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Presented by: Cooper Cochran
| Date post: | 31-Dec-2015 |
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Presented by:
Cooper Cochran
Provide a historical picture of your Company
Highlight your Company’s strengths and weaknesses
Identify potential areas of improvement
Help you make better decisions for the future
Balance Sheet
Income Statement
Cash Flow Statement
Financial Ratios
Snapshot” of what the Company owns and owes, along with what is left over
Assets – items owned that have value Liabilities – debts owed that must be paid in the future
Equity – the portion of the Company that belongs to the Owners
Assets = Liabilities + Equity
Items owned that have value
Cash Accounts Receivable Inventory Fixed Assets Investments Loans to Others (including owners) Current vs. Non-Current Assets
Debts owed that must be paid in the future
Accounts Payable Taxes Payable (Payroll, Sales, Income)
Loans Current vs. Long-Term Liabilities
The owner’s investment in the Company
Paid-In Capital
Retained Earnings
Owner Withdrawals/Dividends
Company liquidity – the ability to turn an asset into cash
Working capital
Quick or Acid Test ratio
Current ratio
Leverage (debt to worth) ratio
WORKING CAPITAL
Current Assets -Current Liabilities Working Capital
$ 170,000 - 150,000 $ 20,000
QUICK RATIO
Total Current Assets-Inventory
Total Current Liabilities
170,000 - 85,000 =
85,000 = .56150,000
CURRENT RATIO
Total Current AssetsTotal Current Liabilities
170,000 = 1.13 150,000
DEBT TO WORTH
Total LiabilitiesTotal Capital
204,000 = 2.3487,000
Do we have too little (or too much) cash on hand?
Do we need to make changes to our collection policy?
Do we need to restructure our existing debt?
Do we need to seek additional financing, either from lenders or from our owners?
Summary of the Company’s revenue and expenses over a period of time
Revenue – what the Company has earned during the period
Expenses – costs incurred to run the Company during the period
Net Income or Loss – the difference between the two
Sales or Service Revenue
Interest/Dividend Income
Gain/Loss on Sale of Assets
Cost of Goods Sold
Operating Expenses
Interest Expense
Income Tax Expense
Gross Profit/Profit Margin
Net Income/Profit Horizontal Analysis
Vertical Analysis
PROFIT MARGIN ON SALES
Net ProfitNet Sales
53,000 = 5.9% 900,000
Should we increase or decrease our prices?
Should we look for ways to reduce product costs?
Are there ways we can reduce overhead or administrative costs?
Do we need to consider refinancing our debt?
What should we do with the profit earned by the Company?
How can we continue operating if the Company suffers a loss?
Summary of cash inflows and outflows during the period
Operating Activities – cash generated from or used in operating the business
Investing Activities – cash generated from or used in business investments (assets)
Financing Activities – cash generated from or used in financing the business (liabilities or
equity) Reconciliation of net income and cash
Net Income Non-cash expenses (depreciation) Change in operating assets/liabilities Purchase of plant assets, investments Sale of plant assets, investments Proceeds from new debt Principal payment on debts Investments made by owner(s) Dividends paid to owner(s)
Where your cash is coming from
Where your cash is going
How the cash generated from the Company’s
profit is being used
How the balance of the Company’s cash has changed during the year
If our operations are not generating enough cash, what can we do to change this? (credit and collection policies for example)
How can we generate sufficient cash to repay our debts?
If we take out a loan, what amount can we afford in monthly payments?
If we have excess cash, how should we be using it? (investing in Company assets, paying down debt, returning profit to the owners)
Accounts receivable turnover
Inventory turnover
Accounts payable turnover
Debt service ratio
ACCOUNTS REC TURNOVER
AR x 365 = Days to Collect Net Sales
75,000 x 365 =
27,375,000 = 30.4 900,000
INVENTORY TURNOVER
Inv x 365 = Days to Turn Cost of Goods
85,000 x 365 =
31,025,000 = 57.4 504,000
ACCOUNTS PAY TURNOVER
Accounts Pay x 365Purchases
41,000 x 365 =
14,965,000 = 42.7 350,000
DEBT SERVICE RATIO
Net Profit + DepreciationCurrent Portion of LT Debt
53,000 + 13,0000 =
66,000 = $11 6,000
Who else is relying on our financial statements
in order to make decisions about our Company?
Owners/Investors Lenders/Creditors Customers Employees or potential employees Government Entities (regulators, IRS, etc.)
What information are they looking for?
Profitability Liquidity Sustainability Leverage Return on investment to the owners Comparability with others in the industry
Trends from year to year
Analyze your own Company
Compare with others in the industry
Look for areas of improvement
Make decisions and implement changes
Start all over!
PLEASE COMPLETE AND RETURN THE EVALUATION
