Q: I do not understand the math on Slide 26. $1,899,801 – $1,703,921 = $195,880 and not $166,505.
A: Since our focus was on the questionable depreciation expense of $16,258, we did include a negative $29,375 of miscellaneous expenses – Interest Income of $6,694, Other Income of $3,036, and Other Expenses of $39,105 – in displaying the Net Income number of $166,505. If we increase Total Expenses of $1,703,921 by $29,375, the result will match Net Income of $166,505. Please see Page 3 in the financial statements to confirm these amounts.
Q: In underwriting for an approval, I have seen Depreciation and Interest expense actually added back in for spreads. Is our company doing it wrong?
A: It is necessary to add back Depreciation and Interest expense to Net Income in computing traditional "cash flow" available to service debt, which many lenders use as a reference in reaching a credit decision. In Session 3, we address this issue in depth in comparing traditional "cash flow" to the UCA cash flow statement and the use of both in arriving at a credit decision.
Q: We don’t have slide 33.
A: Slide 33 is a hidden slide that reinforces the solutions to Poll Question 3. All the information about solutions to Poll Question 3 are included in the written explanations to the Poll Questions, which are available in the follow-up email and also available if you click the quiz link within your account.
Course overview: Analytical Decision Tree and the Credit Write-Up