THE IN-TRAY · THE GROUNDWORK
What is the figure?
The files on the second shelf that end in a number. Work it out, pick the figure, and the read shows the working — and which wrong figure each of the other options is.
A distributor's reported EBITDA is US$5.1m. The CFO's bridge adds back three items.
A wholesaler asks to size its working capital line.
A distributor's year, in four numbers:
A supplier offers its customers 2% off for paying in 10 days instead of 40.
A retailer's accounts keep its store leases off the balance sheet. Its banker restates them as if the leases were capitalised.
A bakery sells 150,000 units a year at an average of US$10 each. Variable costs are US$6 a unit and fixed costs US$400k a year.
6 FILES · PICK A CALL ON ANY OF THEM
A company asks to refinance. Its year in four numbers:
A property investor collects US$2.4m of rent a year and spends US$0.4m running the building. Interest and principal on its loan come to US$1.6m a year.
A US$2m machine is expected to save US$400k of cash a year. The borrower asks for a three-year loan to buy it.
A company fails. One lender is secured over the plant; the other is unsecured. The receiver's realisations, after costs, are below. There are no preferential claims.
A US$10m loan. The bank estimates a 2% chance the borrower defaults within a year, and expects to lose 40% of what is owed if it does.
A US$20m loan. The bank expects to lose 0.5% of it a year on average. It must hold capital equal to 10% of the loan, and its shareholders expect 12% a year on that capital. Funding and running costs are priced separately.
A company borrows at 8% a year. Its interest is deductible, and it pays tax at 25%.
A borrower pays a floating rate on a five-year term loan: the base rate plus a margin. It enters a swap with the bank, paying a fixed rate and receiving the base rate.
8 FILES · PICK A CALL ON ANY OF THEM
A bank holds US$3bn of assets it could sell within days at little loss. In a severe stress, it estimates US$2.4bn of its funding would leave within 30 days.
A bank has US$10bn of loans: half to companies, half home mortgages. Suppose the capital rules weight company loans at 100% and these mortgages at 35%.
A bank holds US$900m of capital against US$10bn of risk-weighted assets, a ratio of 9%. A loan book goes bad and it writes off US$200m. Assume its risk-weighted assets are unchanged.
A bank's annual report gives three figures for its loan book.
A bank holds US$10bn of fixed-rate loans with an average duration of four years. Market rates rise by one percentage point.
5 FILES · PICK A CALL ON ANY OF THEM
A borrower's loan costs 7% a year. Inflation is running at 5%, and the borrower's selling prices rise with it.
A company's costs are all in its home currency. It invoices an overseas customer in dollars, payable in 90 days. Between invoice and payment the dollar weakens.
An office building earns US$1.0m a year of net operating income. Buyers price such buildings at a 5% yield, so it is valued at US$20m. The loan against it is US$12m.
A bank lent 65% of the value of a factory valued at US$10m. If it has to sell, it expects a forced-sale discount of 30%, and selling costs of 5% of the sale price.
4 FILES · PICK A CALL ON ANY OF THEM
Each sum is one square of the map; the square holds the files around it that are not sums — the first question to ask, the signal to read, the call to make. The whole map → Thirty days, one a day →
The Groundwork's files are free to reuse under CC BY 4.0: copy a file into your notes, a tutorial or a slide, with a link back to the page it came from. The first shelf's files, on the chapters of How Bankers Think, are not under that licence.
// SUBSCRIBE
One case file and one question, in your inbox every Tuesday morning, New Zealand time. The senior banker's read opens only after you answer.
FREE WITH IT · 10-PAGE PDF
Case 01 of the interview case pack — Northmark Engineering, in full.
No spam. Unsubscribe anytime. Educational content only.
