Bank Evaluation of a GmbH

This module is based on chapter 9, “Bank Evaluation of a GmbH”, from “Entrepreneurial Structural Intelligence”. A bank does not evaluate an idea. It evaluates risk. When a GmbH seeks financing, the bank systematically assesses: How stable is the cash flow? What is the level of equity? How much debt exists? How reliable is the management? What collateral is available? Profit alone is not sufficient. 9.1 Example: Two identical revenues – differing valuations GmbH A Revenue: €1,000,000 Net profit after tax: €120,000 Equity: €30,000 GmbH B Revenue: €1,000,000 Net profit after tax: €120,000 Equity: €300,000 Which one is more likely to obtain credit easily? GmbH B. Why? Equity acts as a cushion against risk. 9.2 Understanding the Equity Ratio Formula: Equity / Total assets Example: Total assets: €800,000 Equity: €80,000 Equity ratio = 10% This is weak. If equity amounts to €240,000: Ratio = 30% That appears stable. Banks favor solid equity ratios. 9.3 Debt Service Coverage Ratio (DSCR) – Simplified Expl...