International Finance Review for its innovative approach.

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