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Inputs

Reserve Components:

  • Driver
  • Value
  • Look Ahead Period (Driver = Next Debt Service)
  • Start
  • End
  • Financing Mode
  • Interest
  • Method of Payment

Calculations

Profit & Loss statement

 The Profit & Loss statement depends on the Interest Rate and on the Reserves book value from the previous period.

Interest x Reserves.Balance Sheet(t-1)

Cashflow statement

 The Cashflow statement depends on Start and End dates, on Drivers and on the assigned Value.
  • The Reserve amount is deposited at the Start Date (cash drain) and gets liquidated at the End Date (cash inflow).
  • The Reserve amount is the percentage value of Debt Service in the Look Ahead Period. Accordingly cash drains and cash inflows take place (Driver = Next Debt Service). Compare example Debt Service.
  • The Reserve amount yields from the multiplication between the Value input and the installed Power (Driver = Power).
 The Cashflow statement depends on the Method of Payment (concerns Interest payments on Reserves).

Balance Sheet

 The Balane Sheet yields from the Balance Sheet logic.

The Balance Sheet gets calculated from the closing Balance Sheet of the previous period and from the difference between the Profit & Loss statement and the Cashflow statement of the actual period.

Balance Sheet(t) = Balance Sheet(t - 1) + Profit & Loss statement(t) - Cashflow statement(t)

The following example explains this functionality:

 01.201602.201603.201604.201605.201606.201607.201608.201609.201610.201611.201612.2016
Profit & Loss statement48444444444444
Cashflow statement480012001200120012
Balance Sheet 480480480480

For 06 / 2016 the book value is calculated as follows:

Balance Sheet(06.2016) = 8 + 4 - 12 = 0

Properties

Reserves can be financed internal or external:

Financial assets can be financed internal or external. Internal financing means that all assets are generated by the company itself. An external financing is an outside financing (Debt funding) or an equity financing (for example a Shareholder Loan).

Debt Service Example

If a Reserve entity has Next Debt Service as Driver, the percentage value of Debt Service in the defined Look Ahead Period is deposited as Reserve.

If Debt is issued for example on the 31.12.2015 with a Loan Period of 10 years, Interests of 5% and yearly linear Redemptions, with a Debt Service of 50% and 12 months Look Ahead Period the following example yields:

Debt12.201501.201601.201701.201801.201901.202001.202101.202201.202301.202401.2025
Profit & Loss statement-550'0000100'00090'00080'00070'00060'00050'00040'00030'00020'00010'000
Cashflow statement-550'0002'000'000-300'000-290'000-280'000-270'000-260'000-250'000-240'000-230'000-220'000-210'000
Balance Sheet -2'000'000-1'800'000-1'600'000-1'400'000-1'200'000-1'000'000-800'000-600'000-400'000-200'0000

The Debt Service, composed of Redemption and Interest payments, yields the Cashflow statement. With a Debt Service of 50% the following Reserve amount yield:

Debt Service12.201501.201601.201701.201801.201901.202001.202101.202201.202301.202401.2025
Profit & Loss statement000000000000
Cashflow statement0-150'0005'0005'0005'0005'0005'0005'0005'0005'0005'000105'000
Balance Sheet 150'000145'000140'000135'000130'000125'000120'000115'000110'000105'0000

With the Debt issuing a Reserve entity with 50% of Debt Service of the following year is deposited. Based on a yearly decreasing Debt Service the Reserve decreases as well during the Loan Period. When the Debt is refund the Reserve can be liquidated completely.