17. Administration and analysis of the indebtedness

Chapter 17



by: josavere

Let us remember that the debt is characterized by:

  • The date of expiration must be stipulated clearly.

  • A cost that is determined with base in the effective rate including the value of the risk and all types of over costs or “washers “as mortgages to constitute and to raise, imposed of timbre, estimates, agreements of minimum balances, and others.

  • A claim on the assets, whose degree will be greater or smaller depending on the type of guarantee which the parts agree and special circumstances like for example a financial reconstruction of the company protected by a law of the country where it operates.

The previous considerations cause that the financial manager and his collaborators learn to administer the debt. For it agrees to classify it by groups, according to the following model:

  • Loans of treasury

  • Loans of medium and long term

  • National suppliers

  • Suppliers of the outside, a game that is affected by the changes in the value of currencies.

With this information, a matrix for each group in an individual is prepared in excel as it indicates in the formulation of the example illustrating the steps to follow to do it and the average weight of each one of them calculates the cost (separating loans of short and long term).

Soon the previous matrices in a single one are integrated to maintain updated the cost of the debt with financial organizations permanently which must be complemented with a subjective appreciation of the inherent risk to maintain stops it of that form to have two parameters that serve as the element of negotiation with the financial organizations.

As much the indebtedness of treasury as the one of a short term must be updated and monthly be integrated to the cash flow projected to initiate the period with a clear panorama that it indicates the victories that are due to take care of with priority to fulfill strictly the commitments financial and to increase the value of the intangible assets and therefore, the patrimony.

It is begun analyzing the victories of the month that begins (go with some symbol; for example, using red color) and the due precautions in the flow are taken from a box; continuous reviewing the cost or effective rate of each one of the components of the debt emphasizing in which they have a value superior to the average (8,77% in this case) to try to reduce them finally and, the participation of each one of the banks is reviewed avoiding that appear concentrations that can increase the risk.

In order to calculate the value of the liabilities of the long term, it is come in the same way complementing with information on the decided guarantee.

With the suppliers, a similar matrix is prepared to calculate the cost considering the discount that offer by strict payment of counted.

With the suppliers, a similar matrix is prepared to calculate the cost considering the discount that offer by strict payment of counted.

Conformed the matrix, integrating the three previous ones are completed I calculate of the value of the indebtedness that, can as well be integrated with the cost of the own resources to calculate the cost of capital of the company.

Knowing the participation and the cost of each one of the user groups to prepare the indebtedness matrix, it agrees to happen to other indicators commonly used that is to say:

a. To review if the structure is concordant or the financial principle of conformity does not verify the fulfillment of the inequality enunciated in the inecuación:

AF + C de T ≅ Plp + Pat

Af: Fixed assets
C de T: Work capital
Pat: Patrimony
Ltl: Long-term liabilities

Reason of indebtedness = total debt /active total (%)

c. Proportion of the indebtedness = short debt term / total debt (%)

d. Proportion external indebtedness = debt in US $/ total debt

e. EBITDA = UAII/I (times)

f. Cap of the service to the debt: it is analyzed with base in the projection of cash flow.

All the previous indicators have sufficient elements of judgment to administer judiciously the debt and to turn it into a tool of value generation.



Supplier Term Rate of Discount % Cost % Purchases Participation Cost * Participation
A 45 3,00 24,00 13.423.300 16,42 3,94
B 60 2,00 12,00 2.830.072 3,46 0,42
C 30 4,00 48,00 8.279.276 10,12 4,86
D 60 3,00 18,00 14.067.500 17,20 3,10
E 30 0,00 0,00 20.000.000 24,46 0,00
F 60 4,00 24,00 1.748.280 2,14 0,51
G 30 3,00 36,00 21.424.800 26,20 9,43
TOTAL 81.773.228 100,00 22,26

Column C D F G
Formula A/TOTAL C*F
Financier > 8,83> 4.019.774.000> 98,01> 8,66>
Suppliers> 22,26> 81.773.228> 1,99> 0,44>
Total > 4.101.547.228> 100,00> 9,10

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See Matrix of Indebtedness

Note: all debt formulas are calculated taking into account the inherent risk value, the calculation of which is very complex in quantitative terms, despite the great progress achieved, measured by its degree of acceptance in the financial world. In practice, risk management requires a high dose of individual judgment combined with probabilistic models.
After the collapse of the twin towers in New York (September 11, 2001) and now with the crisis of the year 2020 caused by the COVID-19 or coronavirus, it is necessary to reevaluate a concept that prevailed for a long time: "zero risk, a bonus from the treasure of the USA ".

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