Building a Better Business Using Financial Statement Analysis

Transcription

1 Building a Better Business Using Financial Statement Analysis Jandrea Blumanhourst Senior Manager Controller Services The webinar will begin at 12:30 p.m. CT

2 Administration If you need CPE credit, please participate in all polls throughout the presentation.

3 Administration A recording of today s webinar will be ed for your reference or to share with others.

4 Administration For best quality, call in by phone instead of using your computer speakers.

5 Administration To ask questions during the presentation, use the questions box on the right side of your screen.

6 Administration Please provide your feedback at the end of today s presentation.

7 About the Speaker Jandrea Blumanhourst Senior Manager, Controller Services Audit and private sector financial leadership positions Experience with large commercial companies, governmental entities and notfor-profits Outsourced chief accountant, monthly close-out, audit support, fraud investigation, accounting systems

8 Learning Objectives Review financial statement basics. Understand the financial reporting tools that lead to better decisionmaking, including key performance indicators (KPI). Learn how to make better business decisions based on financial information and tools.

9 Polling Question #1

10 What is My Goal? Better gross profit margin? Improve bottom line? Overall growth? Pay down debt? Faster inventory turns? Hire more people? Add more benefits? Purchase more equipment? Increased cash flow?

11 Having the Right Tools The information at the right time and in the right format and level of detail to make timely decisions for your business Financial statements By division, location and / or product Ratio analysis Benchmarking Trend analysis Overhead rates

12 Jandrea s Jumpsuits Example company Wichita division Industrial jumpsuits (welders, auto mechanics, jails) Oklahoma City division Elvis impersonators Country-western singers

13 Financial Statement Components Balance Sheet Income Statement (Profit and Loss) Statement of Changes in Equity Statement of Cash Flows Footnotes Supplementary Schedules

14 Balance Sheet Point-in-time reporting as of a specific date Uses historical values

15 Balance Sheet - Assets

16 Balance Sheet Liabilities and Stockholder s Equity

17 Income Statement Also called profit & loss Period of time results covers a time period

18 Income Statement

19 Statement of Changes in Equity Also called Statement of Retained Earnings or Statement of Stockholders Equity Shows how all the other statements tie in

20 Statement of Stockholders Equity

21 Statement of Cash Flows Shows activity related to changes in cash Three sections Operating Investing Financing

22 Statement of Cash Flows

23 Footnotes Additional information provided regarding financial statements Includes accounting policies and methods Gives details on certain items in the financial statements Required for an audit, review or compilation, but can make an exception for compilations

24 Supplementary Information Any additional information provided with financial statements Budget vs. actual Departmental or location schedules Detail schedules Schedule of contracts Ratios Benchmarking Trend reports Graphs / dashboards

25 Financial Reporting Framework Cash basis Modified cash basis Tax basis (can be cash or accrual) Generally Accepted Accounting Principles or GAAP (accrual)

26 Polling Question #2

27 Key Performance Indicators Ways to measure how your business is going An indicator of performance Ratios Calculations or balances

28 Ratios Show relationships between accounts Different types of ratios: Financial condition Profitability Financial leverage Productivity

29 Financial Condition Ratios Current ratio Current assets / current liabilities Quick ratio Current assets inventory / current liabilities Accounts receivable (AR) turnover Annual credit sales / average accounts receivable Days outstanding = 365/AR turnover Inventory turnover Annual cost of goods sold / average inventory Days in inventory = 365/inventory turnover

30 Financial Condition Ratios

31 Profitability Ratios Gross profit margin Gross profit / gross sales Net profit margin Net profit / gross sales

32 Profitability Ratios

33 Financial Leverage Ratios Debt to equity Total debt / total equity Return on equity Annual net income / equity Interest coverage EBITDA / interest expense Debt Service Coverage EBITDA / total principal and interest payments

34 Financial Leverage Ratios

35 Calculations (KPI s)

36 Productivity Ratios Sales per customer Sales per employee Sales per square foot of production space

37 Productivity Ratios

38 Benchmarking Takes your financial information and compares it to others in your industry Helps if comparison is done in relation to size of assets or sales Shows how a company is doing in relation to its peers

39 Benchmarking Balance Sheet (1) Industry standards provided by RMA Annual Statement Studies

40 Benchmarking - Metrics (1) Industry standards provided by RMA Annual Statement Studies

41 Polling Question #3

42 Decision-Making Based on Financial Information So now that I have all this information, what do I do with it? How do I make decisions based on it? What is my goal, and what tools do I need to track my progress?

43 Decision-Making Based on Financial Information So now that I have all this information, what do I do with it? How do I make decisions based on it? What is my goal, and what tools do I need to track my progress?

44 Decision-Making Based on Financial Information So now that I have all this information, what do I do with it? How do I make decisions based on it? What is my goal, and what tools do I need to track my progress?

45 Goals for Jandrea s Jumpsuits 1. Get inventory down to a more manageable level. 2. Pay down debt. 3. Increase cash flow.

46 Jandrea s Jumpsuits Goal Reports Lower inventory Inventory values Inventory turns Pay off debt Loan balances Debt to equity Interest and debt service coverage Increase cash flow Reduce inventory (goal from above) Pay off debt (another goal from above) Collect accounts receivable faster (change in terms?) Pay accounts payable slower (new ratio needed?)

47 Inventory Reports

48 Loan Balances

49 Financial Leverage

50 Overhead Overhead is often an overlooked ratio. Used in quotes May point out excess overhead items Needs added in to cost of product

51 Overhead Calculation Overhead expenses / Selected measurement = overhead per item *Selected measurement = common factor, usually what drives your business (cost per widget, labor hour, production worker, etc.)

52 Overhead Calculation

53 Jumpsuit Profit/Loss

54 Polling Question #4

55 Thank You! Jandrea Blumanhourst Senior Manager, Controller Services Check out our other webinars! AGHUniversity.com Questions NOT related to today s content? mike.ditch@aghlc.com