Basic Credit Skills 8-10 Juli 2020

BASIC CREDIT SKILLS
July 8-10, 2020

OCBC
Prepared by:
1
INTRODUCTION
OBJECTIVES
To understand the fundamental of credit

To have basic understanding of financial statements for credit
analysis
To learn how to asses the rational debtor’s financing needs and its
debt sizing
To learn how to analyze debtor credit worthiness through its
qualitative and quantitative assessment, and
To discuss about collateral, loan agreement, and loan monitoring
2
INTRODUCTION
FACILITATOR & CLASS ADMINISTRATORS
• FACILITATOR
JONO EFFENDY
• CLASS ADMINISTRATORS
MELIANNA PRANITA
3
LEARNING AGENDA
DAY 1 DAY 2 DAY 3

08.30 – 08.35 OPENING 08.30 – 10.00 Presentation Exercise 1 08.30 – 11.00 Financial Statements Analysis
08.35 – 09.05 Pre-Test 10.30 – 12.00 Rational of Borrowing Needs 11.00 – 12.00 Exercise Day 3 : PT GG & PT HM
and Debt Sizing
09.05 – 12.00 Fundamental of Credit 12.00 – 13.00 Lunch Break 12.00 – 13.00 Lunch Break
12.00 – 13.00 Lunch Break 13.00 – 15.00 Macro, Industry and Business 13.00 – 13.30 Collateral Analysis
Analysis
13.00 – 15.00 Accounting and 13.30 – 14.00 Loan Agreement
Financial Statements
14.00 – 14.30 Loan Monitoring
14.30 – 15.00 Post Test
Exercise Day 1 : Exercise Day 2 : Exercise Day 3 :

Accounting & Financial Comprehensive Case Study - Comprehensive Case Study –
Statements Part 1 Part 2
LEARNING AGENDA 4
PRE-TEST
BASIC CREDIT SKILLS
bit.ly/BCSTEST
CHAPTER 1
FUNDAMENTAL OF CREDIT
6
CHAPTER 1: FUNDAMENTAL OF CREDIT
TOPICS TO BE DISCUSSED
▪ Overview of Credit
• What is Credit?
• Credit Segmentation
• Credit Process in a Bank
▪ Essential of Credit Analysis
• Basic Concept of Credit Analysis: 5Cs
• Framework of Credit Analysis
• Materials for Credit Analysis
• SLIK
▪ Credit Quality
• Credit Quality and Financial Impact
• OJK’s Rating and Credit Quality
7
OVERVIEW OF CREDIT
WHAT IS CREDIT?
▪ Credit (loan) means receiving something of value now and promising to
pay for it later, often with a finance charge (i.e. interest) added by the
lender.
▪ Credit can be utilized by:

• Individual:
✓ For Personal consumption (Consumer Loan) or
✓ For Personal Business (Micro Loan)
• Corporate:
✓ For Business/Productive Purpose (Working Capital
or Investment Loan)
CHAPTER 1: FUNDAMENTAL OF CREDIT 8

OVERVIEW OF CREDIT
CREDIT SEGMENTATION - CLASSIFICATION Example of credit segmentation
PARAMETER
SEGMENTATION SALES or LENDING PRODUCTS
LOAN SIZE
ASSETS SIZE
Secured Loan: Unsecure
• Kredit Pemilikan Rumah (KPR), Loan:
CONSUMER BANKING • Credit Card
RETAIL
N/A N/A • Kredit Pemilikan Apartment (KPA),

• Kredit Pemilikan Mobil (KPM), • Kredit Tanpa
• Kredit Multi Guna (KMG) Agunan (KTA)
MICRO BANKING Rp < 1 billion N/A • Mostly Working Capital

EMERGING (SME) • Working Capital Loan (Short Term)
Rp 1-25 billion N/A
BANKING ✓ Account Receivable
✓ Inventory
CORPORATE
COMMERCIAL
Rp 25-100 billion N/A
BANKING • Investment Loan (Long Term)
✓ Fixed Assets
ENTERPRISE BANKING Rp > 100 billion Rp > 500 billion ✓ Other Long Term Assets
WHOLESALE • Others (e.g. project financing and company
Public Company and MNC
BANKING acquisition)

OVERVIEW OF CREDIT
CREDIT SEGMENTATION - CHARACTERISTICS
EMERGING (SME) & ENTERPRISE & WHOLESALE
CONSUMER & MICRO BANKING COMMERCIAL BANKING BANKING
DEBTORS’ TARGET Mass market Medium size company Large corporation

Background checking,
Background checking,
Background checking, repayment capacity,
repayment capacity, industry,
income level, living cost, industry, business, and
KEY ANALYSIS FACTOR business, and financial
customer characteristic, financial conditions, capital
conditions, capital structure,
collateral structure,
Collateral (optional)
collateral
Consumptive and
CREDIT PURPOSE Productive Productive
Productive (micro lending)
CREDIT PROCESS
(approximately) 1 - 15 days 2 - 8 weeks > 1 month
Combination of
MONITORING AND Standardized and clear
COLLECTION standardized and Personalized
pattern
personalized approach

OVERVIEW OF CREDIT
CREDIT PROCESS IN A BANK
1. FINDING PROSPECTIVE DEBTOR 2. DEBTOR COMPREHENSIVE
• Customer direct request ASSESSMENT
• Existing debtors business relation 1 Evaluating 5Cs (will be explained in
• Promotion the next slide)
• Other sales channels 2
5. RESTRUCTURING AND
5 GENERAL 3. LOAN AGREEMENT AND
PROCESS ADMINISTRATION
LEGAL ACTION
• Amicable settlement • Make sure all necessary
through restructuring
3 documents are completed and the
• Legal action for non 4 parties authorized
cooperative debtors • Loan agreement drafting
4. CREDIT MONITORING AND SERVICE TO DEBTOR

• Continuous monitoring on terms and condition of loan agreement
• Monitoring business and financial performance
• Service to debtor (e.g. drawdown, economic update)
Source: Investopedia
12
ESSENTIAL OF CREDIT ANALYSIS
BASIC CONCEPT OF CREDIT ANALYSIS: 5Cs
Most important of 5Cs especially in difficult
situation (Reputation/Track Record in the
Market/Business) – SLIK checking, Trade Checking, and
2nd way out:
Character Family/Personal Life Assessment
Assets provided as back-up

should debtor fails to fulfill its
1st way out:
debt obligation – value & type of Collateral Sufficient operating cash
collateral
flow to serve debt – Operating
5Cs Capacity
Cash flow / EBITDA
Factors surrounding the debtor’s

Condition Shows owner/promoters’ financial
business, such as: Macro Environment,
Industry Situation and Business & Financial Condition
Capital commitment to the business (buffer
against losses) – Leverage (Gearing) Level

FRAMEWORK OF CREDIT ANALYSIS
Refers to the condition that exists in the macro
MACRO economy as a whole, includes trends in gross domestic
ENVIRONMENT product (GDP), inflation, interest rate, foreign
exchange, and other factors such as political, social
trend & environment, legal aspect and technological.
INDUSTRY Refers to the impact that Government’s industrial

Borrowing Needs
RISK policy and Industry Competitiveness can have on the
performance of a specific industry
Refers to the factors come from a variety of sources

BUSINESS (internal or external) that threat a company to achieve
CREDIT
WORTHINESS RISK its financial goals/target (e.g. size & competitiveness,
ASSESSMENT maturity, controlling shareholder, management, HR)
Refers to the status of financial statements of a

company at a specific time and the periodic
FINANCIAL CONDITION & PROJECTION performance through financial ratios, projection and
other qualitative analysis.
+ Refers to type, value, and location of collateral

COLLATERAL (if any) embedded into the band agreement.
MATERIALS FOR CREDIT ANALYSIS
MATERIALS CONTENTS REMARKS
SLIK (Sistem Layanan Debtors information, credit features and credit • Only allowed for checking clients/prospective
Informasi Keuangan) status (will discuss later) clients
Interim financial Balance sheet and income statement (usually
• Provided in a rudimentary/not perfect form
statements unaudited)
Notes from site visit and interview with BOD (BOC
Note from the bank visit • Obtain informal views about the debtors from
if necessary), other controlling parties, staffs,
and third parties various sources.
suppliers, and customers
Articles concerning acquisitions, capital raising, • Offline source: Newspaper, magazine
News service changes in shareholder, BOC & BOD, regulatory • Online source: Search engine (e.g. google), social
development and other important news media (e.g. Facebook or Instagram), etc.
Income statement, balance sheet, other financial • Source: investor presentations and press release
Annual report
statements and supplementary information • Data recommended: min. 3 years financial data
Prospectuses for the benefit of prospective
Prospectuses and • Documents prepared for investors must enumerate
investors (contain more detail company and
offering circulars potential risks. However, it’s not easily accessible.
market data)
• For comparing credit analyst’s own findings with
Rating agency reports & Reports from regulatory authorities, rating
other agency findings in seeking investment
other 3rd party research agencies, and investment banks
opportunities.

SLIK: THE DATABASE & DEBTOR’S INFORMATION COVERAGE
▪ SLIK (Sistem Layanan Informasi Keuangan) is an integrated information system
managed by OJK that will provide information services to stakeholders in the
financial services sector.
▪ SLIK among other will provide the debtor information service to replace the
role of Debtor Information System/Sistem Informasi Debitur (SID) as Public
Credit Registry in Indonesia since early 2018.
▪ SLIK is updated on monthly basis.
▪ Coverage of debtor’s information that are requested:

• Identity of debtor
• Debtor’s controlling shareholder and management
• Debtor’s credit facility
• Collateral
• Guarantor
• Credit quality
• Other information
SLIK: WHO CAN REQUEST? AND THE PURPOSE OF DEBTOR’S INFORMATION COVERAGE
▪ The parties who can request the debtor information is:
• The Reporting Entity
• Debtor
• LPIP (Lembaga Pengelola Informasi Perkreditan)
• Other party
▪ The reporting entity may not use the debtor’s information received
for the reporting entity ‘s purposes other than for the following
purposes:
• Supporting the smooth process of providing credit facilities
• Implementation of risk management
• Identify the quality of the debtor in compliance with OJK or other
authorized parties regulation

CREDIT QUALITY
CREDIT QUALITY AND FINANCIAL IMPACT
INCOME STATEMENTS
BALANCE SHEETS Decrease
Interest Income
Interest Expense
TRADING
-/-
PORTFOLIO Net Interest Income (NII)
LIABILITIES:
Net - Non Interest Income
• 3rdParties Deposit (Fee, Commision, & gain/loss –
BANKING • Inter-Bank Loan trading)
+ /+
PORTFOLIO • LT-Debt Gross Income
(e.g. LOAN) Increase Operating expenses
(& Impairment expense/biaya CKPN) -/-
Operating Income
FIXED ASSETS EQUITY:
& • Paid in Capital Other expenses - net
Reduce -/-
OTHER ASSETS • Retained Earning Net Income

CREDIT QUALITY
CREDIT QUALITY AND FINANCIAL IMPACT – Cont’d
EL = PD X LGD X EAD
Expected Loss (EL) Exposures At Default
The expected value or loss to be Measure the potential loss of total
allocated into loan impairment exposure when the loan is default
Loss Given Default

Probability of Default (PD) Measure the potential credit
Measure quality of loan using a loss of deducted with collateral
rating concept sales recovery
Example:
PT XYZ, a debtor of Bank X has a loan exposure of IDR 100 billion, with a potential recovery rate from its collateral of
IDR 60 billion. The probability of default of the loan is 5% (based on its rating history analysis). Therefore, credit
100−60
provision allocated for the loan is IDR 2 billion (5% x 100 % x IDR 100 billion).

CREDIT QUALITY
OJK’s RATING & CREDIT QUALITY
▪ OJK credit collectability rating is based on 3 pillars assessment.
▪ Credit collectability rating consists of five (5) categories. Collectability 1 is the highest, and
collectability 5 is the lowest.
3 Pillars 5 Collectability Ratings
1 Current
2 Special Mention
3 Substandard
• Business Prospective 4 Doubtful
• Debtor’s Performance
• Repayment Capacity 5 Loss

CREDIT QUALITY
OJK’s RATING & CREDIT QUALITY – Cont’d
1 2 3 4 5
COLLECTABILITY Special Mention
Current (Dalam Perhatian Substandard Doubtful Loss
(Lancar) (Kurang Lancar/KL) (Diragukan) (Macet)
Khusus/DPK)
Very limited or no
POTENTIAL GROWTH Good Limited Slowing down Doubtful or stop
growth
MANAGEMENT
CAPABILITY Very good Good Standard Inexperience Low
EARNING GAIN High and stable Good Low Very low Significant loss
LIQUIDITY Strong Good Low Very limited Dificulties
WORKING CAPITAL Strong Good Limited Very limited Dificulties
PAYMENT No delinquent
DELINQUENCY ≤ 90 days > 90 - 120 days > 120 - 180 days > 180 days
(On time)
Source: Youtube
“When lending people money, be
sure their character exceeds
their collateral”
END OF THIS SECTION
CHAPTER 2
ACCOUNTING AND FINANCIAL

STATEMENTS
24
CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS
▪ Overview of Accounting
• Definition and Standards of Accounting
• Functions of Accounting
▪ Basic Accounting Principles
▪ Basic Accounting Process
▪ Type of Financial Statements
• Income Statement
• Changes in Stockholders Equity Statement
• Balance Sheets
• Cash Flow Statement
• Notes to Financial Statement
▪ Audit Opinion and Quality of Financial Statements
25
OVERVIEW OF ACCOUNTING
DEFINITION AND STANDARDS OF ACCOUNTING
“The art of recording, classifying, and summarizing in a significant
manner and in terms of money, transactions and events which are,
in part at least, of financial character, and interpreting the results
thereof”.
United States European Union Indonesia

Mostly use “International Ikatan Akuntan Indonesia (IAI)
Accounting conforms to Accounting Standard (IAS)” develop “Pernyataan Standar
“Generally Accepted Accounting and later was changed to Akuntansi Keuangan (PSAK)” as
Principle (US GAAP)” “International Financial an accounting standard and
Reporting Standards (IFRS)” doing the convergence to IFRS.
CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 26

OVERIEW OF ACCOUNTING
FUNCTIONS OF ACCOUNTING
Accounting is a tool to convey financial information about a

business entity to its stakeholder, so it called “the language
of business”.
Usage of Financial Statements
Performance
Planning Controlling
Measurement

BASIC ACCOUNTING PRINCIPLES
10 BASIC ACCOUNTING PRINCIPLES
1. Single
• A business is a separate entity in the eyes of the law. All its activities are treated separately
Economic from that of its owners.
Entity
• A specific currency (e.g. USD, Euro, IDR which main currency used in company transaction)
2. Specific used for accounting report.
Currency • Different currency from their monetary unit cause gain or loss in their financial statement
as a consequence of the convert.
• The time period of business reporting and its cute-off date has to be clearly stated.
3. Specific Time
• Income statements have a start date and an end date. Balance sheets are reported as on a
Period certain date.
• Used for valuing items from the prices at which items were brought and sold are used for
4. Historical Cost the valuations.
• Real values do change due to inflation and recession
• always in keen focus what with all the accounting scandals in the news nowadays.
5. Full Disclosure • companies have to reveal every aspect of the important/ substantial information in their
financial statements.

BASIC ACCOUNTING PRINCIPLES
10 BASIC ACCOUNTING PRINCIPLES
• Assume that a company will continue to function eternally and have no end date.
6. Going Concern • Allows company to postpone their prepayment till future accounting period.
• States that the accrual system of accounting be used and for every debit there should be a
credit and vice versa
7. Matching • Companies reveal their income and expenses in the same time period in which they were
accrued
• Assume that when a product has been sold or a service has been performed, revenues are
8. Recognition recognize without regard to the time that the money is actually received.
• Record of an event shall be consider its impact to decision making activity.

9. Materiality • Accountant have to use their judgements to decide whether an amount can be ignored or
not.
• Accountant have to adopt and determine what alternative that will give the best result to
10. Conservative anticipate losses or increase gains depend on company own internal strategy.

BASIC ACCOUNTING PROCESS
6 STEPS OF PROCESS
Prepare Obtain
Financial Statements Source Document
06 01 As transactions occur
Record
Record Journal
Adjusting Entries 05 02 Entries
Prepare Trial Balance 04 03 Posting to General Ledger

STEP 1 – SOURCE DOCUMENT(S)
PT Permata Indah Sekali
Hotel Invoice
Every transaction must be recorded, and should be backed by at least one (1)
source document as the evident of the transaction

STEP 2 – JOURNAL ENTRIES
The source of document(s) of a transaction must records into a journal entry with
the following characteristics :
• Consist of at least record two (2) components in balance accounting equation
(i.e. debits = credits)
• record the date, a narration and the account numbers and later on to be posted
to ledger accounts regularly, therefore:
✓ A company need a “Chart of Accounts” to classify each transaction into a
journal entries.

STEP 2 – JOURNAL ENTRIES – Cont’d
EXAMPLE OF CHART OF ACCOUNTS
ACCOUNT
ACCOUNTS DESCRIPTION
NUMBER
100 Cash and Bank The most liquid assets of a company and vital for solvency of a company
Account The amounts of money owned by company for goods or services delivered or used
110
Receivables by customers but have not been paid
120 Inventory The cost of the finished goods that have not been sold
An expenditure paid for in one accounting period, but for which the underlying asset
130 Prepaid Expense
will not be consumed until a future period
Assets that are purchased for long-term use and are not likely to be converted
140 Fixed Assets
quickly into cash, such as land, buildings, and equipment.
200 Account Payable Company's obligation to pay off a short-term debt to its suppliers
210 Accrued Expense An expense recognized in the books before it is paid for
Amount of money raised by a company from selling its equity and not from ongoing
300 Paid in Capital
operations
310 Retained Earning Net income left over after deducted with dividends payment to shareholders.
EXAMPLE OF CHART OF ACCOUNTS
ACCOUNT
ACCOUNTS DESCRIPTION
NUMBER
400 Sales The revenues earned when a company sells its goods or products
500 Cost of Good Sold The direct costs used for production of the goods sold in a company, include cost
of materials and direct labor cost (exclude distribution cost and sales force cost)
510 Operating Expenses An expense a business incurs through its normal business operations, such as
rent, equipment, inventory costs, marketing, payroll, insurance, and funds
allocated for research and development.
520 Other Income/ Income or expense that does not come from a company’s main business, such as
(Expense) interest, rent, and gains resulting from the sale of fixed assets.

PT Permata Indah Sekali PT Permata Indah Sekali (PIS)
Journal Entries
(in IDR Thousand)
No Date Acc. Number Accounts Debit Credit

1 3 Jan ‘20 100 Cash and Bank 200,000
400 Sales 200,000
Hotel Invoice 500 Cost of Goods Sold 120,000
120 Inventory 120,000
2 5 Jan ’20 510 Operating Expense (Travelling) 20,000
100 Cash and Bank 20,000
• Transaction 1: On 3 Jan 2020, Albert, the executive sales officer of PT PIS has sold a set of
diamond rings to a “Middle East customer” amounted to IDR 200 million in a luxurious hotel
located at Nusa Dua, Bali .The cost of good sold of the diamond rings was IDR 120 Million.
• Transaction 2: Albert has stayed 4 nights at the luxurious hotel and also spend some cost in the
hotel during his stays. Total accommodation costs in the luxurious hotel charged to Albert during
his check-out on 5 January 2020 were IDR 20 million.
STEP 3 – GENERAL LEDGER – Cont’d
• Records all addition and deduction of each accounts in financial statements
• An entity’s complete recording of account movement at one point of time or in a period of time.
Posting to General Ledger
(in IDR Thousand)
No Date Acc. Accounts Debit Credit CASH AND BANK 100

Number Date Debit Credit
1 3 Jan ‘20 100 Cash and Bank 200,000 3 Jan ’20 200,000
400 Sales 200,000 5 Jan ‘20 20,000
500 Cost of Goods Sold 120,000
120 Inventory 120,000
INVENTORY 120
2 5 Jan ’20 510 Operating Expense (Travelling) 20,000
Date Debit Credit
100 Cash and Bank 20,000
3 Jan ‘20 120,000
SALES 400 COST OF GOODS SOLD 500 OPERATING EXPENSE 510

Date Debit Credit Date Debit Credit Date Debit Credit
3 Jan ‘20 200,000 3 Jan ‘20 120,000 5 Jan ’20 20,000
STEP 4 – TRIAL BALANCE – Cont’d
ACCOUNT
ACCOUNTS DEBIT CREDIT
NUMBER
100 Cash 180,000 -
110 Account Receivables - -
120 Inventory - 120,000
130 Prepaid Expense - -
140 Fixed Assets - - • A listing of all general ledger accounts
200 Account Payable - - and their balances at a particular date.
210 Accrued Expense - - • Total of both columns must be equal,
300 Paid in Capital - -
but equal doesn’t mean there are no
310 Retained Earning - -
errors.
400 Sales - 200,000
500 Cost of Good Sold 120,000 -
510 Operating Expenses 20,000 -
520 Other - -
Income/(Expenses)
TOTAL 320,000 320,000

STEP 5 – ADJUSTING ENTRIES
▪ Adjusting entries are general journal (not a transaction journal) to adjust the
trial balance, which one side of the entry affects or creates a balance sheet
item; and the other side affects or creates a revenue or expense account.
• Unearned revenue and prepaid expenses are already recorded in the
accounts.
• Accruals (expenses and revenues), depreciation, and doubtful debts are
not yet recorded.
▪ An ADJUSTED Trial Balance is prepared after adjusting entries posted

STEP 6 – FINANCIAL STATEMENTS
Is the final stage of basic accounting process that generated to fulfill the variety
needs of the financial statement users.
There are five (5) types of financial statements, as follows:
1. Income Statement
2. Statement of Changes in Stockholders’ Equity
3. Balance Sheet
4. Statement of Cash Flow
5. Notes to Financial Statements

STEP 6 – FINANCIAL STATEMENTS – Cont’d
ACCOUNT
ACCOUNTS DEBIT CREDIT
NUMBER
100 Cash 180,000 -
110 Account Receivables - -
120 Inventory - 120,000
130 Prepaid Expense - -
140 Fixed Assets - - BALANCE SHEETS
200 Account Payable - -
210 Accrued Expense - - ADJUSTMENT
ENTRIES
300 Paid in Capital - -
310 Retained Earning - [ ]
400 Sales - 200,000
500 Cost of Good Sold 120,000 -
60,000 INCOME
510 Operating Expenses 20,000 - STATEMENTS
520 Other Income/(Expenses) - -
TOTAL 320,000 320,000

TYPE OF FINANCIAL STATEMENTS
INCOME STATEMENT
•Reports entity’s performance for the period (revenues & expenses)
REVENUE - EXPENSES = NET PROFIT/ LOSS
•Revenues and expenses must be displayed separately
Terminology Definition
SALES/REVENUE All receipts of a company that result from the transfer of ownership of goods from
the company to another party (presented in net basis after deduction of return and
discount)
COST OF GOOD SOLD All goods and services acquired for later sale
GROSS PROFIT The difference between sales and cost of good sold
OPERATING EXPENSE All expenses that support the company operation, includes: rent, salaries,
telephone bills, advertising and other
OPERATING PROFIT The difference between the gross profit to operating expenses
OTHER INCOME (EXPENSE) All Income & expenses from non operating activity or services
NET PROFIT The difference between operating profit to other income and/or expenses
(presented before or after deducted by tax)
INCOME STATEMENT – Cont’d
PT HM SAMPOERNA Tbk AND SUBSIDIARIES
INCOME STATEMENTS
Ended December 31, 2017, 2018 and 2019 in (IDR millions)
2017 2018 2019
Sales 99.091.484 106.741.891 106.055.176
Cost of Goods Sold (74.875.642) (81.251.100) (79.932.195)
Gross Profit 24.215.842 25.490.791 26.122.981 (A)
Operating Exenses
Selling (6.258.145) (6.296.611) (6.621.032)
General and Administrative (1.846.352) (2.312.252) (2.424.862)
Other-net (7.784) 105.899 36.992
Total Operating Exp. (8.112.281) (8.502.964) (9.008.902) (B)
Operating Profit 16.103.561 16.987.827 17.114.079 (C) = (A) – (B)
Other Income (Expense)
Net Interest Income (Expense) 791.245 973.442 1.145.344 (D)
Earning* Before Taxes (EBT) 16.894.806 17.961.269 18.259.423 (E) = (C) + (D)
Taxes Expenses (4.224.272) (4.422.851) (4.537.910) (F)
Earning* After Tax (EAT) 12.670.534 13.538.418 13.721.513 (G) = (E) + (F)
* Note: Earning = Net Profit
CHANGES IN STOCKHOLDERS EQUITY STATEMENT
A statement that summarizes the activities that resulted changes between two dates of
the owners’ equity portion of the balance sheets at the beginning of the period and the
owner’s equity portion of the balance sheets at the end of the period.
A financial statement that shows the changes of equity in one (1)

period.
Consists of initial balance of capital on the adjusted trial balance plus

net profit after tax and deducted by dividend payment and others

CHANGES IN STOCKHOLDERS EQUITY STATEMENT
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Retained Earning
Capital Stock Total Equity
(incl. OCI and other)
Balances at December 31, 2017 20.449.204 12.486.976 34.112.985
Net Profit After Tax (2018) 13.538.418 13.538.418
Dividend Payment (12.480.930) (12.480.930)
Other Comprehensive Income 91.205 90.833
Other 96.947 - 96.947
Net Profit After Tax (2019) 13.721.513 13.721.513
Dividend Payment (13.632.478) (13.632.478)
Other Comprehensive Income 210.260 210.517
Other 21.925 - 21.925

BALANCE SHEET
A financial statement that summarizes a company’s assets, liabilities and
shareholders’ equity at specific point in time.
ASSETS = LIABILITIES + SHAREHOLDER’S EQUITY
A=L + E
Assets : all cash, marketable securities, account receivables, inventory, prepaid
expenses, investment and fixed assets owned by the company.
Liabilities : amounts owed to other companies or individuals through business
suppliers/vendors payable, taxes payable, banking or capital markets debt
issuance (bond).
Equity : It is also called "net worth". This is what remains after deducting
liabilities from your assets. The two main contributors of this account is paid-in
capital and retained earnings.

BALANCE SHEET – Cont’d
BALANCE SHEET
Assets and liabilities:
• Are displayed in terms of object/group providing or requiring sacrifice of economic benefits
• Must be classified into current and non-current categories:
Current Non - Current

• Assets: assets that expected to be cash for the period • Assets: assets that expected to be cash for the period
of ≤ 1year. of >1year
• Liabilities: liabilities that expected to be paid in cash • Liabilities: long term debt that expected to be paid
for the period of ≤ 1year. for the period of > 1year
• Equity in the balance sheet is classified as non-
current.

BALANCE SHEET – Cont’d PT HM SAMPOERNA Tbk AND SUBSIDIARIES
BALANCE SHEETS
Assets 2017 2018 2019 Liabilities and Equity 2017 2018 2019
Current Assets Current Liabilities
Cash & Cash Eqv. 7.501.737 15.516.439 18.820.695 Account Payable:
Account Receivable: • 3rd Party (AP) 2.599.318 2.652.273 2.655.512
• 3rd Party 3.375.798 3.370.321 3.118.541 • Related Party (AP) 1.067.123 797.797 1.146.492
• Related Party 222.124 137.280 136.413 Tax Payable 1.867.949 1.687.831 2.389.662
Inventory 18.023.238 15.183.197 16.376.231 Excise Tax Payable - 2.670.180 5.423.392
Prepaid Expense 1.416.066 1.158.738 1.360.077 Employee Benefit Liabilities 636.581 651.225 691.046
Advances for Tabacco 1.025.646 883.936 952.616 Other Current Liabilities 311.998 334.693 421.572
Other Current Assets 2.615.744 1.581.572 932.442 Total Current Liabilities 6.482.969 8.793.999 12.727.676
Total Current Assets 34,180.353 37.831.483 41.697.015 Employee Benefit Liab. (LT) 2.239.240 2.202.332 2.129.454
Other Long-Term Liabilities 305.869 247.836 365.946
Total Liabilities 9.028.078 11.244.167 15.223.076
Owner's Equity
Non-Current Assets Paid-in Capital 20.914.476 21.011.423 21.033.348
Fixed Asset (net) 6.890.750 7.288.435 7.297.912 Retained Earnings 12.581.976 13.730.669 14.029.964
Other Non-Current Assets 2.069.960 1.482.502 1.907.879 Others 616.533 616.161 616.418
Total Non Current Assets 8.960.710 8.770.937 9.205.791 Total Owner's Equity 34.112.985 35.358.253 35.679.730
CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS
Total Assets 43.141.063 46.602.420 50.902.806 Total Liabilities and Equity 43.141.063 46.602.420 50.902.806
CASH FLOW STATEMENT
A statement that summarize how a company has
generated and used cash. Since the revenue and cash
recognition are not based on the receipt or payment of
cash, the income statements tend to obscure the cash
inflows and outflows.
1. Operating Activity,
2. Investing Activity,
3. Financing Activity, and
4. Supplemental Information.

CASH FLOW STATEMENT
STATEMENT OF CASH FLOW
Operating Activities 2017 2018 2019
Cash Received from customers 108.033.945 116.739.187 116.293.601
Cash Paid to suppliers and employees (31.740.310) (34.420.030) (34.019.829)
Excise Tax Paid (Biaya cukai yang dibayar) (57.699.942) (59.128.307) (61.538.037)
18.593.693 23.190.850 20.735.735
Income Tax receive (paid) (4.337.944) (4.035.809) (4.630.741)
Interest and Financing charges receive (paid) 1.120.566 1.038.442 1.040.973
Net cash provided (used) in operating activities 15.376.315 20.913.483 17.145.967
Investing Activities
Sale of fixed assets 23.915 137.904 29.724
Acquisitions of fixed assets (1.151.713) (989.217) (959.537)
Increase/Decrease in financial assets and related parties receivables 746.749 1.195.790 873.103
Net cash provided (used) in investing activities (381.049) 333.591 (56.710)

CASH FLOW STATEMENT
STATEMENT OF CASH FLOW
Ended December 31, 2017, 2018 and June 30, 2019 in (IDR millions)
Financing Activities 2017 2018 2019
Net Proceeds/Repayment of Liabilities (22.255) (31.442) (152.523)
Dividend Paid (12.527.457) (12.480.930) (13.632.478)
Share Issued - - -
Net cash provided (used) in financing activities (12.549.712) (12.512.372) (13.785.001)
Increase (decrease) in cash 2.445.554 8.014.702 3.304.256

Cash at beginning of year 5.056.183 7.501.737 15.516.439
Cash at end of year 7.501.737 15.516.439 18.820.695

NOTES TO FINANCIAL STATEMENT
Are integral part of the financial report and necessary for reliable understanding of financial
statements.
Relates to the notes attached to balance sheet and income statement, explaining
details of changes from one year to another
FINANCIAL
STATEMENTS
In principle it complements the balance sheet and income statement, shows the
detailed accounting information to provide more accurate picture
FULL DISCLOSURE, the provision of sufficient information to allow investors (or

lender) to make economic decision about financial standing of a company

AUDIT OPINION AND QUALITY OF FINANCIAL
STATEMENTS
• There are audit opinions issued by public accountant after performing financial audit of an entity as
follows:
Unqualified, auditor finds financial Disclaimer, auditor choose not to render

statements conform to GAAP. Statements an opinion. They either cannot audit
1 represent the entity's financial accounts
3 impartially or have other doubts about the
fairly. reports whether it is conform or not
conform with the GAAP
Qualified, auditor finds that reports Adverse, auditor finds that the
2 conform to GAAP, except in just a few 4 statements do not fairly represent the
areas. For these areas, the auditor cannot entity’s accounts. The financial
assert conformance statements do not comply with GAAP.

AUDIT OPINION AND QUALITY OF FINANCIAL
STATEMENTS
The greater reputation of the accounting firms usually the better information provided in the audited financial
statements. Some of the reputable accountants are called the “BIG 4”:
Other than the Big 4 Accountants, bank can consider public accountants that are registered in regulator list (OJK)

Source: Youtube
54
“Revenue is vanity, profit is sanity, but
cash is king”
END OF THIS SECTION

CHAPTER 3
RATIONAL OF
BORROWING NEEDS
AND DEBT SIZING
56
CHAPTER 3: RATIONAL OF BORROWING NEEDS AND DEBT SIZING
▪ Company Operating Cycle and Working Capital

• Operating Cycle by Type of Company
• Operating Cycle and Working Capital Needs
• Working Capital Needs and Debt Sizing
▪ Company Capital Expenditure

• Why Company Needs CAPEX?
• Long Term Loan for CAPEX and Debt Sizing
57
COMPANY OPERATING CYCLE AND WORKING CAPITAL
OPERATING CYCLE BY TYPE OF COMPANY
In general, we can divide business into three (3) types of categories as follows:
MANUFACTURING TRADING SERVICE
CHAPTER 3: RATIONAL OF BORROWING NEEDS AND DEBT SIZING 58

OPERATING CYCLE BY TYPE OF COMPANY – Cont’d
Manufacturing Company
INVENTORY / COGS A/R / SALES
Purchase Inventory Used of Inventory Finish the productions Sell the Finish Good (A/R)
(Raw Materials) into production & keep it in the warehouse
(Work in Process/WIP) (Finish Goods)

Trading Company
INVENTORY / COGS A/R / REVENUE
Purchase Inventory Keep the purchased Inventory Sell the Finish Good (A/R)
(finish good) in the warehouse
(Finish Goods)

Service Company
NO INVENTORY / COGS A/R / SALES
No Inventory Purchase, only operating Sell the Services

expenses are exists (A/R)

OPERATING CYCLE & WORKING CAPITAL NEEDS
WORKING CAPITAL REQUIREMENTS

❶ ❸ ❹ ❺
OPERATING
CYCLE
Purchase Inventory Used of Inventory Finish the production Sell the Finish Good
into production & keep it in the warehouse (A/R)
(Raw Materials) (WIP) (Finish Goods)
❷ ❻ WORKING
CAPITAL
REQUIREMENT
(increase as business
Payment of Inventory Received Payment cycle progresses)
Purchased from customer
❷ The cash transaction starts when a company paid its payable on inventory purchased
❻ The cash transaction end when the customer paid the account receivable
OPERATING CYCLE & WORKING CAPITAL NEEDS – Cont’d
CASH CYCLE DAYS

INVENTORY DAYS
❶ ❸ ❹ ❺
Purchase Inventory Used of Inventory Finish the production Sell the Finish Good Account
(Raw Materials) into production & keep it in the warehouse (A/R) Receivables
(WIP) (Finish Goods)
DAYS
❷ ❻
Account
Payable CASH CYCLE DAYS
Payment of Inventory Received Payment
DAYS Purchased from customer
Cash Cycle Days X Daily sales (or Daily COGS) = Working Capital Needs (Rough calculation)
Cash Cycle Days = Inventory Days + Account Receivables Days – Account Payable Days

OPERATING CYCLE & WORKING CAPITAL NEEDS – Cont’d
COMPARING WORKING CAPITAL AND DEBT SIZING
2019 2020
SALES IDR 12,000,000 IDR 18,000,000
C0GS IDR 6,000,000 IDR 9,000,000
30
Account Receivable (30days) IDR 1,000,000 ……………………… (?) × 𝐼𝐷𝑅 12 𝑚𝑖𝑜
360
60
Inventory (60 days) IDR 1,000,000 ……………………… (?) × 𝐼𝐷𝑅 6 𝑚𝑖𝑜
360
Account Payable (30 days) (IDR 500,000) ……………………… (?) 30
× 𝐼𝐷𝑅 6 𝑚𝑖𝑜
360
WORKING CAPITAL IDR 1,500,000 ……………………… (?)
Additional working capital

IDR ………………….. (?)

WORKING CAPITAL NEEDS AND DEBT SIZING
COMPARING WORKING CAPITAL AND DEBT SIZING
2019 2020 BANK FACILITY

SALES IDR 12,000,000 IDR 18,000,000 ON WORKING CAPITAL
IDR 6,000,000 IDR 9,000,000 BANK FACILITY AVERAGE
C0GS
OUTSTANDING
1. Bank A …………… (?) ………….. (?)
Account Receivable (30days) IDR 1,000,000 IDR 1,500,000
2. Bank B …………… (?) ………….. (?)
Inventory (60 days) IDR 1,000,000 IDR 1,500,000
Account Payable (30 days) (IDR 500,000) (IDR 750,000)
TOTAL .………. (?) ……….. (?)
WORKING CAPITAL IDR 1,500,000 IDR 2,250,000
How many times

& what is the assessment?
COMPANY CAPITAL EXPENDITURE
WHY COMPANY NEEDS CAPEX?
WHAT IS CAPEX?
DEFINITION LIFE TIME

• Capital expenditure (CAPEX) are funds used by a company to upgrade, • Capital Expenditure
and maintain physical assets such as industrial buildings, machineries or (CAPEX) has life time
other long term fixed assets. function of more than
one (1) year.
• CAPEX is often used to undertake new projects or investments by the
firm to maintain or increase the scope of their operations. • Operating Expenditure
(OPEX) has life time
Examples: function of up to one
▪ Repairing a roof top of a building, (1) year.
▪ purchase a piece of equipment, or
▪ Purchase vehicles to transport goods
▪ building a brand new factory.

WHY COMPANY NEEDS CAPEX? – Cont’d
Demand Driven:
▪ Business Growth
• Increase in sales/production, as a result, increase the production capacity
utilization
• Achieve sustainable success (e.g. open franchise for restaurant)
• New project or business expansion preparation
▪ Fixed Assets Deterioration
• Prepared for fully depreciated asset
• Fixed asset is broken or degenerate
▪ Efficiency & Quality (Use of new technology or automation/digitalization)
Supply Driven (is more limited than Demand Driven Capex):

▪ Innovation or Technology enhancement, impact on:
• How to survive/stay competitive (e.g. Fashion, Gadget, Food & Beverages
Business, and etc.)
• Speed up - Life cycle of product (e.g. electronic)
Identification of CAPEX needed (with the assumption of

production/Sales activity growth):
❑ Check the current production capacity

❑ Check the sales/production growth (and its impact to production
capacity)
❑ Check the time for installing/extending of new/extension CAPEX
(including the time to provide the financing)
Note: The above steps may not be relevant for other reason of CAPEX needed.

Identification of CAPEX needed (with the assumption of
production/Sales activity growth):
PT Subur Jaya (“the Company”) yearly sales increase 10% per year in average in
Case Study the last five (5) years (from 2014-2019).
The company recorded 50% of its production capacity by the end of 2014, and
by the end of 2019 the production capacity had reached to 75%.
If the installment of new machinery of the Company (including the financing)

need around 1 year, when do you think is the latest for the Company to install
new machinery?
Please Calculate !

LONG TERM LOAN FOR CAPEX AND DEBT SIZING
Balance Sheet
Will your Cash Flow :
▪ Debt
Current Assets • Improve with the new investment (fixed assets)?
▪ Fixed Assets
• Be adequate to cover interest expense and/or loan
New Debt
installment payments?
New Fixed Assets Equity BALANCE SHEET
Cash Flow
Revenue XXX
Cash COGS** (XXX)
If it is not – It might be over Cash Gross Profit XXX
leveraging (debt financing) or the Cash OPEX** (XXX)
CAPEX is not profitable/feasible* Operating Cash Flow (EBITDA) XXX
Interest Expense – Existing Debt (XXX)
*We may check to leverage ratio and debt repayment – New Debt (XXX)
capacity ratio Debt (Loan) Installment / Repayment (XXX)
**COGS & OPEX after deducted with Depreciation dan
Amortization expenses Net Cash Flow XXX

“Give yourself some credit for
how far you have come”
END OF THIS SECTION

CHAPTER 4
MACRO, INDUSTRY AND
BUSINESS ANALYSIS
72
CHAPTER 4: MACRO, INDUSTRY AND BUSINESS ANALYSIS
▪ Overview of Macro Economic and Other Macro Factors
Analysis
• Political Factors
• Macro Economic Trends
• Social Factors
• Technological Factors
▪ Debtor’s Industry Analysis
• Porter’s Five Forces Analysis
▪ Debtor’s Business Analysis
• General Business Characteristics and Risks
• Business Life Cycle – characteristics & financing
• Value Chain Assessment
• Type of Borrower Ownership
• BOC, BOD, and Staffs
73
OVERVIEW OF MACRO ECONOMIC AND OTHER MACRO FACTORS ANALYSIS
Looking to the macro environment where borrower is located.

PEST is the abbreviation of:
Political Economic Social Technological
CHAPTER 4: MACRO, INDUSTRY AND BUSINESS ANALYSIS 74

POLITICAL FACTORS
• Who will be the winner of the Indonesian’s election? Who is the contender?
• What are their direction of the economic development?
✓ Preferred business to be developed,
✓ Taxation policies,
✓ Labor policy,
✓ Environmental issues,
✓ Tariff and trade restriction.
• Is there any restricted local regulation for the business?
Political Factor • How is the condition of political stability in Indonesia?
• International geopolitics situation: How is the impact to local economic
situation?

MACRO ECONOMIC TRENDS
▪ Macro Economic Analysis is a given factor and not easy to conduct.

▪ Bank may analyze the historical trend and predict the future movement.
The longer historical data used will be better, but at least we have the last
three years data to be compared with our debtor financial performances
and use it as a basis for financial projection review.
▪ The following section will discuss 4 macro economics indicators namely
Economic Factor • GDP growth,
• Inflation rate,
• Interest Rate and
• Foreign Exchange (USD/IDR).

KEY MACRO ECONOMIC INDICATORS - GDP
GDP (IN USD BILLION)
1200
1015 1042 Indonesia; 1126
1000 932
861
800
Thailand; 520
600
Singapore; 382
Malaysia; 370
400
Philippines; 355
Vietnam; 255
200
0
2015 2016 2017 2018 2019
Indonesia Malaysia Singapore Thailand Philippines Vietnam
Source: Trading Economics
• GDP measures the economic output of a country. Indonesia GDP is USD 1.126 Billion in 2019.
• The Year on Year (YoY) GDP growth is a change in the value over one year. It is done by comparing a specific
period’s gross domestic product to previous period. GDP growth rates measure how fast the economic
growth is. Based on Trading Economics, Indonesia’s GDP growth was recorded 4,97% per January 2020.
*Prediction of Real GDP Growth by IMF
KEY MACRO ECONOMIC INDICATORS - GDP
REAL GDP GROWTH (IN %)
Malaysia; 9
8 Indonesia; 8,2
Philippines; 7,6
Vietnam; 7
4 Thailand; 6,1
Singapore; 3
0
-4
-8
2015 2016 2017 2018 2019 2020* 2021*
Real GDP Growth 2015 2016 2017 2018 2019 2020* 2021*
Indonesia 4,9 5 5,1 5,2 5 0,5 8,2
Malaysia 5 4,4 5,7 4,7 4,3 -1,7 9
Philippines 6,1 6,9 6,7 6,2 5,9 0,6 7,6
Singapore 3 3,2 4,3 3,4 0,7 -3,5 3
Thailand 3,1 3,4 4,1 4,2 2,4 -6,7 6,1
Vietnam 7 6,7 6,9 7,1 7 2,7 7
*Prediction of Real GDP Growth by IMF CHAPTER 4: MACRO, INDUSTRY AND BUSINESS ANALYSIS 78
KEY MACRO ECONOMIC INDICATORS - INFLATION
6
INFLATION RATE (IN %)
5
Vietnam; 4,3
4
Indonesia; 3
3 Philippines; 3
Malaysia; 2,8
2
Singapore; 0,9
1
Thailand; 0,7
0
-1
-2
Inflation rate, average consumer prices 2015 2016 2017 2018 2019 2020* 2021*
Indonesia 3,4 3 3,6 3,2 2,6 3,1 3
Malaysia 2,7 1,7 3,5 0,2 1 0,1 2,8
Philippines 0,7 2,2 2,9 5,1 2,5 2,6 3
Singapore -0,6 0,2 0,4 0,5 0,8 -0,4 0,9
Thailand -0,9 1,1 0,8 0,4 0,9 -1,1 0,7
Vietnam 0,6 4,7 2,6 3 5,2 2 4,3
*Prediction of Inflation Rate by IMF
KEY MACRO ECONOMIC INDICATORS – INTEREST RATE
2016 2017 2018 2019 2020

• Central Bank’s policy often determines the interest rate, and this is to manage foreign exchange and
inflation rate.
• The interest rate (discount rate) is defined as the interest rate set by Bank Central (7 Days Reverse Repo
Rate) as a reference for use by the banking industry in determining price of its products and services
(funding and lending).
• Per June 18, 2020, BI cut 7DRRR to 4,25% after it stays at 4,5% since March 19, 2020. This cut was part
of anticipation to mitigate COVID-19 impact.
KEY MACRO ECONOMIC INDICATORS – FOREIGN EXCHANGE
Per July 7, 2020: 14.350
May 2018 Sept 2018 Jan 2019 May 2019 Sept 2019 Jan 2020 May 2020
• Foreign exchange is the conversion rate of one currency into another currency.
SOCIAL FACTORS
Social factors are include among others the aspects of:
• Population Growth,
• Age Distribution,
• Health,
• Education,
• Social Mobility,
Social Factor
• Culture,
• Religion, and
• etc.
Assess how the social factor changes affected sales, expenses, competitiveness and
prospect of a company.

TECHNOLOGICAL FACTORS
Technology changes will affect the production expenses, operating efficiency,

product quality and innovation of goods and services. The following questions can
help us to assess technology factor:
• Are there any new technologies that you could be using? How fast the changing?
• Are there any new technologies on the horizon that could radically affect your
debtor work or your debtor industry?
• How have infrastructure changes affected work patterns (for example, levels of
Technological Factor
remote working)?
• Are there any other technological factors that you should consider?

PEST ANALYSIS – COVID-19 PANDEMI & PEST
PEST
Political situation
Economic situation
Debtor’s Industry Debtor’s Business Performance
Social activity
Technology Influence Financial Impact
How we response?

Source: Investopedia
85
DEBTOR’S INDUSTRY ANALYSIS
PORTER’S FIVE FORCES ANALYSIS
Is a tool for analyzing the competitive intensity of an industry that will determine the attractiveness and risk
Is it easy to enter into the industry?
Does industry’s supplier in Does industry’s buyer in

control or the industry control or the industry
players? players?
Does the industry

players rivalry is hard?
Is it easy to substitute the industry’s products & services with other
industry’s products & services?

DEBTOR’S BUSINESS ANALYSIS
GENERAL BUSINESS CHARACTERISTICS AND RISKS
Low Risk Medium Risk High Risk
SIZE / MARKET SHARE • One of the largest • Average size/ much smaller • Among of the smallest
(sales/assets/profit/ market compare to market leader companies within the
share) within the industry industry
MATURITY (BUSINESS • Mature firm • Mature firm with some • Emerging firm with
LIFE CYCLE) • Growth at reasonable rate shake-out or weaker explosive growth, or
competitiveness, or • Declining saturated firm
• Emerging firm with steady
rapid growth
PRODUCTS • Many products • Several product • Single/very limited product
DIVERSIFICATION • Different customer • Limited customer • Single customer segment
segment/industry segment/industry industry
• Diversified products take • 1 – 2 products take major • Single product have
contribution on profit contribution on profit dominant contribution on
profit

BUSINESS LIFE CYCLE – CHARACTERISTICS & FINANCINGS
▪ Business – as human as well – has a lifecycle which shall be started by launch (at the early
stage), followed by growth, shake-out, maturity, and decline stages;
▪ The chart below illustrates very briefly business characteristics during its lifecycle;
Equity Financing Equity Financing
Debt Financing

BUSINESS LIFE CYCLE – CHARACTERISTICS & FINANCINGS – Cont’d
The following summarizes typical characteristics for each business lifecycle stage:
DESCRIPTION LAUNCH GROWTH SHAKE-OUT MATURITY DECLINE
Product & • In design & • Product introduction • Product settles in • Product matures and • Product starts
prototyping and start launching – the market hence sales flat or tends to outdated and sales
Sales growth is at the highest growth is slower decline declines rapidly
rate
Market • Not in the • Minimum at early • Almost at its peak • At peak in the early • Market penetration
market yet growth stage and penetration maturity stage but late declines rapidly
Penetration growing at later stage saturated/ declines
Cash flow • Negative – • Start positive and high • Positive and growth • Positive and stable, at • Declining rather
investment growth at later growth slower later stage starts rapidly
mode declining
Financing • Own/ equity • Own/ equity financing; • Own/equity • Own/ equity financing; • Own/ equity
financing • Debt financing financing; • Debt financing financing;
• Debt financing
Investors • Own-selves and • Own-selves and close • Own-selves; • Own-selves; • Buy-out firms;
close friends/ friends/ family • Venture capital/ • Buy-out firms; • Distress-asset
family members members; Private Equity; • Banks; management
• Angel investors • Angel investors and • Banks; • Public
venture capital • Public/ IPO
VALUE CHAIN ASSESSMENT
Is a concept to assess the business process and infrastructure within a company to measure how efficient they
are and how they did their primary and support activities

TYPE OF BORROWER OWNERSHIP
Component Family-Owned State-Owned Publicly-Owned
BOC & BOD By family members with ‘one- Bureaucrat-professional Professional management
man show’ direction Management
Business and Many confidentiality and Differentiate between Relatively Transparent &
Financial have different financial public or non public accountable (difference between
Transparency and record for different company and the leader Top Tier vs 2nd Tier)
Accountability stakeholders
Risk and Return High Low Moderate

Profile (in doing (strongly drive by profit (achieve SOE ministry (measured profit orientation)
Business) oriented) target and some public
service obligation)
Risk Management, Basic risk management & Differentiate between Mostly are Robust risk
Internal Control & Governance and internal public (robust) or non- management and Governance &
Governance control practices – based on public company (weak) Control considered wider
owner interest and the leader stakeholders
Note: It is important to know the controlling shareholders deeply in order to to understand their Character (historical background check through SLIK checking,
trade checking, and Family/Personal Life Assessment can be used to assess debtor’s reputation)
BOC, BOD, AND STAFFS
BOC BOD STAFF

• Seasoned • Experienced • Good attitude
• Independent • Knowledgeable • Effective turnover
• Authoritative • Cooperative management
• etc. • Have integrity • Skillful
• Transparent • Less conflict management
• Have succession plan • etc.
• etc.

QUALITATIVE CREDIT RISK ANALYSIS SUMMARY
EXAMPLES
ANALYSIS FACTOR TO ANALYZE RISK SCORE
Macroenvironment analysis L LM M MH H CONCLUSION
Political Analysis:
Macroenvironment Economy
Social
Technology
Weighted Average Risk Score: -
Industry analysis L LM M MH H CONCLUSION
TNE Analysis:
TSP
Industry BPS
BPC
CR
Business analysis L LM M MH H CONCLUSION
Size Analysis:
Maturity
Product Diversification
Business Value Chain
Ownership
Management (BOC & BOD)
Human Resources (Staff)
”Carefully consider the path for your feet,
and all your ways will be established”
END OF THIS SECTION

CHAPTER 5
FINANCIAL STATEMENTS
ANALYSIS
95
CHAPTER 5: FINANCIAL STATEMENTS ANALYSIS
▪ Common Size Analysis
• Overview
• Balance Sheet
• Income Statement
▪ Financial Statements Ratio Analysis
• Leverage Ratio
• Activity Ratio
• Liquidity Ratio
• Profitability Ratio
• Debt Repayment Capacity ratio
▪ Financial Projection Analysis
• Financial Projection
▪ Debtor’s Bank Statement Assessment
• Company Business and Bank Statement Pattern
• Bank Statement Fraud and Accuracy
• Repayment Capacity and Bank Statement
▪ Individual Debtor Financial Analysis 96
COMMON SIZE ANALYSIS
OVERVIEW
Vertical Analysis Horizontal Analysis
• Method of financial statement analysis in which • Method of financial statement analysis by

each line item is listed as a percentage of a base comparing each accounts in the financial
figure within the statement. statement from one year to the other (several
years balance sheet and income statement need
• Line items on an income statement can be stated to be provided)
as a percentage of net sales
• Line items on a balance sheet can be stated as a

percentage of total assets or total liabilities &
equity
CHAPTER 5: FINANCIAL STATEMENTS ANALYSIS 97

BALANCE SHEET - EXAMPLE
PT HM Sampoerna Tbk and subsidiaries
BALANCE SHEETS
For the year ended December 31, 2017 and 2018 and 2019 (in IDR millions)
Assets 2017 2018 Trend 2019 Trend
Current Assets
Cash & Cash Eqv. 7.501.737 17,4% 15.516.439 33,3% 106.8% 18.820.695 37,0% 21,3%
Accounts Receivable - - -
• 3rd Party 3.375.798 7,8% 3.370.321 7,2% -0.2% 3.118.541 6,1% -7,5%
• Related Party 222.124 0,5% 137.280 0,3% -38.2% 136.413 0,3% -0,6%
Inventory 18.023.238 41,8% 15.183.197 32,6% -15.8% 16.376.231 32,2% 7,9%
Prepaid Expense 1.416.066 3,3% 1.158.738 2,5% -18.2% 1.360.077 2,7% 17,4%
Advances for Tabacco 1.025.646 2,4% 883.936 1,9% -13.8.% 952.616 1,9% 7,8%
Other Current Assets 2.615.744 6,1% 1.581.572 3,4% -39.5% 932.442 1,8% -41,0%
Total Current Assets 34.180.353 79,2% 37.831.483 81,2% 10.7% 41.697.015 81,9% 10,2%
Non Current Assets
Fixed Asset (net) 6.890.750 16,0% 7.288.435 15,6% 5.8% 7.297.912 14,3% 0,1%
Other Non C. Assets 2.069.960 4,8% 1.482.502 3,2% -28.4% 1.907.879 3,7% 28,7%
Total Non Current Assets 8.960.710 20,8% 8.770.937 18,8% -2.1% 9.205.791 18,1% 5,0%
Total Assets 43.141.063 100,0% 46.602.420 100,0% 8.0% 50.902.806 100,0% 9,2%
BALANCE SHEET - EXAMPLE
PT HM Sampoerna Tbk and subsidiaries
BALANCE SHEETS
Liabilites & Equity 2017 2018 Trend 2019 Trend
Current Liabilities
Account Payable
▪ 3rd Party 2.599.318 6,0% 2.652.273 5,7% 2,0% 2.655.512 5,2% 0,1%
• Related Party 1.067.123 2,5% 797.797 1,7% -25,2% 1.146.492 2,3% 43,7%
Tax Payable 1.867.949 4,3% 1.687.831 3,6% -9,6% 2.389.662 4,7% 41,6%
Excise Tax Payable - - 2.670.180 5,7% - 5.423.392 10,7% 0,0%
Employee Benefit Liabilities 636.581 1,5% 651.225 1,4% 2,3% 691.046 1,4% 6,1%
Other Current Liabilities 311.998 0,7% 334.693 0,7% 7,3% 421.572 0,8% 26,0%
Total Current Liabilities 6.482.969 15,0% 8.793.999 18,9% 35,6% 12.727.676 25,0% 44,7%
Employee Benefit Liab. (LT) 2.239.240 5,2% 2.202.332 4,7% -1,6% 2.129.454 4,2% -3,3%
Other LT Liabilities 305.869 0,7% 247.836 0,5% -19,0% 365.946 0,7% 47,7%
Total Liabilities 9.028.078 20,9% 11.244.167 24,1% 24,5% 15.223.076 29,9% 35,4%
Owner’s Equity 0,0%
Paid in Capital 20.914.476 48,5% 21.011.423 45,1% 0,5% 21.033.348 41,3% 0,1%
Retained Earnings 12.581.976 29,2% 13.730.669 29,5% 9,1% 14.029.964 27,6% 2,2%
Others 616.533 1,4% 616.161 1,3% -0,1% 616.418 1,2% 0,0%
* MostlyTotal Owner’s Equity
are long-term post-employment benefit obligation
34.112.985 79,1% and deffered tax liabilities 75,9%
35.358.253 3,7% 35.679.730 70,1% 0,9%
Total Liabilites and Equity 43.141.063 100,0% 46.602.420 100,0% 8,0% 50.902.806 100,0% 9,0%
BALANCE SHEET – BENEFIT
Common Size analysis on balance Sheets provide us direct insights about certain important area,
among others:
• Assets Allocation, where it is concentrated, we could conclude in

which industry the company is (capital or labor intensive) and sensing
the reasonablesness.
• Trend Analysis, the growth (or shrinkage) of Assets and its financing
sources (liabilities and equity)
• Industry Comparison, how effective & efficient it compared to

competitors (should be viewed together with common size analysis of
Income Statement)

INCOME STATEMENT - EXAMPLE
PT HM Sampoerna Tbk and Subsidiaries
INCOME STATEMENTS
2017 2018 Trend 2019 Trend
Sales 99,091,484 100% 106,741,891 100% 7.7% 106.055.176 100,0% -0,6%
Cost of Goods Sold (74,875,642) -75.6% (81,251,100) -76.1% 8.5% -79.932.195 -75,4% -1,6%
Gross Profit 24,215,842 24.4% 25,490,791 23.9% 5.3% 26.122.981 24,6% 2,5%
Operating Exenses
Selling (6,258,145) -6.3% (6,296,611) -5.9% 0.61% -6.621.032 -6,2% 5,2%
General and Administrative (1,846,352) -1.9% (2,312,252) -2.2% 25.2% -2.424.862 -2,3% 4,9%
Other-net (7,784) -0.0% 105,899 0.1% 1460.5% 36.992 0,0% -65,1%
Total Operating Exp. (8,112,281) -8.2% (8,502,964) -8.0% -4.8% -9.008.902 -8,5% 6,0%
Operating Profit 16,103,561 17.0% 16,987,827 15.9% 5.5% 17.114.079 16,1% 0,7%
Other Income (Expense)
Interest Income (Expense) - Net 791,245 0.8% 973,442 0.9% 23.0% 1.145.344 1,1% 17,7%
Net Profit Before Tax (NPBT) 16,894,806 17.0% 17,961,269 16.8% 6.3% 18.259.423 17,2% 1,7%
Taxes Expenses (4,224,272) -4.3% (4,422,851) -4.1% -4.7% -4.537.910 -4,3% 2,6%
Net Proft After Tax (NPAT) 12,670,534 12.8% 13,538,418 12.7% 6.8% 13.721.513 12,9% 1,4%

INCOME STATEMENT - EXAMPLE
Common Size analysis on Income Statements is very easy to understand and provide us direct
insights about certain important area, among others:
• Cost Structure, what is the main cost component
• Profitability and Trend Analysis, what is the progress/impact of the

company’s management action plan/initiatives
• Detect Unusual Items, explore the largest changes for further analysis;
is this one-off items or due to irregularities
• Industry Comparison, where the company position in the competition

among peers.

FINANCIAL STATEMENTS RATIO ANALYSIS
Component Ratio (Examples) Objective
• Debt/Equity (DER)
• To measure the capacity of a company debt, it’s borrowing capacity
Leverage • Debt/Asset (DAR)
• Equity Multiplier (EM) and may impact to debt repayment capacity
• A/R, Inventory &A/P

turnover/days • To measure the capability of company’s management in managing
Activity • Total Asset Turn Over (TATO) their efficiency & effectivity of resources
• Fixed Asset Turn Over (FATO)
• Current Ratio
• To measure the capability of a company to service its short term
Liquidity • Quick Ratio
• Cash Ratio debt
• GPM, OPM, NPM

Profitability • To measure the ability of a company to create profit
• ROE, ROA
• EBITDA Margin
Debt Repayment • EBITDA Coverage • To measure the ability of a company to provide cash for their debt
Capacity • ISCR repayment
• DSCR

LEVERAGE RATIO
Debt to Equity Ratio (DER)
Balance Sheet
• Indicates how much of external financing used for every
dollar of owner’s investments. Total Liabilities
• Current Liabilities
• In general, the higher debt to equity ratio, the weaker the • Non-current
Total Asset Liabilities
capital structure. • Current Assets
• Non-current
Assets (NCA)
Total Equity
𝑻𝒐𝒕𝒂𝒍 𝑳𝒊𝒂𝒊𝒍𝒊𝒕𝒊𝒆𝒔∗
DER = 𝒙 𝟏𝟎𝟎%
𝑬𝒒𝒖𝒊𝒕𝒚 𝑵𝒆𝒕 𝒘𝒐𝒓𝒕𝒉
* For more relevant credit analysis, some banks are using interest bearing debt

LEVERAGE RATIO – Cont’d
Debt to Asset Ratio (DAR)
Balance Sheet
• Indicates how much of the assets that are financed by
outside creditors Total Liabilities
• In general, the higher the debt to asset ratio, the riskier for • Non-current
the bank to lend their money • Current Assets
• Non-current
Assets (NCA)
Total Equity
𝑻𝒐𝒕𝒂𝒍 𝑳𝒊𝒂𝒊𝒍𝒊𝒕𝒊𝒆𝒔∗
DAR = 𝒙 𝟏𝟎𝟎%
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔
* For more relevant credit analysis, some banks are using interest bearing debt

LEVERAGE RATIO – Cont’d
Equity Multiplier (EM)
Balance Sheet
• Indicates how much of the assets have been multiplied for
Total Liabilities
every Rupiah of equity, with the help of debt. • Current Liabilities
• Non-current
• Current Assets
𝑨𝒔𝒔𝒆𝒕𝒔 • Non-current
EM = × 𝟏𝟎𝟎% Assets (NCA)
𝑬𝒒𝒖𝒊𝒕𝒚
Total Equity
𝑫𝒆𝒃𝒕+𝑬𝒒𝒖𝒊𝒕𝒚 𝑫𝒆𝒃𝒕
EM = = +𝟏
𝑬𝒒𝒖𝒊𝒕𝒚 𝑬𝒒𝒖𝒊𝒕𝒚

Balance Sheet
ACTIVITY RATIO
Total Liabilities
Total Asset • Non-current
Account Receivable (A/R) Turnover • Current Assets Liabilities
✓ A/R
✓ Others CA
• Indicates how many time A/R occurs during a year. • Non-current
• Also calculated as A/R days – how many days it takes for A/R to Assets (NCA)
Total Equity
be converted into cash.
𝑺𝒂𝒍𝒆𝒔∗ Income Statement

A/R Turnover =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨/𝑹
Revenue/Sales XXX
COGS (XXX)
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨/𝑹 Gross Profit XXX
A/R Days = × 𝟑𝟔𝟎 Operational Expenses (OPEX) (XXX)
𝑺𝒂𝒍𝒆𝒔∗
Operating Profit XXX
Others (e.g. interest) (XXX)
*Sometimes COGS number is used instead of sales Net Profit Before Tax (NPBT) XXX
Tax (XXX)
Net Profit After Tax (NPAT) XXX

Balance Sheet
ACTIVITY RATIO – Cont’d
Total Liabilities
Inventory Turnover • Current Assets Liabilities
✓ Inventory
✓ Others CA
• Indicates how many time inventory flow during a year. • Non-current
• Also calculated as Inventory days – how long inventory was kept Assets (NCA)
Total Equity
before it is sold.
𝑪𝑶𝑮𝑺∗ Income Statement

Inventory Turnover =
𝑨𝒗𝒈 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
Revenue/Sales XXX
COGS (XXX)
𝑨𝒗𝒈 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚∗ Gross Profit XXX
Inventory Days = × 𝟑𝟔𝟎 Operational Expenses (OPEX) (XXX)
𝑪𝑶𝑮𝑺∗
*Sometimes sales number is used instead of COGS Net Profit Before Tax (NPBT) XXX
Tax (XXX)

Balance Sheet
ACTIVITY RATIO – Cont’d Total Liabilities
✓ A/P
Total Asset ✓ Others CL
Account Payable (A/P) Turnover • Current Assets • Non-current
• Non-current Liabilities
Assets (NCA)
• Indicates how many time A/P occurs during a year. ✓ Fixed Assets
• Also calculated as A/P days – how long it takes for a company to pay ✓ Others NCA
Total Equity
its suppliers.
𝑪𝑶𝑮𝑺∗ Income Statement

A/P Turnover =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨/𝑷
Revenue/Sales XXX
COGS (XXX)
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨/𝑷∗ Gross Profit XXX
A/P Days = × 𝟑𝟔𝟎 Operational Expenses (OPEX) (XXX)
𝑪𝑶𝑮𝑺∗
*Sometimes purchase number is used instead of COGS Net Profit Before Tax (NPBT) XXX
Tax (XXX)

Balance Sheet
ACTIVITY RATIO – Cont’d
Total Liabilities
Total Assets Turn Over (TATO) & Fixed Assets Turn Over (FATO) • Current Assets Liabilities
• Non-current
Assets (NCA)
• Measures efficiency x effectivity. ✓ Fixed Assets
• Measures ability to generate sales from every investment made in ✓ Others NCA
Total Equity
assets (TATO); sales is the first step to generate profit/cash flow.
• A company could also measure efficiency of its Fixed Assets (FATO).
Income Statement
𝑺𝒂𝒍𝒆𝒔 Revenue/Sales XXX
TATO = × 𝟏𝟎𝟎 %
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔 COGS (XXX)
Gross Profit XXX
𝑺𝒂𝒍𝒆𝒔 Operational Expenses (OPEX) (XXX)
FATO = × 100% Operating Profit XXX
𝑭𝒊𝒙𝒆𝒅 𝑨𝒔𝒔𝒆𝒕𝒔 Others (e.g. interest) (XXX)
Net Profit Before Tax (NPBT) XXX
Tax (XXX)

LIQUIDITY RATIO
Current Ratio (CR)
Balance Sheet
• Shows excess of current assets over current liabilities.
Total Liabilities
• Measure ability to fulfill short-term financial obligation (<1 year). • Current Liabilities
• Current Assets Liabilities
• Non-current Assets
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 (NCA)
CR = × 𝟏𝟎𝟎 % ✓ Fixed Assets
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
✓ Others NCA
Total Equity
Current Assets
are assets that have maturity or are expected to be converted into cash
within 12 months (a year) or less.
Current Liabilities
are debts/payables that will mature or are expected to be paid in cash within
12 months (a year) or less

LIQUIDITY RATIO – Cont’d
Quick Ratio (QR)
• Shows excess of the most liquid current assets over current Balance Sheet
liabilities. Total Liabilities
Total Asset
• Measures the ability to pay current liabilities without reliance on • Current Assets
liquidation of inventory. ✓ Cash
• Non-current
✓ Marketable
• Cash, Marketable Securities & Net Account Receivables are the most Securities
Liabilities
liquid current assets. ✓ Net A/R

✓ Inventory
✓ Others CA
• Non-current Total Equity
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 −𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
QR = × 𝟏𝟎𝟎 % Assets (NCA)
𝑪𝒂𝒔𝒉+𝑴𝒂𝒓𝒌𝒆𝒕𝒂𝒃𝒍𝒆 𝑺𝒆𝒄𝒖𝒓𝒊𝒕𝒊𝒆𝒔+𝑵𝒆𝒕 𝑨/𝑹

QR = × 100%
Cash, Marketable Securities & Net Account Receivables are considered as the most
liquid current assets
LIQUIDITY RATIO – Cont’d
Balance Sheet
Cash Ratio Total Liabilities
Total Asset
• The most conservative liquidity ratio. • Current Assets
✓ Cash
• Only calculates cash and marketable securities to cover short- ✓ Marketable
• Non-current
Liabilities
term liabilities. Securities
✓ Net A/R
✓ Inventory
✓ Others CA
𝑪𝒂𝒔𝒉+𝑴𝒂𝒓𝒌𝒆𝒕𝒂𝒃𝒍𝒆 𝑺𝒆𝒄𝒖𝒓𝒊𝒕𝒊𝒆𝒔 • Non-current Total Equity
Cash Ratio = × 𝟏𝟎𝟎% Assets (NCA)

Income Statement
PROFITABILITY RATIO Revenue/Sales XXX
COGS (XXX)
Gross Profit XXX
Operational Expenses (OPEX) (XXX)
Tax (XXX)
Gross Profit Margin (GPM) Operating Profit Margin (OPM) Net Profit Margin (NPM)
• A key ratio to measure return from every dollar sales made by the company.
• Sales is a net sales or gross sales minus discount, return and allowance
𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑷𝒓𝒐𝒇𝒊𝒕 𝑵𝑷𝑨𝑻

GPM = × 𝟏𝟎𝟎% OPM = × 𝟏𝟎𝟎% NPM = × 𝟏𝟎𝟎%
𝑺𝒂𝒍𝒆𝒔 𝑺𝒂𝒍𝒆𝒔 𝑺𝒂𝒍𝒆𝒔
Margin Level: Margin Level: Margin Level:

Manufacturing / Trading Operating Net Margin

Balance Sheet
PROFITABILITY RATIO – Cont’d
Total Liabilities
Return on Equity (ROE) • Non-current
Assets (NCA)
• A key profitability ratio to measure return from owner's ✓ Fixed Assets
✓ Others NCA
investment in the company Total Equity
𝑵𝑷𝑨𝑻 Income Statement

ROE = × 𝟏𝟎𝟎%
𝑬𝒒𝒖𝒊𝒕𝒚 Revenue/Sales XXX
COGS (XXX)
Gross Profit XXX
Tax (XXX)

Balance Sheet
PROFITABILITY RATIO – Cont’d
Total Liabilities
Return on Asset (ROA) • Non-current
Assets (NCA)
• Measures return from assets the company invested in. ✓ Fixed Assets
✓ Others NCA
• Is driven by combination of both profitability and asset Total Equity
efficiencies
Income Statement
𝑵𝑷𝑨𝑻
ROA = × 𝟏𝟎𝟎% Revenue/Sales XXX
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔
COGS (XXX)
Gross Profit XXX
Tax (XXX)

DEBT REPAYMENT CAPACITY RATIO
• EBITDA is the ‘proxy’ operating cash flow and it is widely used by

banking sector in assessing debtor capacity to repay its debt.
• A creditor may use UCA (Uniform Credit Analysis) Cash Flow to

analyze the real operating cash flow (if the data available). More
banks are now using the UCA Cash flow method, because it is
more suitable for credit analysis purposes (emphasize on cash
flow/1st way out). However, we will not elaborate in this
program.

DEBT REPAYMENT CAPACITY RATIO – Cont’d
EBITDA MARGIN
• EBITDA Margin is to measure approximate ‘cash profit’ generated
from sales. Cash Flow
• EBITDA Margin can provide clear view of a company’s “operating Revenue/Sales XXX
cash flow” in relative to its sales. Cash COGS (-/- Dept & Amort) (XXX)
Gross Profit XXX
Cash OPEX (-/- Dept & Amort) (XXX)
𝑬𝑩𝑰𝑻𝑫𝑨 EBITDA XXX
EBITDA MARGIN = × 𝟏𝟎𝟎%
𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔

DEBT REPAYMENT CAPACITY RATIO – Cont’d
EBITDA COVERAGE
• EBITDA Coverage (also called DSCR and/or ISCR).
• To compare EBITDA (proxy cash flow) to financial obligation.
INTEREST SERVICE COVERAGE RATIO (ISCR) DEBT SERVICE COVERAGE RATIO (DSCR)
EBITDA EBITDA
x 100% x 100%
Interest on Total Debt Interest on Total Debt + CPLTD (previous year)
Indicate the ability to cover interest obligation Indicate the ability to cover both principal
from its debt (represent by Current Position of Long Term
Debt/CPLTD Previous Year) and interest of all
interest bearing (current year interest expense)

FINANCIAL PROJECTION ANALYSIS
FINANCIAL PROJECTION
DEFINITION
Is a forecast of future revenues, expenses and cashflow. The projection will take into
internal or historical data and prediction of external market factors
SCENARIOS
Financial projections are prepared under several scenarios:
BEST CASE BASE CASE WORST CASE
(Mostly a debtor version and not (The most possible to happen) (some time we used the least acceptable
necessary prepaid by a lender) situation to repay debt scenario)
SENSITIVITY ANALYSIS
Analysis to assess the changes of financial projection because of one input (variable).

FINANCIAL PROJECTION ANALYSIS
FINANCIAL PROJECTION – Cont’d
Common projected financial statement:
Income Statements
Balance Sheets
Cash Flow Statements

(or EBITDA from Income Statements)

DEBTOR’S BANK STATEMENT ASSESSMENT
Bank statement analysis is a tricky part and sometimes can be subjective. Bank credit officer may
experience a paradox situation between performing in-depth analysis on the bank statement and
limitation of credit process time.
Company Business and Bank Bank Statement Fraud and Repayment Capability and
Statement Pattern Accuracy Bank Statement

COMPANY BUSINESS AND BANK STATEMENT PATTERN
• Debtor’s bank statement (s) should be in-line with their business

cycle.
• If not, we may questioning the accuracy of the Bank statement or it

need further management explanation.
E.g. During peak/festive season, a company would record high sales and also high
cash flow balance some time after the sales (after the A/R paid).

BANK STATEMENT FRAUD AND ACCURACY
• Some of Bank Statements are not informative and contains very

limited or unclear information.
• Some interbank account transfer within the same debtor may also
mislead the transaction volume (especially for cash transfer which is
very difficult to detect).
• Once a while, we may receive some fictive bank statement from
debtor. With the latest printing technology, it is not difficult to design
and create a fake/fictive bank statement.

BANK STATEMENT FRAUD AND ACCURACY – Cont’d
Some tips can be used to detect fictive bank statements are:
• No standard transaction were recorded such as Interest, Tax and

administration fee
• There was a large transaction during off days (Banking operation closed days)
• Date are recorded not in order
• Rounded Number (with many zero)
• Sum of detail movement not tally with total transaction amount
• Number of each transaction was not in-line with the business (e.g., a
traditional crackers company but each bank statement transaction was in
billions).
• Format or design is not correct or same with the original (e.g. bank symbol,
number of bank account, name & address, Etc.)
• Printing quality and type of paper (for original bank statement)
• Different Font, number of bank account or wrongly record product name,
and etc.
REPAYMENT CAPACITY AND BANK STATEMENT
• Cash received from sales (credit balance) and cash paid for cost of
goods sold and operating expense (debit balance) should be recorded
in the bank statements.
• Net of cash received stay in the bank statement or transform into
time deposits or other investment product can be measured as
the cash produce from debtor business.

INDIVIDUAL DEBTOR FINANCIAL ANALYSIS
DEBT BURDEN RATIO (DBR) RATIO
• Many approaches to analyze individual debtor financial analysis, one of them is Debt Burden Ratio (DBS)
• DBR is a ratio that is used by banks to decide eligibility of an individual customer to granted loan facility
∗
𝐷𝑒𝑏𝑡𝑠 𝐼𝑛𝑠𝑡𝑎𝑙𝑙𝑚𝑒𝑛𝑡
𝐷𝐵𝑅 =
𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝐼𝑛𝑐𝑜𝑚𝑒
✓ Debts installment = amount of total monthly repayments for mortgage loan, car loan, personal loan,
student loan, house rent/loan and 5%** of credit card limit
✓ Monthly income = amount of total monthly salary, business profit, and other profit
• Monthly income divided into 2 types:
1. Disposable income: amount of individual income reduced by income taxes (take home pay)
2. Discretionary income: disposable income reduced by spending for standard family cost*** (food,
clothing, shelter, medicine, electricity, water, and communication bills)
For bank, discretionary income is more important than disposable income because it reflects the monthly
“free cash flow” produced by debtor as their source money of debt payment to bank.
*Each bank has certain limit of DBR percentage for their debtors
** The monthly average level of credit card used and paid assumption that commonly used in the banking industry
*** In making estimate of total family cost incurred, banks can use estimated living cost per region (UMR) with an estimate
of additional inflation or use a standardized living cost assumption according to PTKP tax
INDIVIDUAL DEBTOR FINANCIAL ANALYSIS
DEBT BURDEN RATIO (DBR) RATIO – Cont’d
Example:
Andy is an employee who has a total monthly disposable income of IDR 5,000,000 applying for
unsecured loan to XYZ Bank. Currently, Andy already has a loan to Bank ABC where he has to repay
Rp 500 thousand/month. If XYZ Bank has a maximum DBR policy for debtors of 30%, what is the
maximum debts installment that can be given by Bank XYZ for Andy?
Answer:
𝐷𝑒𝑏𝑡𝑠 𝐼𝑛𝑠𝑡𝑎𝑙𝑙𝑚𝑒𝑛𝑡
30% =
𝑅𝑝 5 𝑚𝑖𝑙𝑙𝑖𝑜𝑛
Max debts installment = Rp 1,5million
Max debts installment given by Bank XYZ = Rp 1,5million – Rp 0,5million = Rp 1 million

“Train your mind to see the
good in every situation.”
END OF THIS SECTION

CHAPTER 6
COLLATERAL ANALYSIS
130
CHAPTER 6: COLLATERAL ANALYSIS
▪ What is Collateral ?
▪ Type of Collateral
▪ Characteristic of Good Collateral
131
COLLATERAL ANALYSIS
WHAT IS COLLATERAL
DEFINITION
Collateral is an asset that a borrower offers as a way for a lender to secure the loan*
*Therefore, loan to Value/LTV is important factors for consumer loan.
FUNCTIONS
• The ‘second way-out’ when the ‘first way-out’ (cash flow) turn into ‘sour’
• Reduce the maximum loss (loss given default/LGD) from collateral sales recovery*
* It depends on the type, value, and time pressure to sell the collateral
BANK ASSESSMENT
• Value of the collateral (> Rp 10 billion)
• Validity of legal right of the collateral
• Insurance coverage and ‘bankers clause’ for certain collateral
CHAPTER 6: COLLATERAL ANALYSIS 132

COLLATERAL ANALYSIS
TYPE OF COLLATERAL
Cash &
Land & Building Heavy Equipment
Marketable Securities
Vehicle Account Receivable Inventory

COLLATERAL ANALYSIS
CHARACTERISTIC OF GOOD COLLATERAL

No Characteristics Definition
• Easy to exchange into cash
Example: time deposit, marketable securities, and other liquid assets (although this is
Easy to monetize or rarely to happen, usually for special purposes)
1.
easy to sell
• Easy to exchange sell
Example: gold, ‘hot’ property, or commodity
• Collateral with permanent existency is not easily to be moved by the borrower.
2. Permanent Existency
Example: land and building
• Stability of physical (longer than the tenor of facility) and stability of value of the collateral
3. Stability Example: Land and building in specific area, or vehicle in the specific time
• Uniquely identified, has serial number or certain model
4. Easy to Identified
Example: gold and vehicle

“Procrastination is like a
credit card: it’s a lot of fun
until you get the bill”
END OF THIS SECTION
CHAPTER 7
LOAN AGREEMENT
136
CHAPTER 7: LOAN AGREEMENT
▪ Main Terms and Conditions

▪ Guarantee (and Derivatives)
▪ Contractual Subordination
137
LOAN AGREEMENT
MAIN TERMS AND CONDITIONS
▪ Provide legal standing and protection for both parties (lender and borrower)
in relation to lending and borrowing activities.
▪ Must be signed by Authorized persons from both parties (as stipulated in their
Article Association), and clearly states the terms and condition/’T&C’ for both
parties
Main T&C in the Loan Agreement:
1. Definition: define the key Term used in the Loan Agreement
2. Loan Feature:
✓ Amount & currency (single or multi currency)
✓ Proposes: working capital &/ revolving loan or investment/term loan
✓ Interest: fixed vs floating
✓ Repayment schedule/tenor: short-term (1 year), medium-term (1-5 years),
and long-term (> 5 years)
✓ Security: secured or unsecured/clean basis
CHAPTER 7: LOAN AGREEMENT 138

LOAN AGREEMENT
Main T&C in the Loan Agreement: - Cont’d

3. Representation & Warranties:
To state borrower’s existing condition (that certain subjects disclosed is
right), among other:
✓ No outstanding legal issues that shall prohibit borrower to enter into
this Loan Agreement;
✓ The borrower enters into a legally binding agreement as signed by the
authorized persons;
✓ All financial information and necessary documents submitted to bank
review is accurate

LOAN AGREEMENT
4. Covenants:
Stipulate condition that borrower’s agree to do and not to do, broadly
categorized as below; Failure to meet such covenant shall trigger event of
default/EoD.
▪ Affirmative Covenants (action/condition that borrower agree to do)
✓ borrower shall insure its fixed assets, regular submission of
financial statements, comply to certain financial ratio, etc.
▪ Negative Covenants (action/condition that borrower shall not do)

✓ not to obtain additional borrowing without lender’s consent, not
to change the controlling shareholder, not to pay dividend
exceeds certain covenant breach, etc.
5. Condition Precedent / Condition for Loan Withdrawal:

Condition that shall be met prior to loan withdrawal
✓ Aprroval from sharesholders (via AGSM/RUPS)

LOAN AGREEMENT

6. Event of default (EOD):
Condition that shall trigger borrower’s default
✓ Failure to pay loan installment and interest on timely
✓ Financial covenant breach
✓ Negligent in Reps & Warranties
7. Remedies:
What shall be done if EoD is triggered (e.g. financial covenant breach, etc)
✓ Immadiate payment of the delinquent (e.g. in 5 working days)
✓ Top-up additional collateral
✓ Off-set borrower’s deposit held by lender

LOAN AGREEMENT
GUARANTEE (AND DERIVATIVES)
▪ Bank may mitigate its credit risk by:

✓ Obtaining Standby L/C (SBLC) from prime bank
✓ Purchasing credit insurance or Credit Derivatives (e.g. CDS / credit
default swap). This transfer credit risk from lender to seller/insurer for
certain fee/insurance premium payment
✓ Obtaining Corporate Guarantee (from stronger entity)
✓ Obtaining Personal Guarantee

LOAN AGREEMENT
CONTRACTUAL SUBORDINATION
▪ The objectibe of contractual subordination clause is to position lender to

have first/senior/priority claims against borrower’s cash flow in
comparison to other stakeholders (in particular shareholders or junior
lenders)
▪ This clause helps lender to influence control over cash flow/repayment
source, such as:
✓ Structural subordination: if lending to holding company whereby
source payment/cash flow shall come from subsidiaries (via dividend
upstreaming)
✓ Negative pledge: to prevent borrower from placing other lenders
ahead of us in terms of access/claims over collateral

“A good plan executed today is better
than a perfect plan executed at some
indefinite point in the future”
END OF THIS SECTION
CHAPTER 8
LOAN MONITORING
145
CHAPTER 8: LOAN MONITORING
▪ Overview of Loan Monitoring
▪ Internal Factors
• Financial Warning Signs
• Debtor Warning Signs
▪ External Factors
• Third-Party Warning Signs
• Macro Economic and Industry Warning Signs
146
OVERVIEW OF LOAN MONITORING
OVERVIEW OF LOAN MONITORING
▪ Loan monitoring is an active, continue and “sensible” activity in lending

business.
▪ System, process and procedures to monitor the condition of each loan or in

portfolio basis need to be established by a bank. Setting up an “Early Warning
Signs” is one of them.
▪ This “Early Warning Signs” can be set as part of Key Risk Indicator (red flag) to
give a sign of changes of the bank credit risk.
▪ Bank management ( and credit committee) should have the report and take
early mitigation or remediate action.
CHAPTER 8: LOAN MONITORING 147

INTERNAL FACTORS
FINANCIAL WARNING SIGNS
Financial statements are the main tools for detecting a downward trend
in customer financial condition/ratios, such as:
1. Decrease in Sales or Profit Margin;
2. Decreasing in cash flow positions, which results in frequent of overdrafts;
3. Increased accounts receivable and the problem in collecting trade
receivables;
4. Decreasing in inventory turn over (or excessive inventory level);
5. Increasing A/P Days (borrower might extend/delay payment to supplier to
ease their cash flow pressures);
6. Breach Financial Covenants (and keep asking for waiver);
7. Delays in submitting financial reports;
8. Changing accounts used by customers;
9. The cash flow cycle is not in line with the business cycle; and
10. Increasing borrowing amount while business is stagnant or deteriorating
INTERNAL FACTORS
DEBTOR WARNING SIGNS
The Bank must be sensitive to matters related to debtor personal

problems or changes in debtor attitudes, for example:
1. Difficult to contact
2. Debtor’s experiencing family problems
3. Debtor is sick
4. Debtor develops new products outside of his core business
5. Debtor sells the fixed assets related to his business activities

EXTERNAL FACTORS
THIRD-PARTY WARNING SIGNS
Business transactions or personal contacts between third parties and

customers can be a sign for banks of the customer's credit problems. Some of
them are:
1. Insurance companies do not get insurance premium payments,
2. Changes in credit terms between customers with suppliers,
3. Telephone from suppliers who are requesting the credit information
before dealing with customers,
4. Articles / news in the mass media regarding termination of contracts
between customers and third parties, factory closures or other events.

EXTERNAL FACTORS
MACRO ECONOMIC AND INDUSTRY WARNING SIGNS
1. Changes in macroeconomic or industry conditions also have an impact on the
debtor's business. For this reason, it is necessary to monitor the business
prospects in the event of economic turmoil, whether the debtor's business will
survive or not. Some macroeconomic symptoms include:
1. GDP
2. Inflation
3. Interest Rate
4. Foreign Exchange
5. Changes in Other Macro Factors (Political, Social, and Technology)
2. Changes in industry conditions also have an impact on the debtor's business.

Some industry symptoms include:
1. Industry Regulation (Tariff, Tax, Prices)
2. Changes in Industry related Commodity Prices

“My last word: don’t forget
to laugh!”
END OF THIS SECTION

THE END
Please scan the QR code or type the
below link for the training evaluation
bit.ly/evaluasimudita
POST-TEST
BASIC CREDIT SKILLS
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Basic Credit Skills 8-10 Juli 2020

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BASIC CREDIT SKILLS

July 8-10, 2020

To understand the fundamental of credit

To discuss about collateral, loan agreement, and loan monitoring

DAY 1 DAY 2 DAY 3

Exercise Day 1 : Exercise Day 2 : Exercise Day 3 :

▪ Credit can be utilized by:

CHAPTER 1: FUNDAMENTAL OF CREDIT 8

N/A N/A • Kredit Pemilikan Apartment (KPA),

MICRO BANKING Rp < 1 billion N/A • Mostly Working Capital

CHAPTER 1: FUNDAMENTAL OF CREDIT 9

DEBTORS’ TARGET Mass market Medium size company Large corporation

CHAPTER 1: FUNDAMENTAL OF CREDIT 10

4. CREDIT MONITORING AND SERVICE TO DEBTOR

Assets provided as back-up

Factors surrounding the debtor’s

CHAPTER 1: FUNDAMENTAL OF CREDIT 13

INDUSTRY Refers to the impact that Government’s industrial

Refers to the factors come from a variety of sources

Refers to the status of financial statements of a

+ Refers to type, value, and location of collateral

CHAPTER 1: FUNDAMENTAL OF CREDIT 15

▪ Coverage of debtor’s information that are requested:

CHAPTER 1: FUNDAMENTAL OF CREDIT 17

CHAPTER 1: FUNDAMENTAL OF CREDIT 18

Loss Given Default

CHAPTER 1: FUNDAMENTAL OF CREDIT 19

3 Pillars 5 Collectability Ratings

CHAPTER 1: FUNDAMENTAL OF CREDIT 20

LIQUIDITY Strong Good Low Very limited Dificulties

WORKING CAPITAL Strong Good Limited Very limited Dificulties

ACCOUNTING AND FINANCIAL

United States European Union Indonesia

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 26

Accounting is a tool to convey financial information about a

Usage of Financial Statements

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 27

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 28

• Record of an event shall be consider its impact to decision making activity.

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 29

Prepare Trial Balance 04 03 Posting to General Ledger

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 30

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 31

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 32

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 34

No Date Acc. Number Accounts Debit Credit

No Date Acc. Accounts Debit Credit CASH AND BANK 100

SALES 400 COST OF GOODS SOLD 500 OPERATING EXPENSE 510

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 37

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 38

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 39

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 40

A financial statement that shows the changes of equity in one (1)

Consists of initial balance of capital on the adjusted trial balance plus

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 43

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 44

ASSETS = LIABILITIES + SHAREHOLDER’S EQUITY

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 45

Current Non - Current

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 46

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 48

CHAPTER 2: ACCOUNTING AND FINANCIAL STATEMENTS 49

Increase (decrease) in cash 2.445.554 8.014.702 3.304.256