What does a lender do with a net present value?

Reads the cash flows under it. A project with a positive net present value can still fail to repay a loan, because the loan has a schedule and the cash arrives on its own; a lender lines the two up and asks whether every repayment date is met out of the project's cash, not whether the total is positive in the end. Payback against the loan's tenor is the cruder version of the same test, and it is the one a credit desk runs first.

Why does the bank care about a borrower's cost of capital?

Because a business that uses its weighted cost of capital as the hurdle for every project will take on projects whose cash flows are riskier than its debt can carry, and because the after-tax cost of debt — the number the syllabus teaches — is also the number that tells the bank what the interest shield is worth to a profitable borrower and nothing to a loss-making one. The lender's interest is in the cash left after the project, not the value created by it.

Which hedging topics reach a credit file?

All of them, as credit. A forward is a contract that can owe the bank money; a swap has a value that becomes a break cost; a money market hedge is a loan; a cap is a premium paid. The bank approves hedging lines like facilities, sizes them to real exposures, reads over-hedging as a position, and in Issue 02 writes a minimum hedge-cover covenant into an exporter's facility. The dealing room sells the hedge; the credit desk reads it.

// GETTING INTHE SYLLABUS, ONE SUBJECT AT A TIME

Financial Management, Read by a Lender

Seven topics every financial management syllabus teaches, and the lending decision each one decides.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-10-11

// THE SHORT ANSWER

Financial management teaches the decisions a business makes with money — working capital, investment appraisal, the cost of capital, hedging, sources of finance, distributions — and a lender meets each as a question about repayment. The cash conversion cycle is the size of a facility; a project's cash flows are read against the loan's schedule, not as a net present value; the after-tax cost of debt exists only for a business profitable enough to use it; every hedge is a credit exposure; and a dividend lifted in a year cash fell is the bank's liquidity leaving through the shareholders. Seven topics, each with what the desk does.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// TRY IT ON REAL NUMBERS

Twelve numbers from two years of accounts, and the senior banker's written read on whether the growth is real, the cash converts and the suppliers are carrying the gap. Free, no signup, no data stored.

Open the calculator →

// 01 — WORKING CAPITAL MANAGEMENT

The cash conversion cycle, the cost of an early settlement discount, the days a business gives and takes: the syllabus teaches them as management levers, and the desk reads them as the size of the facility and the direction of the risk. A lengthening cycle in a growing business is absorbing cash at both ends, and it is where working capital trouble starts.

CASH CONVERSION CYCLE, WORKED → · THE COST OF A DISCOUNT, THE NUMBER → · HOW BANKS ASSESS A WORKING CAPITAL REQUEST →

// 02 — INVESTMENT APPRAISAL AGAINST A REPAYMENT SCHEDULE

Net present value asks whether the project is worth doing; the loan asks whether each repayment date is met out of the project's own cash. A machine that pays for itself in four years on a three-year loan has a positive NPV and a missed payment, and the bank reads the schedule, not the total.

PAYBACK AGAINST TENOR, THE NUMBER → · APPRAISAL AGAINST THE SCHEDULE → · EQUIPMENT LOAN VS LEASE →

// 03 — THE COST OF CAPITAL AND THE AFTER-TAX COST OF DEBT

The after-tax cost of debt is the syllabus's sum; the lender's version of it asks whether the business is profitable enough for the shield to exist. The weighted cost of capital as a hurdle rate is read as a risk: a business that clears its hurdle with projects riskier than its debt has moved the risk onto the lender without a change in the margin.

AFTER-TAX COST OF DEBT, THE NUMBER → · THE HURDLE RATE, THE CALL → · HOW BANKS PRICE BUSINESS LOANS →

// 04 — HEDGING: FORWARDS, MONEY MARKET HEDGES, SWAPS AND CAPS

Each instrument is a sum on the syllabus and a credit exposure on the desk. A forward fixes a receipt and can owe the bank money; a swap fixes a base rate and acquires a value; a money market hedge is a loan; a cap is a premium. The bank sizes hedging lines to real exposures and reads a hedge that outlives its exposure as a position.

A FORWARD, FOR AN EXPORTER → · A SWAP, FOR A BORROWER → · THE MONEY MARKET HEDGE → · A CAP AGAINST A SWAP →

// 05 — SOURCES OF FINANCE, AND WHERE EACH LENDER STANDS

The syllabus lists the sources; the lender reads the order they are repaid in. A bank lending to a holding company stands behind every creditor of the operating subsidiaries; a shareholder loan the bank has subordinated is capital in all but name; a competitor's covenant-lite term sheet is a different product with the same price.

STRUCTURAL SUBORDINATION → · SUBORDINATION, DEFINED → · BANK LOAN VS PRIVATE CREDIT →

// 06 — FIXED OR FLOATING

A risk allocation, not a prediction contest. A credit desk runs cover at today's rate and at a higher one, and recommends fixing when cover at the higher rate would fail — the borrower's side of the repricing gap that decides a bank's own margin.

FIXED VS FLOATING → · NET INTEREST MARGIN AND THE REPRICING GAP →

// 07 — DIVIDENDS AND DISTRIBUTIONS

Dividend policy is a chapter on the syllabus and a consent right in a facility agreement. A payout lifted in a year when cash fell is the bank's liquidity leaving by the shareholders' door, and the one lever in the document that answers it is the consent — used in Issue 07 with a cure attached.

ISSUE 07 · THE DIVIDEND CONSENT → · DIVIDEND PAYOUT RATIO, DEFINED →

// THE OTHER SUBJECTS

Financial reporting, for what the numbers say; audit and assurance, for how far they can be trusted; and the bridge page that walks all of it in the order a loan asks its questions.

// STANDARDS THIS SITS BESIDE

The recognised ground this page sits beside. Each was opened and checked when cited; none is a source for the framework itself.

European Banking Authority, Guidelines on loan origination and monitoring (EBA/GL/2020/06), section 5.2.6, paragraphs 150(c) and 153 — A lender assesses the cash conversion cycle to estimate working capital needs, and weighs capital expenditure against the facility — the working capital levers read as the size of a facility, section 01.
Board of Governors of the Federal Reserve System, Commercial Bank Examination Manual, section 2010.1 Loan Portfolio Management, page 6 — Maximum maturities — A loan's maturity should be related to its source of repayment, its purpose and the useful life of the collateral — the project's cash read against the repayment schedule in section 02.
International Trade Administration (US Department of Commerce), Trade Finance Guide (2022) — Foreign Exchange Risk Management, pages 32–33 — A forward fixes the rate on a future receipt, and the exporter must still deliver the currency if the buyer fails to pay — the hedge as a credit exposure in section 04.
European Banking Authority, Guidelines on loan origination and monitoring (EBA/GL/2020/06), section 5.2.6, paragraphs 156–158 — A lender tests repayment capacity under severe but plausible events, including a rise in the borrower's cost of funding — cover at today's rate and a higher one, section 06.

// QUESTIONS PEOPLE ASK

What does a lender do with a net present value?: Reads the cash flows under it. A project with a positive net present value can still fail to repay a loan, because the loan has a schedule and the cash arrives on its own; a lender lines the two up and asks whether every repayment date is met out of the project's cash, not whether the total is positive in the end. Payback against the loan's tenor is the cruder version of the same test, and it is the one a credit desk runs first.
Why does the bank care about a borrower's cost of capital?: Because a business that uses its weighted cost of capital as the hurdle for every project will take on projects whose cash flows are riskier than its debt can carry, and because the after-tax cost of debt — the number the syllabus teaches — is also the number that tells the bank what the interest shield is worth to a profitable borrower and nothing to a loss-making one. The lender's interest is in the cash left after the project, not the value created by it.
Which hedging topics reach a credit file?: All of them, as credit. A forward is a contract that can owe the bank money; a swap has a value that becomes a break cost; a money market hedge is a loan; a cap is a premium paid. The bank approves hedging lines like facilities, sizes them to real exposures, reads over-hedging as a position, and in Issue 02 writes a minimum hedge-cover covenant into an exporter's facility. The dealing room sells the hedge; the credit desk reads it.

THE IN-TRAY · ONE MINUTE

Make the call on one file.

A short file on the ground this page covers. Every option opens with how far it sits from a senior banker’s read.

THE CALL · THE LOAN · CAPACITY

A US$35m loan was sized on EBITDA of US$10m. Halfway through the year, management cuts its forecast to US$7m.

What changes?

5 MORE ON THE LOAN · CAPACITY →WHERE DO YOU READ FROM? THE PLACEMENT →