Written for three readers who never sit in the same room: an auditor who asks where the number came from, a lender who asks which definition it uses, and a board in a bad quarter.
The test for a line is whether the column beside it can be filled. Cash of
214,000,000.00 means nothing until the other four readings sit under it. Leverage of
2.0000× means nothing until it sits beside the 2.3690× the covenant is
actually tested on. And headroom means nothing until the figure without the committed facility
— here 27,403,718.84, or
5.2377 days of payments — is on the page every month,
including the months nobody needs it.
The page
Line
Compared with
Figure
Cash, reported
the four readings below
214,000,000.00
Cash, unrestricted
restricted 9,000,000.00
205,000,000.00
Cash, accessible (the facility's definition)
trapped 53,000,000.00
152,000,000.00
Cash, available
float 31,392,000.00 at 6 days
120,608,000.00
Cash, same-day, cleared this morning
spread to reported 145,600,000.00, 68.0374 per cent
68,400,000.00
Minimum liquidity
93,204,281.16 of it above the float
124,596,281.16
Headroom, with the revolver
277,403,718.84 over the minimum, 3.9763x
370,608,000.00
Headroom over minimum, without the revolver
5.2377 days of payments
27,403,718.84
Revenue fall that removes the revolver
EBITDA fall 21.0317 per cent; downside case 10.00 per cent
8.4127 per cent
Leverage, reported cash
3.0000×; headroom 1.0000 turns
2.0000×
Leverage, facility definition (binding)
3.0000×; headroom 0.6310 turns
2.3690×
Leverage, available cash
3.0000×; headroom 0.4441 turns
2.5559×
Interest cover
4.0000×; headroom 2.3283 turns
6.3283×
Net floating exposure after cash
zero; at most 64,392,000.00 on home-currency cash
-608,000.00
Interest cover at +200 basis points
5.2194× without the swap, which saves 3,240,000.00
5.8036×
Currency hedge ratio, average
75,000,000.00 of 120,000,000.00 covered
62.50 per cent
Value of one cent on the rate
0.6068 per cent of EBITDA; ten cents 5.6049 per cent
1,019,367.99
Concentration excess, largest bank
41 per cent held against a 25 per cent limit
34,240,000.00
Forecast error, last quarter
standard deviation 4.1026 per cent, 13,415,426.12
7,848,000.00
Nineteen lines, three columns, no commentary. Everything the page says is in the middle column.
Why the first five lines are in that order
They are the spine, and they sit together so that nobody can quote one without seeing the other
four. 214,000,000.00 is the auditor's number and the board's. 152,000,000.00 is the
lender's, and the leverage line that binds is computed on it. 120,608,000.00 is the
treasurer's, after a float of 31,392,000.00. 68,400,000.00 is what actually
cleared this morning, and the spread from the first line to the fifth,
145,600,000.00, is 68.0374 per cent of the first. The page does not say
which of the five is cash. It says which is which.
The line the page exists for
Headroom without the revolver is 27,403,718.84,
which is 5.2377 days of the company's own payments. It is on the
page every month because the day it matters is the day nobody wants to be reminded of it.
The line above it says why: the facility can be drawn only while the covenant is met on the
facility's definition of cash, and it fails at a fall in annual revenue of
8.4127 per cent — on the wrong side of the annual plan's own downside case
of 10.00 per cent.
Three ways to state net debt, and which one binds
The board deck will quote 2.0000×. The report shows 2.0000× too, one
line above the 2.3690× the covenant is tested on, so that the
0.5559 turns between them is visible without a footnote. Cover is 6.3283× against
4.0000×, and cover breaks at an EBITDA fall of 36.7917 per cent
while leverage breaks at 21.0317 per cent. Leverage binds, and the page marks it
so.
What to leave off
The bank portal screenshot — a balance with no reading and no neighbour.
The list of every account, which belongs in the inventory and the mandate review.
The full thirteen-week forecast, which changes every week. The page carries its error, which
is the only part of it that can be compared: last quarter 2.4000 per cent,
7,848,000.00, which is 0.58 of a standard deviation.
Any figure with no comparison. Bank fees of 4,200,000.00 go on the page only when set
against the 26,547,500.00 of interest they are 15.8207 per cent
of.
Last quarter's forecast error was 2.4000 per cent, or 7,848,000.00
more cash out than forecast. Its neighbour is the sample standard deviation,
4.1026 per cent or 13,415,426.12: the quarter came in at
0.58 of a standard deviation and used 25.1504 per cent of the reserve the
minimum liquidity carries for it. A quarter outside two standard deviations is a question about
the forecast. Three quarters in a row on the same side of zero is a question about the
forecaster.
What the board is really asking
The question is never put in these words. It is asked as “are we all right for
cash”, and it means: what would have to happen for us to run out of money, and how far away
is that. On this company the answer has two parts and both are on the page. A revenue fall of
8.4127 per cent removes the facility, which is 67.4567 per cent of
the headroom. What remains is 27,403,718.84,
5.2377 days over the company's own minimum.
The lender will read 0.6310 turns. The board should read
8.4127 per cent, because turns flatter and a revenue fall is a thing a board has
seen.
The page that survives an auditor is the one whose every figure has a source. The page that
survives a lender is the one that uses the lender's definition and says so. The page that
survives a bad quarter is the one that said, every month for three years, that without the
revolver the company had five days of payments over its own minimum — so that the quarter in
which that mattered was not the first time anyone had read the line.
The workbook behind this article
Every figure above is a live formula in the companion files for
Treasury Management — the five readings of cash, the liquidity
test, working capital and the discount, and the hedging book. Each file ends with a Checks
sheet setting the printed figure beside the computed one. They are free, and they need no
account and no email address.
At what wealth does a family office pay?A five-person office costs the same $2,442,000 at $100m as at $2bn. Against a tiered multi-family schedule the two curves cross exactly once.
Does an undrawn revolver count as liquidity?67.4567 per cent of the headroom, and it leaves at a fall in annual revenue of 8.4127 per cent — not the 13.3333 per cent the board deck implies.
Does supply chain finance count as debt?66,049,315 released, and leverage of 2.7622× or 3.1362× depending on which balance the test is asked of — the second is a breach at today's EBITDA.
Does the fulcrum move with enterprise value?A worked capital structure at three enterprise values. The break migrates from the first lien to the subordinated notes without a single document changing.
How many companies does a reserve pool defend?Holding pro rata to the Series D costs $14.76m per company. A $40m reserve defends 2.71 of forty — and 61 per cent of the cost is the last round.
How much room a 1.15x downside actually leaves79 basis points of margin. The leverage covenant fails first, five basis points before the coverage covenant the chapter reports on, and 4.6 per cent of EBITDA is the whole cushion.
How the GP catch-up is actually solvedMost write-ups state the catch-up formula then hardcode the answer. Set it as a solve and it moves on its own when the carry rate does.
How do you set a minimum cash balance?Three components, 124,596,281 in total — and the double count that turns a margin of 27,403,719 into an apparent shortfall of -3,988,281.
Is a 2/10 net 60 discount worth taking?An annualised 14.8980 per cent against a revolver at 4.50 per cent — worth 5,471,890 a year, and 0.3132 turns of reported leverage.
Should corporate debt be fixed or floating?78.1818 per cent of gross debt fixed, and a net floating exposure after cash of -608,000.00 — the proportion, not the instrument.
Six ways to state the same fund's return7.12 per cent, 18.04 per cent, or 1.323 times the public market — one fund, one set of flows. The eleven-point gap is the valuation, and it is not cash.
The IRR at which a closed-ended fund merely tiesA drawdown fund advertising 13.25 per cent ties an evergreen netting 8.64. On committed rather than called capital, 78.7 per cent of the edge vanishes.
The month a remediation trigger has to be armed byMonth 8, on a one-year window and a 14-week hiring lead time. The date is 12W − L/4.33 and holds for any portfolio size — the book only changes the euros.
Two routes to the same NAVFive findings in one quarter-end close, and not one of them was a modelling error. Every one was a control that did not exist.
What a CBAM certificate buffer costs to holdCarry and protection are both linear in the buffer, so the break-even probability is identical at 5 per cent and at 30 — and 2027 costs exactly twice 2026.
What a clawback actually collateralises24 million recovers 13.20 net of tax and 7.20 is escrowed. The rule is e ≥ 1 − t, and every euro won on the tax clause lands uncollateralised.
What a co-investment programme actually saves37 basis points, and a 22.8 per cent total-loss rate erases it. At the usual per-deal cap a single failure is 37 per cent of the annual cohort.
What a diligence exercise actually recoversEighteen basis points is only the part that reaches the yield. Three of the four instruments never do, and the exercise is worth thirty-one.
What a follow-on reserve is actually worth0.019 turns under plain dilution, 0.285 under pay-to-play. The optimum is a property of the shareholders’ agreement, not of the portfolio.
What a lease mark-to-market is actually worth5,788,000 becomes 807,365 once the over-market stream, the expiry dates and the cost of re-letting are priced — and nothing at all below a 43.7 per cent renewal rate.
What a minimum payment actually does£81.53 leaves the account and £20.46 reaches the debt. On minimums alone the set clears in 258 months and repays 1.78 times what was borrowed.
What a month of delay costs in an enforcement463,000 euros of present value a month. No single error about enforcement, and no pair of errors, moves the indifference point from 58.7 cents to the 72 on the table.
What a pro rata cheque actually costsDefending costs 1.25 times the initial cheque across two rounds, not more in each — and below a 521 exit the follow-on dollars come back worth less than they cost.
What a subscription line does to the IRR20 per cent becomes 38.41 on the same asset while the multiple falls. Two dollars of interest buys 18.4 points, and the longer the line runs the cheaper each point gets.
What one point of fees actually costsOne point on the annual charge turns 738,846 into 567,961 over forty years — 23 per cent of the pot, and 2.43 of wealth lost per 1 of fee.
When the promote stops clearingCarried interest is not proportional to performance near the hurdle. It is a step function, and $2m of headroom is what stands between a promote and none.
Why a secondaries bid-ask gap has no zoneThe seller’s floor and the buyer’s ceiling are one formula at two rates. At equal required returns the zone is exactly zero — here it is 11.02 points apart.
Why refining a due diligence rubric makes it weakerThree of twelve managers carry a terminal flaw and the average approves all three. Splitting eight domains into sixteen makes it easier to hide, not harder.