Written for three readers who never sit in the same room: an auditor who asks where the number came from, a lender who asks which definition it uses, and a board in a bad quarter.
The test for a line is whether the column beside it can be filled. Cash of 214,000,000.00 means nothing until the other four readings sit under it. Leverage of 2.0000× means nothing until it sits beside the 2.3690× the covenant is actually tested on. And headroom means nothing until the figure without the committed facility — here 27,403,718.84, or 5.2377 days of payments — is on the page every month, including the months nobody needs it.
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| Line | Compared with | Figure |
|---|---|---|
| Cash, reported | the four readings below | 214,000,000.00 |
| Cash, unrestricted | restricted 9,000,000.00 | 205,000,000.00 |
| Cash, accessible (the facility's definition) | trapped 53,000,000.00 | 152,000,000.00 |
| Cash, available | float 31,392,000.00 at 6 days | 120,608,000.00 |
| Cash, same-day, cleared this morning | spread to reported 145,600,000.00, 68.0374 per cent | 68,400,000.00 |
| Minimum liquidity | 93,204,281.16 of it above the float | 124,596,281.16 |
| Headroom, with the revolver | 277,403,718.84 over the minimum, 3.9763x | 370,608,000.00 |
| Headroom over minimum, without the revolver | 5.2377 days of payments | 27,403,718.84 |
| Revenue fall that removes the revolver | EBITDA fall 21.0317 per cent; downside case 10.00 per cent | 8.4127 per cent |
| Leverage, reported cash | 3.0000×; headroom 1.0000 turns | 2.0000× |
| Leverage, facility definition (binding) | 3.0000×; headroom 0.6310 turns | 2.3690× |
| Leverage, available cash | 3.0000×; headroom 0.4441 turns | 2.5559× |
| Interest cover | 4.0000×; headroom 2.3283 turns | 6.3283× |
| Net floating exposure after cash | zero; at most 64,392,000.00 on home-currency cash | -608,000.00 |
| Interest cover at +200 basis points | 5.2194× without the swap, which saves 3,240,000.00 | 5.8036× |
| Currency hedge ratio, average | 75,000,000.00 of 120,000,000.00 covered | 62.50 per cent |
| Value of one cent on the rate | 0.6068 per cent of EBITDA; ten cents 5.6049 per cent | 1,019,367.99 |
| Concentration excess, largest bank | 41 per cent held against a 25 per cent limit | 34,240,000.00 |
| Forecast error, last quarter | standard deviation 4.1026 per cent, 13,415,426.12 | 7,848,000.00 |
They are the spine, and they sit together so that nobody can quote one without seeing the other four. 214,000,000.00 is the auditor's number and the board's. 152,000,000.00 is the lender's, and the leverage line that binds is computed on it. 120,608,000.00 is the treasurer's, after a float of 31,392,000.00. 68,400,000.00 is what actually cleared this morning, and the spread from the first line to the fifth, 145,600,000.00, is 68.0374 per cent of the first. The page does not say which of the five is cash. It says which is which.
Headroom without the revolver is 27,403,718.84, which is 5.2377 days of the company's own payments. It is on the page every month because the day it matters is the day nobody wants to be reminded of it. The line above it says why: the facility can be drawn only while the covenant is met on the facility's definition of cash, and it fails at a fall in annual revenue of 8.4127 per cent — on the wrong side of the annual plan's own downside case of 10.00 per cent.
The board deck will quote 2.0000×. The report shows 2.0000× too, one line above the 2.3690× the covenant is tested on, so that the 0.5559 turns between them is visible without a footnote. Cover is 6.3283× against 4.0000×, and cover breaks at an EBITDA fall of 36.7917 per cent while leverage breaks at 21.0317 per cent. Leverage binds, and the page marks it so.
Last quarter's forecast error was 2.4000 per cent, or 7,848,000.00 more cash out than forecast. Its neighbour is the sample standard deviation, 4.1026 per cent or 13,415,426.12: the quarter came in at 0.58 of a standard deviation and used 25.1504 per cent of the reserve the minimum liquidity carries for it. A quarter outside two standard deviations is a question about the forecast. Three quarters in a row on the same side of zero is a question about the forecaster.
The question is never put in these words. It is asked as “are we all right for cash”, and it means: what would have to happen for us to run out of money, and how far away is that. On this company the answer has two parts and both are on the page. A revenue fall of 8.4127 per cent removes the facility, which is 67.4567 per cent of the headroom. What remains is 27,403,718.84, 5.2377 days over the company's own minimum.
The lender will read 0.6310 turns. The board should read 8.4127 per cent, because turns flatter and a revenue fall is a thing a board has seen.
The page that survives an auditor is the one whose every figure has a source. The page that survives a lender is the one that uses the lender's definition and says so. The page that survives a bad quarter is the one that said, every month for three years, that without the revolver the company had five days of payments over its own minimum — so that the quarter in which that mattered was not the first time anyone had read the line.
One page of lines that each carry a comparison: the five readings of cash, minimum liquidity and headroom with and without the committed facility, leverage on every definition with the covenant beside it, interest cover, net floating exposure, the hedge ratio, the bank concentration excess and the forecast error against its own standard deviation. On this company that is nineteen lines.
Liquidity headroom over the policy minimum without the committed facility — here 27,403,718.84, or 5.2377 days of payments — sitting next to the revenue fall at which the facility becomes unavailable, 8.4127 per cent.
Three times, with the covenant beside each and the binding one marked. Here leverage is 2.0000× on reported cash, 2.3690× on the facility's definition (binding) and 2.5559× on available cash, against a covenant of 3.0000×. Showing only the first hides 0.5559 turns.
This article is one calculation from Treasury Management. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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