How to create a revolver facility
The first step here is to understand what is a revolver.
Revolver is a credit facility available to a company to meet its working capital requirements, in case it doesn’t have adequate cash balance.
For example, Flipkart, which is currently grappling with heavy cash losses, might enter an arrangement with one financial institution, that if in case its cash balance goes below 50 crores at any point in time, it can use the revolver facility to raise money.
But, there are no free lunches in this world, right?
a) The financial institution will charge a certain rate of interest from Flipkart (say 12%)
b) The revolver arrangement will have a specific tenure (say 3 years)
c) There will be an upper limit to which a financial institution will give money (say 25 crores)
You may be wondering why should there be a limit. Well, because not everybody is as generous as some of our PSU banks!
Flipkart can return the money, when it has surplus cash.
But how can we make all these calculations in Excel? You can learn to do it by having a look at the revolver excel template.
The complete revolver functionality is in the attached file – Revolver-Facility (334 downloads)
Investment bankers and financial analysts widely use the Revolver facility to make valuation models.
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