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hello everyone hi welcome to the channel of WallStreetmojo friends today we are going to learn our tutorial on revolving credit facilities and we'll be taking an example over here of Nestle and Walmart ohk so very forced note revolving credit facilities are pretty helpful for companies if they want to pursue and upcoming opportunities and they don't want to have immediate cash handy so revolving credit facilities are basically pre-approve corporate loans facility just like you know credit cards we're in the corporates can avail loan without any further documentation and there are no fixed repayment schedules for the same so in this tutorial we'll look into the details of revolving credit facility and how it is reported in the annual report and what all areas are important for the financial analyst now first the foremost thing what do we really mean by revolving credit I mean revolving credit facilities I'm talking about see before we get into what revolving credit facilities are as per the 10k okay we need to know what exactly what it is at the very first place see revolving credit facilities are a great flexible options for the small business owner so here's why small business owners often face difficulties in regards to policy of the opportunities due to lack of cash okay lack of cash is the first reason second the small business owner often don't have hefty collateral that is the second reason hefty collateral is the second reason why to take a basically huge loan so they often find that they don't need much cash to pursue a new opportunity but lack of cash or the inability to take loan makes it really impossible even if these small business owners take loan they feel really threatened by equal instalments that is EMI in every certain period so to solve all the above the concept of revolving credit facilities is being introduced now these small business owners will talk to the bank about the credit facilities and the bank will ask for mortgage okay now in this scenario usually for the business owners inventories or account receivables the acts as a mortgages second bank hands the business owners a revolving account where there is a pre-approved limit pre-approved limit in this scenario if the if the business owners wants to use little she can do or they can do so so on the rest of the amount and interest is being charged by the bank for example if let's say if there is a pre-approved loan of 30000 okay and these small business owners only need 3000 they don't want 30000 they need just 3000 the bank will charge interest on the outstanding amount and if the business owner does not take more credit facility they can pay back the amount in whichever ways they want so there is no fixed monthly payment over here and you know the business owners can pay back the amount in basically six monthly or six installment the principal plus the interest or in basically it's called bullet shot or known as on the one go now you may wonder that what banks does if the small business owner fails to pay off the amount see Bank values the inventory's or the accounts receivable at close enough to 80% and then they sell off the inventories are account receivable if the business owner fails to pay off the loan amount they have taken now let's understand what is the difference between revolving credit facility that is RCF vs CC that is the credit cards so let's understand the difference between the two what are the key differences all right over here RCF over here CC and let's begin the first and foremost thing it may seem like the credit card for small business owner but it's not there are many differences and let's have a look at them one by one see in the case of credit card if you talk about a this shift over here as this is CC and this is RCF now in case of a credit card the person needs to carry it but in case of the revolving credit the person does not need to carry any card so carrying card is really important in both the scenario sorry in case of RCC and not in case of RC now the next point of difference is that while using the credit card the individual needs to make a purchase but in case of the revolving credit facilities the person does not need to make any transaction and they can get the money directly into their business account for whatever reasons they they they basically needed so over here you need to make a purchase that is the point of difference the fees that are charged by the credit card facilities is much more than the fees charged by the revolving credit facility fourth the flexibility in case of credit is much more than in revolving credit facilities then a credit card basically now how to interpret the revolving credit facility see many companies in the u.s. use flexibility of the revolving credit facilities and usually you will find that they report back on the balance sheet let's say a company has taken a revolving credit facility from a bank and now where the company would report its revolving credit in the financial statements that makes it that's my question so they would first set up and balance sheet and then they will go to the section of the debt and then usually they will mention a note below the balance sheet where they will report about what exactly happens in regards to the revolving line of credit now what if they don't mention okay what if they don't mention so then it would be very difficult for an investor to find out where the debt and the the figure basically has come from if the company has done the calculation but does not show the calculation and the exact narration of how it has happened under the balance sheet it wouldn't be investor to understand it the filing system basically of SEC filing is done to ensure that the investor interest is secured okay and not showing or mentioning a revolving line of credit will be treated as non-disclosure now and will basically is not going to help the investor at all now let's see the example and we will show you that you know how you'd be able to do that let's make an example and we'll show you that you know how to interpret the revolving credit facility in the SEC filing now we can see there is a balance sheet of ABC company there are current assets investments plant and machinery intangible assets which gives us our total assets there are some liabilities like short-term liabilities accounts payable deferred revenue accrued expense and there are some long-term liabilities which includes long-term debt deferred revenue which gives you your total gives you a total liability then we if we just go down a little bit there is detail of stockholders equity which has preferred stock preference shares common stock and retained earnings which gives you your total stockholders equity stockholders equity and total liabilities and stockholders equity so this is basically the balance sheet we have and now we will see how to represent the revolving credit facility so you can see an Strick basically in the long-term debt now let's look at that and at the note basically how things have been worked over there so let's see their street mark now there are some details over here for the same there is a notes dude that is in 2020 there is a revolving credit facility which is important for us 25000 and 20000 and you deduct the short-term debt including the revolving credit facility which gives you your long-term debt so in 2015 the ABC company has taken a revolving facility of 50,000 okay from let's say our it was rvs commercial bank and they wanted to expand upon the operations by buying a new machinery for the production house so in 2015 they took a 20000 which was payable in 3 months basically of borrowings and that and that's the reason it was treated under these short-term debt okay and you can say in 2016 as well they took a revolving credit of 25000 from the same bank and the payment was due within 90 days of the borrowing so in this case as well the revolving credit was also included in these short-term debt in reality it is much more complex and by for the same let's see in the practical example now over here you can see that Nestle revolving credit facility the consolidated balance sheet as on the 31st December 2016 and 15 we have the data for the financial debt over here and financial debt in non current liabilities so current liabilities means all those liability which will get accrued within one year of timespan and non-current are the vice versa are the same so there are two financial debt to one occurring within one year and there another debt which is occurring post factor of one year so the above balance sheet as the depiction of the long-term debt and the short-term debt of the nestle in the year of 2015 and 16 let's have a look at how things they how they have reported how they report the revolving credit facility under the notes in the annual report and they have mentioned in in it under the liquidity risk management so they have mentioned that they didn't expect any refinancing issues and they have two revolving credit facilities so in the year of 2016 they would have extended both of the revolving credit facility by one year along with that there are key factors that were noteworthy are let's see that firstly they had mentioned about the two new revolving credit facility that was a 4.1 billion and euro of 2.3 billion with an initial maturity date of October 2017 they also mentioned that the group had an ability to convert in in a one-year term loan secondly they had also mentioned about the existing revolving credit facility and their extended maturity the new maturity date of the revolving credit facility was close enough to 3.3 billion and another of with 1.8 billion now they had also remarked that this revolving credit facility should be treated as a backstop to their short-term debt let's see some of the details regarding the Walmarts revolving credit facility now as you can see over here there are details of consolidated balance sheet of Walmart of 2017 and 2016 these short-term borrowing are given and long-term boring is given so now we will see that you know how they represented the Revo revolving credit facility the above balance sheet basically of Walmart has portrayed the short-term borrowing and long term borrowing so in their in their annual report they had a note in regards with to the short-term borrowing and long term borrowing under that note they have talked about their revolving credit facilities first of all they had mentioned about their short-term borrowing which was depicted over here as you can see over here there is a maximum on outstanding at any month average daily short-term borrowing in 5691 over here it was we mention about the short-term borrowing which was depicted and the annual average weighted average interest rate okay it's certain in addition to our short-term borrowing we also have various undrawn committed lines of credit that provide 12.5 billion dollar of additional liquidity if needed so Wal-Mart had been committed with almost close enough to in the neighborhood 23 institution combining them to the US dollar 15 billion as on 31st January 2017 and 2016 let's have a glimpse of that in the table as you can see over here there are five year great facility which is given 5360 Ford revolving credit facility 7500 and in case of 2016 6000 and 9000 so it's written over here they had also mentioned in the note that they had extended both the 5 year credit facility and 364 day revolving credit facility in June 2016 so in the final analysis we can say that revolving credit facility is basically a boon to for any small business owners even the giant companies are also taking the advantage of these things but as an investor if you would like to know that where the company has reported its revolving credit facility you can look at their annual report then look at there and you'll report basically and and find the notes regarding the risk management and credit agreement on short-term or long-term borrowings thank you everyone