Financial Performance Assessment
Sample Company
NAICS 332721 Precision
Turned Product Manufacturing
For the period ended 12/31/2012
Provided By
Disclaimer
7/3/2013
The information included in the following comparative financial evaluation is presented only for supplementary
analysis and discussion purposes. Such information is presented for internal management use only and is not
intended for third parties. Accordingly, we do not express an opinion or any other form of assurance on the
supplementary information.
Page 1 / 15
This report is designed to
assist you in your business'
development. Below you will
find your overall ranking,
business snapshot and
narrative write-up.
Snapshot of:
Industry:
Revenue:
Periods:
MM33721Prec Metal 10-50MM
50MM
332721 - Precision Turned Product Manufacturing
$10M - $50M
12 months against the same 12 months from the previous
year
Financial Score for MM33721Prec Metal 10
10-50MM
LIQUIDITY A measure of the company's ability to meet obligations as they
come due.
PROFITS & PROFIT MARGIN A measure of whether the trends in profit are favorable for the
company.
SALES A measure of how sales are growing and whether the sales are
satisfactory for the company.
BORROWING A measure of how responsibly the company is borrowing and
how effectively it is managing debt.
ASSETS A measure of how effectively the company is utilizing its gross
fixed assets.
Financial Analysis for MM33721Prec Metal 10
10-50MM
LIQUIDITY
A measure of the company's ability to meet
obligations as they come due.
Operating Cash Flow Results
Operating cash flow is strong and has increased relative to sales since last period. This is a good result, and
also a needed one, since overall liquidity seems weak currently. The company seems to be doing a good job of
managing working capital accounts. It may still be helpful, however, to examine the Statement of Cash Flows
to see
ee if adjustments can be made to free up additional cash.
General Liquidity Conditions
The company has produced some positive results in this area. First, the company's cash and near-cash
accounts have grown relative to its short
short-term obligations, which is good.. These are the specific
assets that are used to pay the bills. For example, notice in the graph area of the report that the company's
quick ratio has risen by 13.34% from last period. Second, the company has been able to improve sales and
profits this
s period, which should help it to improve its "overall" liquidity position over time.
On the other hand, some negative results have been produced as well. The company's overall liquidity
position is still poor,, as it was last period. In fact, it may be necessary
necessary to find some ways to improve the
conditions in this area -- it is possible that the rate of progress in this area is too slow. This means that the
firm's liquidity position has improved but the company still does not seem to be in good shape. It is important
to note that the company's position is poor according to the several ways liquidity is measured.
There are some mixed results when considering the company’s liquidity turnover ratios. The company's
inventory days ratio is better than the industry
industry average, which is good, as it indicates the company is
converting inventory to sales relatively quickly. Yet, accounts receivable days are not quite as good as many of
its competitors. Over time it might be favorable to see AR days decrease, because collecting
coll
receivables
quickly is one of the more important parts of good cash flow management.
Page 2 / 15
Tips For Improvement
In order to more effectively manage liquidity conditions, here are some actions/"tips" that managers might
consider:




Set longer terms for Accounts
unts Payable when possible. For example, increase a 30 day payment window
to 60 days.
Use as much trade credit or vendor financing as is reasonable/possible -- this is the best form of short
shortterm financing. Trade credit is financing the business receives from suppliers when they provide
services and then bill the business. It is typically free debt (in accounts payable) because it does not
carry interest.
Increase prices selectively where possible. Done effectively, this can boost cash flow and liquidity.
Good Income Statement management helps Balance Sheet performance.
Sell any unnecessary/unproductive assets the business may have to increase cash. These are assets
that are not contributing sufficiently to the generation of income and cash flow.
LIMITS TO LIQUIDITY ANALYSIS: Keep in mind that liquidity conditions are volatile, and this is a general
analysis looking at a snapshot in time. Review this section, but do not overly rely on it.
Generally, this metric measures the overall liquidity position of a company. It is certainly not a perfect
barometer, but it is a good one. Watch for big decreases in this number over time. Make sure the
accounts listed in "current assets" are collectible. The higher the ratio, the more liquid the company
c
is.
This is another good indicator of liquidity, although by itself, it is not a perfect one. If there are receivable
accounts included in the numerator, they should be collectible. Look at the length of time the company
has to pay the amount listed in the denominator (current liabilities). The higher the number, the stronger
the company.
Page 3 / 15
This metric shows how much inventory (in days) is on hand. It indicates how quickly a company can
respond to market and/or product changes. No
Nott all companies have inventory for this metric. The lower
the better.
This number reflects the average length of time between credit sales and payment receipts. It is crucial
to maintaining positive liquidity. The lower the better.
This ratio shows the average number of days that lapse between the purchase of material and labor, and
payment for them. It is a rough measure of how timely a company is in meeting payment obligations.
Lower is normally better.
PROFITS & PROFIT MARGIN
A measure of whether the trends in profit are
favorable for the company.
Page 4 / 15
The company has performed well in the profitability area this period, as its net profit margin has improved
from last period on significantly higher sales. The company's net margin is at a reasonable level, and the
increases in net margin and sales have caused net profits in dollars to rise significantly by 2,779.00%. The
company has both grown (increased its sales) and managed its growth well (improved its margins)
m
this period,
which is always a positive combination.
The goal for the company now is simple: it will want to increase its net profits and net margin to the point
where it will be a top performer in the industry. If the company can keep net margins moving higher, it can
move them to strong levels. Right now, net margins are still only about average for this industry, which is
highlighted in the graph area of the report. If the company can increase its net margin in the future, and gain
an advantage over
ver the competition, it may be able to invest in future growth in ways that its competitors
cannot, and thus maintain an edge over other firms.
Overall, the company is clearly moving in the right direction. This is important, because trends tend to be more
important than raw data in the Profitability area, especially within this particular industry. Indeed, even trends
based upon only a limited amount of data are important.
Tips For Improvement
Profit and loss management is all about continually finding ways
ways to change things in the business to improve
profits. Managers might think about the following ideas/hints/tips:




Compare the business to other manufacturers; benchmark how the business is doing relative to others.
Assessing performance through benchmarking
benchmarking can be an effective way to evaluate operations.
Consider using new products which use liquid nitrogen to improve the turning process. This can cut
grinding time down to 15 minutes and decrease tooling costs by up to 85%.
Use industry experts and consultants
consultants to help you improve your business. People with long experience
in an industry can save you years of time by leveraging their knowledge. Industry consultants can be
found in trade journals and magazines.
Create good monthly budgets with cost reduction g
goals,
oals, broken down by account, that are put right
into an accounting system (chart of accounts). This should allow management the ability to pull
"variance reports", which compare budgeted revenues and expenses with actual revenues and
expenses.
This number indicates the percentage of sales revenue that is not paid out in direct costs (costs of sales).
It is an important statistic that can be used in business planning because it indicates how many cents of
gross profit can be generated by each dollar
dollar of future sales. Higher is normally better (the company is
more efficient).
Page 5 / 15
This is an important metric. In fact, over time, it is one of the more important barometers that we look at.
It measures how many cents of profit the company is generating for every dollar it sells. Track it carefully
against industry competitors. This is a very important number in preparing forecasts. The higher the
better.
This metric shows advertising expense for the company as a percentage of sales.
This metric shows rent expense for the company as a percentage of sales.
Page 6 / 15
This metric shows G & A payroll expense for the company as a percentage of sales.
This metric shows total payroll expense for the company as a percentage of sales.
SALES
A measure of how sales are growing and whether the
sales are satisfactory for the company.
Significant increases in sales were realized this period. It looks like the firm has also added a substantial
amount of fixed assets. If these assets have helped to drive sales higher, then the company should be
generally pleased that the asset base is gen
generating
erating more sales dollars. Ideally, this dynamic will help the
company earn greater profitability in the future.
Page 7 / 15
BORROWING
A measure of how responsibly the company is
borrowing and how effectively it is managing debt.
Borrowing (using leverage) is a valuable tool for a business -- borrowing can improve profitability significantly.
The only problem is that the effectiveness of leverage depends upon how well the company is using it.
Borrowing has great power. However, it must be applied under the right terms, for the right assets, and in the
right environment.
This company has performed well in this area. Profitability was substantially improved by 2,779.00% as
significant debt was added. In fact, even though there is mor
more
e debt on the books this period, the net profit
margin improved as well. It is always positive to not lose margin when adding either short-term
short
or long-term
debt.
When a company receives a good score in this area, it is still quite important to evaluate rreal returns. For
example, the trend here is good, but the company will still want to determine the rates of return on assets and
borrowed money. This report only indicates trends, not acceptable rates of return on borrowed funds.
It should also be noted that
hat the company is generating an average amount of earnings (before interest and
non-cash
cash expenses) relative to its cost of debt payments. For example, notice that the company's interest
coverage ratio (EBITDA as compared to debt obligations) is in the normal
normal range. "Normal" as defined in the
context of this report means average but not necessarily great, so it would be important to monitor results in
this area in the future. The company is also holding an average amount of debt as compared to equity (its debt
d
to equity ratio is in the norm).
Page 8 / 15
This ratio measures a company's ability to service debt payments from operating cash flow (EBITDA). An
increasing ratio is a good indicator of improving credit quality. The higher the better.
This Balance Sheet leverage ratio indicates the composition of a company’s total capitalization -- the
balance between money or assets owed versus the money or assets owned. Generally, creditors prefer a
lower ratio to decrease financial risk while investors prefer
pr efer a higher ratio to realize the return benefits of
financial leverage.
This ratio measures a company's ability to repay debt obligations from annualized operating cash flow
(EBITDA).
ASSETS
A measure of how effectively the company is utilizing
its gross fixed assets.
The company has done very well in this area. As fixed assets increased, profitability improved by 2,779.00%.
With this increase in profitability, the company was also able to enhance its net profit margin. This is a good
indicator of improving overall efficiency. The company needs to maintain net profitability and liquidity at steady
levels in order to continue its positive use of assets.
The company seems to be doing an average job of managing its assets.
assets. It generated a rather poor return on
assets for the period. However, it appears to have done a good job generating sales revenue from its fixed
asset base. This may lead to higher returns on the company's assets in the long run.
Page 9 / 15
This measure shows how much profit is being returned on the shareholders' equity each year. It is a vital
statistic from the perspective of equity holders in a company. The higher the better.
This calculation measures the company's ability to use its assets
assets to create profits. Basically, ROA
indicates how many cents of profit each dollar of asset is producing per year. It is quite important since
managers can only be evaluated by looking at how they use the assets available to them. The higher the
better.
This asset management ratio shows the multiple of annualized sales that each dollar of gross fixed assets
is producing. This indicator measures how well fixed assets are "throwing off" sales and is very important
to businesses that require significant investments in such assets. Readers should not emphasize this
metric when looking at companies that do not possess or require significant gross fixed assets. The
higher the more effective the company's investments in Net Property, Plant, and Eq
Equipment are.
Page 10 / 15
RAW DATA
12/31/2009
12/31/2010
12/31/2011
12/31/2012
Sales (Income)
$40,000,000
$35,000,000
$28,080,500
$38,094,006
Total Income
$40,000,000
$35,000,000
$28,080,500
$38,094,006
$31,848,000
$27,895,000
$22,405,431
$30,787,576
Depreciation (COGS-related)
$0
$0
$0
$0
Direct Materials
$0
$0
$0
$0
Direct Labor
$0
$0
$0
$0
Manufacturing Overhead
$0
$0
$0
$0
Total COGS
$31,848,000
$27,895,000
$22,405,431
$30,787,576
Gross Profit
$8,152,000
$7,105,000
$5,675,069
$7,306,430
Gross Profit Margin
20.38%
20.30%
20.21%
19.18%
Depreciation
$1,512,000
$1,498,000
$1,384,369
$2,224,690
$1,512,000
$1,498,000
$1,384,369
$2,224,690
Amortization
$0
$0
$0
$0
Overhead or S,G,& A Expenses
$2,876,000
$2,614,500
$2,852,978
$2,247,546
G & A Payroll Expense
$4,408,000
$2,975,000
$713,245
$1,142,820
Rent
$644,000
$556,500
$713,245
$380,940
Advertising
$52,000
$63,000
$280,805
$30,475
Other Overhead or S,G,&A Expense
($2,556,000)
($1,655,500)
$277,996
$236,183
Other Operating Expenses
$316,000
$672,000
$867,687
$457,128
Other Operating Income
$12,000
$3,500
$0
$0
Other Operating Income
$0
$0
$0
$0
Other Operating Expenses
$0
$0
$0
$0
Operating Profit
$3,764,000
$2,992,500
$1,437,722
$2,834,194
Interest Expense
$760,000
$507,500
$314,502
$655,217
$760,000
$507,500
$314,502
$655,217
Other Income
$0
$0
$0
$0
Other Expenses
$1,320,000
$1,890,000
$1,072,675
$723,786
Other Income
$228,000
$112,000
$70,201
$163,804
Other Expenses
$1,092,000
$1,778,000
$1,002,474
$559,982
Net Profit Before Taxes
$1,684,000
$595,000
$50,545
$1,455,191
Adjusted Net Profit before Taxes
$1,684,000
$595,000
$50,545
$1,455,191
Net Profit Margin
4.21%
1.70%
0.18%
3.82%
EBITDA
$3,956,000
$2,600,500
$1,749,416
$4,335,098
Taxes Paid
$88,000
$52,500
$14,040
$137,138
$88,000
$52,500
$14,040
$137,138
Extraordinary Gain
$0
$0
$0
$0
Extraordinary Loss
$0
$0
$0
$0
Net Income
$1,596,000
$542,500
$36,505
$1,318,053
12/31/2009
12/31/2010
12/31/2011
12/31/2012
$1,171,466
$1,326,672
$1,260,957
$740,321
$1,171,466
$1,326,672
$1,260,957
$740,321
$5,049,863
$4,602,740
$3,818,179
$6,866,314
$5,049,863
$4,602,740
$3,818,179
$6,866,314
$4,307,769
$2,674,863
$1,743,327
$3,239,022
$4,307,769
$2,674,863
$1,743,327
$3,239,022
$653,662
$1,489,122
$2,365,556
$710,308
$653,662
$1,489,122
$2,365,556
$710,308
Total Current Assets
$11,182,760
$10,093,397
$9,188,019
$11,555,965
Gross Fixed Assets
$49,598,883
$43,319,906
$30,061,224
$37,262,842
$49,598,883
$43,319,906
$30,061,224
$37,262,842
$37,415,127
$29,782,435
$22,389,560
$22,349,702
$37,415,127
$29,782,435
$22,389,560
$22,349,702
Net Fixed Assets
$12,183,756
$13,537,471
$7,671,664
$14,913,140
Gross Intangible Assets
$0
$0
$0
$0
Accumulated Amortization
$0
$0
$0
$0
Income Statement Data
Cost of Sales (COGS)
Depreciation
Interest Expense
Taxes Paid
Balance Sheet Data
Cash (Bank Funds)
Total Checking/Savings
Accounts Receivable
Total Accounts Receivable
Inventory
Inventory
Other Current Assets
Other Current Assets
Gross Fixed Assets
Accumulated Depreciation
Accumulated Depreciation
Page 11 / 15
Net Intangible Assets
$0
$0
$0
$0
Other Assets
$1,476,508
$2,030,621
$2,950,640
$1,523,995
$1,476,508
$2,030,621
$2,950,640
$1,523,995
Total Assets
$24,843,024
$25,661,489
$19,810,323
$27,993,100
Accounts Payable
$2,272,987
$2,063,466
$1,743,327
$3,239,022
$2,272,987
$2,063,466
$1,743,327
$3,239,022
Short Term Debt
$0
$0
$0
$0
Notes Payable / Current Portion of Long Term Debt
$2,909,118
$3,592,608
$3,466,807
$3,921,833
$2,909,118
$3,592,608
$3,466,807
$3,921,833
$2,456,975
$2,052,919
$1,412,476
$1,590,008
$2,456,975
$2,052,919
$1,412,476
$1,590,008
Total Current Liabilities
$7,639,080
$7,708,993
$6,622,610
$8,750,863
Notes Payable / Senior Debt
$0
$0
$0
$0
Notes Payable / Subordinated Debt
$0
$0
$0
$0
Other Long Term Liabilities
$6,752,484
$6,404,826
$3,617,346
$6,897,280
$6,752,484
$6,404,826
$3,617,346
$6,897,280
Total Long Term Liabilities
$6,752,484
$6,404,826
$3,617,346
$6,897,280
Total Liabilities
$14,391,564
$14,113,819
$10,239,956
$15,648,143
Preferred Stock
$0
$0
$0
$0
Common Stock
$0
$0
$0
$0
Additional Paid-in Capital
$0
$0
$0
$0
Other Stock / Equity
$10,451,460
$11,547,670
$9,570,367
$12,344,957
Equity: Adjustment
$10,451,460
$11,547,670
$9,570,367
$12,344,957
Ending Retained Earnings
$0
$0
$0
$0
Total Equity
$10,451,460
$11,547,670
$9,570,367
$12,344,957
Total Liabilities + Equity
$24,843,024
$25,661,489
$19,810,323
$27,993,100
Direct Labor Hours
0.00
0.00
0.00
0.00
Machine Production Time
0.00
0.00
0.00
0.00
Plant Operating Hours
0.00
0.00
0.00
0.00
Other Assets
Total Accounts Payable
Current Portion of Long Term Debt
Other Current Liabilities
Other Current Liabilities
Other Long Term Liabilities
Other Non-Financial Accounts
COMMON SIZE STATEMENTS
TS
Industry*
(314)
12/31/2009
12/31/2010
12/31/2011
12/31/2012
Sales (Income)
100%
100%
100%
100%
Total Income
100%
100%
100%
100%
N/A
80%
80%
80%
81%
74%
Depreciation (COGS-related)
0%
0%
0%
0%
5%
Direct Materials
0%
0%
0%
0%
26%
Direct Labor
0%
0%
0%
0%
20%
Manufacturing Overhead
0%
0%
0%
0%
25%
Total COGS
80%
80%
80%
81%
N/A
Gross Profit
20%
20%
20%
19%
26%
Depreciation
4%
4%
5%
6%
3%
Income Statement Data
Cost of Sales (COGS)
Depreciation
100%
4%
4%
5%
6%
N/A
Amortization
0%
0%
0%
0%
0%
Overhead or S,G,& A Expenses
7%
7%
10%
6%
14%
G & A Payroll Expense
11%
9%
3%
3%
12%
Rent
2%
2%
3%
1%
1%
Advertising
0%
0%
1%
0%
0%
Other Overhead or S,G,&A Expense
N/A
N/A
1%
1%
N/A
Other Operating Expenses
1%
2%
3%
1%
N/A
Other Operating Income
0%
0%
0%
0%
N/A
Other Operating Income
0%
0%
0%
0%
0%
Other Operating Expenses
0%
0%
0%
0%
1%
Operating Profit
9%
9%
5%
7%
8%
Interest Expense
2%
1%
1%
2%
1%
2%
1%
1%
2%
N/A
0%
0%
0%
0%
0%
Interest Expense
Other Income
Page 12 / 15
Other Expenses
3%
5%
4%
2%
0%
Other Income
1%
0%
0%
0%
N/A
Other Expenses
3%
5%
4%
1%
N/A
Net Profit Before Taxes
4%
2%
0%
4%
7%
Adjusted Net Profit before Taxes
4%
2%
0%
4%
7%
EBITDA
10%
7%
6%
11%
11%
Taxes Paid
0%
0%
0%
0%
0%
Taxes Paid
0%
0%
0%
0%
N/A
Extraordinary Gain
0%
0%
0%
0%
0%
Extraordinary Loss
0%
0%
0%
0%
0%
Net Income
4%
2%
0%
3%
7%
12/31/2009
12/31/2010
12/31/2011
12/31/2012
5%
5%
6%
3%
5%
5%
5%
6%
3%
N/A
20%
18%
19%
25%
21%
20%
18%
19%
25%
N/A
17%
10%
9%
12%
20%
17%
10%
9%
12%
N/A
3%
6%
12%
3%
2%
Industry*
(314)
Balance Sheet Data
Cash (Bank Funds)
Total Checking/Savings
Accounts Receivable
Total Accounts Receivable
Inventory
Inventory
Other Current Assets
Other Current Assets
3%
6%
12%
3%
N/A
Total Current Assets
45%
39%
46%
41%
51%
Gross Fixed Assets
200%
169%
152%
133%
105%
200%
169%
152%
133%
N/A
151%
116%
113%
80%
62%
N/A
Gross Fixed Assets
Accumulated Depreciation
Accumulated Depreciation
151%
116%
113%
80%
Net Fixed Assets
49%
53%
39%
53%
43%
Gross Intangible Assets
0%
0%
0%
0%
0%
Accumulated Amortization
0%
0%
0%
0%
0%
Net Intangible Assets
0%
0%
0%
0%
0%
Other Assets
6%
8%
15%
5%
7%
6%
8%
15%
5%
N/A
Total Assets
100%
100%
100%
100%
100%
Accounts Payable
9%
8%
9%
12%
12%
Other Assets
Total Accounts Payable
9%
8%
9%
12%
N/A
Short Term Debt
0%
0%
0%
0%
0%
Notes Payable / Current Portion of Long Term Debt
12%
14%
18%
14%
8%
12%
14%
18%
14%
N/A
10%
8%
7%
6%
10%
N/A
Current Portion of Long Term Debt
Other Current Liabilities
Other Current Liabilities
10%
8%
7%
6%
Total Current Liabilities
31%
30%
33%
31%
32%
Notes Payable / Senior Debt
0%
0%
0%
0%
12%
Notes Payable / Subordinated Debt
0%
0%
0%
0%
0%
Other Long Term Liabilities
27%
25%
18%
25%
9%
27%
25%
18%
25%
N/A
Total Long Term Liabilities
27%
25%
18%
25%
25%
Total Liabilities
58%
55%
52%
56%
56%
Preferred Stock
0%
0%
0%
0%
0%
Common Stock
0%
0%
0%
0%
1%
Additional Paid-in Capital
0%
0%
0%
0%
1%
Other Stock / Equity
42%
45%
48%
44%
3%
Equity: Adjustment
42%
45%
48%
44%
N/A
Ending Retained Earnings
0%
0%
0%
0%
38%
Total Equity
42%
45%
48%
44%
44%
Total Liabilities + Equity
100%
100%
100%
100%
100%
Other Long Term Liabilities
*The industry common size figures shown above were taken from all private company data for companies with industry code 332721 for
all years in all areas with yearly sales $10 million to $50 million.
Page 13 / 15
INDUSTRY SCORECARD
Financial Indicator
Current Ratio
Current Period Industry Range
Distance from
Industry
1.32
-17.50%
1.60 to 2.80
= Total Current Assets / Total Current Liabilities
Explanation: Generally, this metric measures the overall liquidity position of a company. It is certainly not a
perfect barometer, but it is a good one. Watch for big decreases in this number over time. Make sure the
accounts listed in "current assets" are collectible. The higher the ratio, the more liquid the company is.
Quick Ratio
0.87
= (Cash + Accounts Receivable) / Total Current Liabilities
0.90 to 1.60
-3.33%
Explanation: This is another good indicator of liquidity, although by itself, it is not a perfect one. If there are
receivable accounts included in the numerator, they should be collectible. Look at the length of time the company
has to pay the amount listed in the denominator (current liabilities). The higher the number, the stronger the
company.
Inventory Days
38.40 Days
40.00 to 75.00 Days +4.00%
= (Inventory / COGS) * 365
Explanation: This metric shows how much inventory (in days) is on hand. It indicates how quickly a company
can respond to market and/or product changes. Not all companies have inventory for this metric. The lower the
better.
Accounts Receivable Days
65.79 Days
30.00 to 60.00 Days -9.65%
= (Accounts Receivable / Sales) * 365
Explanation: This number reflects the average length of time between credit sales and payment receipts. It is
crucial to maintaining positive liquidity. The lower the better.
Accounts Payable Days
38.40 Days
15.00 to 45.00 Days 0.00%
= (Accounts Payable / COGS) * 365
Explanation: This ratio shows the average number of days that lapse between the purchase of material and
labor, and payment for them. It is a rough measure of how timely a company is in meeting payment obligations.
Lower is normally better.
Gross Profit Margin
19.18%
16.00% to 28.00%
0.00%
= Gross Profit / Sales
Explanation: This number indicates the percentage of sales revenue that is not paid out in direct costs (costs of
sales). It is an important statistic that can be used in business planning because it indicates how many cents of
gross profit can be generated by each dollar of future sales. Higher is normally better (the company is more
efficient).
Net Profit Margin
3.82%
0.50% to 6.00%
0.00%
= Adjusted Net Profit before Taxes / Sales
Explanation: This is an important metric. In fact, over time, it is one of the more important barometers that we
look at. It measures how many cents of profit the company is generating for every dollar it sells. Track it carefully
against industry competitors. This is a very important number in preparing forecasts. The higher the better.
Advertising to Sales
0.08%
0.25% to 2.00%
+68.00%
= Advertising / Sales
Explanation: This metric shows advertising expense for the company as a percentage of sales.
Rent to Sales
1.00%
1.00% to 6.00%
0.00%
= Rent / Sales
Explanation: This metric shows rent expense for the company as a percentage of sales.
G & A Payroll to Sales
3.00%
8.00% to 20.00%
+62.50%
= G & A Payroll Expense / Sales
Explanation: This metric shows G & A payroll expense for the company as a percentage of sales.
Page 14 / 15
Total Payroll to Sales
3.00%
N/A
N/A
= (Direct Labor + G & A Payroll Expense) / Sales
Explanation: This metric shows total payroll expense for the company as a percentage of sales.
Interest Coverage Ratio
6.62
4.00 to 12.00
0.00%
= EBITDA / Interest Expense
Explanation: This ratio measures a company's ability to service debt payments from operating cash flow
(EBITDA). An increasing ratio is a good indicator of improving credit quality. The higher the better.
Debt-to-Equity Ratio
1.27
1.00 to 2.50
0.00%
= Total Liabilities / Total Equity
Explanation: This Balance Sheet leverage ratio indicates the composition of a company’s total capitalization -the balance between money or assets owed versus the money or assets owned. Generally, creditors prefer a
lower ratio to decrease financial risk while investors prefer a higher ratio to realize the return benefits of financial
leverage.
Debt Leverage Ratio
3.61
N/A
N/A
= Total Liabilities / EBITDA
Explanation: This ratio measures a company's ability to repay debt obligations from annualized operating cash
flow (EBITDA).
Return on Equity
10.68%
8.00% to 20.00%
0.00%
= Net Income / Total Equity
Explanation: This measure shows how much profit is being returned on the shareholders' equity each year. It is
a vital statistic from the perspective of equity holders in a company. The higher the better.
Return on Assets
4.71%
6.00% to 10.00%
-21.50%
= Net Income / Total Assets
Explanation: This calculation measures the company's ability to use its assets to create profits. Basically, ROA
indicates how many cents of profit each dollar of asset is producing per year. It is quite important since managers
can only be evaluated by looking at how they use the assets available to them. The higher the bette
better.
Fixed Asset Turnover
1.02
1.00 to 4.00
0.00%
= Sales / Gross Fixed Assets
Explanation: This asset management ratio shows the multiple of annualized sales that each dollar of gross fixed
assets is producing. This indicator measures how well fixed assets are "throwing off" sales and is very important
to businesses that require significant investments in such assets. Readers should not emphasize this metric when
looking at companies that do not possess or require significant gross fixed assets. The higher the more effective
the company's investments in Net Property, Plant, and Equipment are.
NOTE: Exceptions are sometimes applied when calculating the Financial Indicators. Generally, this occurs when
the inputs used to calculate the ratios are zero and/or negative.
READER: Financial analysis is not a science; it is about interpretation and evaluation of financial events.
Therefore, some judgment will always be part of our reports and analyses. Before making any financial decision,
always consult an experienced and knowledgeable
knowledgeable professional (accountant, banker, financial planner, attorney,
etc.).
Page 15 / 15
FINANCIAL PERFORMANCE ASSESSMENT
332721 Precision Metal Turned Product $10.0 MM to $50.0 MM
December 31, 2012
FINANCIAL PERFORMANCE ASSESSMENT INFORMATION
We have prepared this Financial Performance Assessment to provide a foundation for discussing the financial and operational characteristics of your business. We
feel these models and analysis pull together the various financial information in a way that can help you understand your business. A thorough understanding of
what the numbers are saying will help you manage your business and set realistic goals. We feel it is important to provide financial information in a way which
allows business executives to deal with the problems of today and the challenges of tomorrow.
Attached are additional financial models to complement the previous section of the Financial Performance Assessment. We hope you find these informative and
useful.
Cash Cycle
The cash cycle is a measurement of your cash management efforts. Proper management of
your cash cycle can free up funds to reduce invested capital or to invest in new assets.
Days Inventory
Days Payable Days Receivable
Cash Cycle
Cash Cycle
70
60
50
40
30
20
10
0
Days Inventory
Days Payable
Industry Avg
2012
Days Receivable
2011
2010
Cash Cycle
2009
2008
DAYS
IN
INVENTORY
-
DAYS
IN
PAYABLES
+
DAYS IN
ACCOUNTS
RECEIVABLE
=
CASH
CASH CYCLE
2012
38
-
38
+
66
=
66
2011
28
-
28
+
50
=
50
2010
35
-
27
+
48
=
56
2009
49
-
26
+
46
=
69
2008
NA
-
NA
+
NA
=
0
=
65
Industry Average:
Profit Cents
55
-
30
+
The above ratios are based on end of year measurements
-3-
40
Cash Cycle "What If" Illustration
We have revised some actual results to provide insight into "what if" certain changes could be made to the accounts identified below.
1) You cut your collection time of accounts receivable by the following number of days:
The total would therefore represent 61 days outstanding.
This would result in a decrease in accounts receivable of:
2) You increase the number of days you take to pay accounts payable by the following number of days:
The total would therefore represent 43 days outstanding.
This would result in an increase in accounts payable of:
3) You decrease the number of days you carry your inventory by:
The total would therefore represent 33.
This would result in a decrease in inventory of:
5
$499,918
5
$388,008
5
$455,488
If these changes were achieved for one year, cash would be increased as follows:
Decrease in accounts receivable
Increase in accounts payable
Decrease in inventory
$499,918
388,008
455,488
1,343,414
Increase in Net Income
Estimated interest saved or earned, based on a rate of 3.25%
Additional income tax, based on a marginal rate of 0%
TOTAL INCREASE IN AVAILABLE CASH
43,661
0
43,661
$1,387,075
-4-
Borrowing Capacity Model
Many owners wonder how much borrowing capacity their company has available. The calculations below present a rough estimate of borrowing capability
based on normal ranges of collateral, cash flow and leverage. These are just several of the many things your loan officer will look at in determining your loans.
Borrowing Capacity
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$0
Low End
High End
Existing
Collateral
Cash Flow
Leverage
Amount Available
Low End
High End
BORROWING BASE:
Trade Receivables
Inventory
Fixed Assets at fair market value
Borrowing Capacity
Collateral Base
$6,866,314
3,239,022
14,913,140
x
x
x
Low End High End
75%
85%
40%
50%
50%
60%
CASH FLOW LEVERAGE:
Earnings Before Interest Taxes Depreciation and Amortization (EBITDA)
Acceptable leverage ratio (generally 2.5 to 3.0)
Borrowing Capacity
DEBT TO EQUITY LEVERAGE:
Tangible Equity (equity less intangibles)
Acceptable leverage ratio (generally 2.5 to 3.5)
Acceptable total liabilities
Less non financing debt (accounts payable, accruals, etc.)
Borrowing Capacity
=
=
=
Existing
Borrowings
Additional Available
Low End
High End
$5,149,736
1,295,609
7,456,570
$13,901,915
$5,836,367
1,619,511
8,947,884
$16,403,762
$10,819,113
$3,082,802
$5,584,649
$2,567,536
2.50
$6,418,840
$2,567,536
3.00
$7,702,608
$10,819,113
($4,400,273)
($3,116,505)
$12,344,957
2.50
30,862,393
(4,829,030)
$26,033,363
$12,344,957
3.50
43,207,350
(4,829,030)
$38,378,320
$10,819,113
$15,214,250
$27,559,207
-5-
Return on Investment Model
To many people, return on equity is the most important item in judging an organization's performance. It tells how much owners' return is in relation to their investment in the business. Return
on equity is a combination of profit margin, asset management, and financial leverage. To improve return on assets, a company must pay attention to its return on sales and asset turnover. Asset
turnover is calculated by dividing net sales by average total assets. Leverage multiplier is a function of how much of your capital structure is financed with debt vs. equity. Improving return on
equity is a balancing act of managing all of the component parts.
Net Profit Margin
Asset Turnover
(Net Income / Revenue)
( Revenue/Assets)
Return on Assets
(Net Income / Assets)
3.5
3
2.5
2
1.5
1
0.5
0
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2012
2011
2010
2009
2008
10.9%
8.2%
7.9%
8.8%
N/A
Industry - Profit Cents
X
4.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1.36
1.42
1.36
1.61
N/A
3.33
PreTax
14.8%
11.6%
10.8%
14.2%
N/A
After Tax
8.9%
7.0%
6.5%
8.5%
0.0%
13.3%
8.0%
Return on Assets
Return on Equity
(Net Income / Assets)
(Net Income / Equity)
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2012
2011
2010
2009
2008
PreTax
14.8%
11.6%
10.8%
14.2%
N/A
After Tax
8.9%
7.0%
6.5%
8.5%
0.0%
Industry
13.3%
8.0%
X
2.27
2.07
2.22
2.38
N/A
2.50
-6-
=
PreTax
33.5%
24.1%
24.0%
33.7%
N/A
After Tax
20.1%
14.5%
14.4%
20.2%
0.0%
23.3%
14.0%
Components of Return on Investment
The ratios below are further detailing of the major return on asset measurements. The income statement returns break out the net income before taxes into its major components. The asset
efficiency ratios break out asset turnover into its major parts. Improving any of these ratios will improve your return on assets.
Profitability Returns
Net Profit Margin
SG&A to Sales %
Gross Profit %
( Income B4 Tax /Revenue/
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
25.0%
2.00
20.0%
1.50
15.0%
1.00
10.0%
0.50
5.0%
0.00
0.0%
2012
2012
2011
2010
2009
2008
Industry - Profit Cents
2011
2010
2009
2008
2012
10.9%
8.2%
7.9%
8.8%
N/A
4.0%
2011
2010
2009
2008
2012
19.2%
20.2%
20.3%
20.4%
N/A
23.0%
2011
2010
2009
2008
4.7%
7.1%
5.5%
6.4%
N/A
12.0%
Asset Efficiency
Asset Turnover
Working Capital Asset Turn
( Revenue/Assets)
(Revenue/WC assets)
2012
2012
2011
2010
2009
2008
Industry
(Revenue/Fixed Assets)
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2011
2010
1.36
1.42
1.36
1.61
N/A
3.33
2009
2008
Fixed Asset Turn
2012
2011
2010
3.30
3.06
3.47
3.58
N/A
13.89
-7-
2009
2008
2012
2011
2010
2.55
3.66
2.59
3.28
N/A
3.00
2009
2008
Return on Investment DuPont Tree with "What If" Analysis
Return on equity is a combination of profit margin, asset management, and financial leverage. Breaking return on equity into these component parts not only allows investors to determine
what kind of return on equity is being generated by a company, but also to examine the quality of that return as well as the financial "levers" management is pulling to create it.
Actual Performance
Cost of Sales
$30,787,576
+
SG&A Expense
$1,790,418
Pre-Tax Margin
10.9%
+
Other Income/(Expense)
($1,379,003)
x
Pretax Return on Net Assets
14.8%

Sales
$38,094,006
x
Pre-Tax ROE
33.5%

Net PPE
$14,913,140
`
+

Asset Turnover
1.36
Working Capital Assets
$11,555,965
Leverage Ratio
1/(1- Debt / (Debt + Equity))
2.27
+
After-Tax ROE
20.1%
1 - Tax Rate
60.0%
Net Other Assets
$1,523,995
What If" Scenario
New Calc
Difference
New Calc
Difference
New Calc
Difference
New Calc
Difference
New Calc Difference
Change Either:
-1.0%
$0
Cost of Sales
$30,479,700
-1.0%
$0
SG&A Expense
$1,772,514
-1.0%
$0
Other Income/(Expense)
($1,365,213)
-1.0%
$0
Sales
$38,094,006
+
-1.0%
Pre-Tax Margin
11.75%
0.9%
+
-1.0%
x
Pretax Return on Net Assets
16.8%
2.0%

0.0%
x
0.0%
Pre-Tax ROE
38.1%
4.6%

0.0%
$0
Net PPE
$14,913,140
`
0.00%
+
0.0%
Working Capital Assets
($1,343,414) $10,212,551
-11.63%
0.0%
Net Other Assets
$1,523,995
0.00%
+
$0

Capital Turnover
1.43
0.07
Leverage Ratio
1/(1- Debt / (Debt + Equity))
2.27
1 - Tax Rate
60.0%
-8-
0.0%
ROE
22.9%
2.7%
Economic Value Added
Economic Value Added (EVA) is a measure to provide companies a way to estimate their economic profit. It factors in the full cost of capital, including equity financing, which might otherwise not be
seen on a company's books. Specifically, EVA looks at a company's after-tax net operating profit after subtracting the total cost of capital. This measurement drives home a commonly ignored lesson that
equity capital can be much more expensive than debt. While a company may be profitable by other measures, EVA will indicate if management is maximizing shareholder wealth.
2012
Estimated Enterprise Value of Company:
Net Worth @ Book value
Adjustments to fair value
Estimated Net Worth @ Fair value
Interest-Bearing Debt
Total Invested Capital = Sell Company for
Multiple of EBIT
Capital Structure %
Equity
Debt
2011
2010
2009
2008
9,570,367
829,633
10,400,000
7,084,153
$ 17,484,153
6.7
$ 11,547,670
952,330
12,500,000
9,997,434
$ 22,497,434
6.9
$ 10,451,460
5,448,540
15,900,000
9,661,602
$ 25,561,602
6.0
Company Enterprise Value
$ 12,344,957
6,255,043
18,600,000
10,819,113
$ 29,419,113
6.1
$
63%
37%
59%
41%
56%
44%
$
3,000,000
3,000,000
$ 3,000,000
#DIV/0!
62%
38%
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$2008
2009
2010
2011
2012
100%
0%
Cost of Capital
Determine Cost of Invested Capital:
Fair value of equity x cost of equity
Cost of Equity (generally 15% - 20%):
Cost of Equity
$ 18,600,000 $ 10,400,000 $ 12,500,000 $ 15,900,000 $
17.0%
17.0%
17.0%
17.0%
(3,162,000)
(1,768,000)
(2,125,000)
(2,703,000)
Cost of Debt - Interest
Income tax savings on interest
Cost of Debt Net of Tax Savings
As a % of Debt
(655,217)
262,087
(393,130)
3.6%
(314,502)
125,801
(188,701)
2.7%
(507,500)
203,000
(304,500)
3.0%
(760,000)
304,000
(456,000)
4.7%
(3,555,130) $
12.1%
10.7%
1.3%
(1,956,701) $
11.2%
10.1%
1.1%
(2,429,500) $
10.8%
9.4%
1.4%
(3,159,000) $
12.4%
10.6%
1.8%
3,000,000
17.0%
(510,000)
#DIV/0!
20.0%
15.0%
10.0%
5.0%
0.0%
2008
2009
2010
2011
2012
Stakeholder Interest Free Earnings
Weighted Average Cost of Capital
As a % to Total invested capital
(Also is equity cost x equity% to total capital
plus debt cost x debt% to total capital)
Determine Excess of Economic Profit
Over Cost of Invested Capital:
Earnings Before Interest & Taxes (EBIT)
Adjustments to Earnings
Income Tax Expense on adjusted EBIT
Interest Free Earnings After Tax
Return on Invested Capital %
$
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$-
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2008
$
$
Less weighted Average Cost of Capital
As a % to Total invested capital
Economic Value Added (EVA)
As a % to Total invested capital
(510,000)
17.0%
17.0%
#DIV/0!
4,792,226 $
(1,916,890)
2,617,103 $
(1,046,841)
3,276,000 $
(1,310,400)
4,284,000 $
(1,713,600)
2,875,336 $
9.8%
1,570,262 $
9.0%
1,965,600 $
8.7%
2,570,400 $
10.1%
(3,555,130)
12.1%
$
(679,795) $
-2.3%
(1,956,701)
11.2%
(386,439) $
-2.2%
(2,429,500)
10.8%
(463,900) $
-2.1%
-9-
(3,159,000)
12.4%
(588,600) $
-2.3%
0.0%
(510,000)
17.0%
(510,000)
-17.0%
2009
2010
2011
2012
Economic Value Added
2008
$$(200,000)
$(400,000)
$(600,000)
$(800,000)
2009
2010
2011
2012
0.0%
-5.0%
-10.0%
-15.0%
-20.0%
Solvency Measurements
Solvency measurements are used to determine whether the company can meet long-term obligations when due. The measurements below are all key ratios related to solvency. Operating income
and EBITDA give a measure of the profitability that can be used to pay interest and principal obligations. The other ratios give you indexes of how well "covered" the interest and/or debt
payments are by profitability or cash flow. The fixed cost ratio in various forms are used by lending institutions to set loan covenants.
Operating Income ($ / %)
$6,000,000
EBITDA ($ / %)
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$-
$3,000,000
2012
2011
2010
2009
2008
Suggested
$ 5,516,012
3,689,778
5,166,000
5,604,000
-
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$-
2008 2009 2010 2011 2012
Operating income before taxes and other
income expense divided by revenue
Times Interest
10
8
6
4
2
0
2008 2009 2010 2011 2012
Earnings before interest, taxes,
depreciation and amortization.
14.5%
13.1%
14.8%
14.0%
#DIV/0!
$ 2,567,536
1,232,734
1,778,000
2,772,000
-
6.7%
4.4%
5.1%
6.9%
#DIV/0!
Earnings before interest and
taxes divided by interest
0.0%
7.3
8.3
6.5
5.6
NA
2.0
Cash Flow to Interest
Cash Flow to Interest &
Principal
Fixed Cost
1.4
1.2
1
0.8
0.6
0.4
0.2
0
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
1.5
1
0.5
0
-0.5
-1
-1.5
-2
Earnings before interest and taxes plus
depreciation and amortization divided by
interest
2012
2011
2010
2009
2008
Suggested
Earnings before interest and taxes
plus depreciation and amortization
divided by interest and current
3.9
3.9
3.5
3.6
0.6
0.3
0.4
0.8
NA
EBITDA
less
capital
expenditures less distributions
divided by interest and current
(1.5)
(1.8)
(0.8)
(1.1)
NA
2.0
1.2
- 10 -
NA
1.2
Altman Z Score - Predictor of Business Failure
Altman Z zcore is used to identify potential business failure in the short run (one to two years). It was developed by Professor Altman and is based on a weighted average of key financial ratios. There is a public
Company model and a private company model which is used below.
2012
2011
2010
2009
2008
Working Capital to Total Assets
Current assets
Current liabilities
less
Working Capital
Total Assets
divide by
Working Capital to Total Assets %
$ 11,555,965 $ 9,188,019 $ 10,093,397 $ 11,182,760 $
(8,750,863)
(6,622,610)
(7,708,993)
(7,639,080)
$ 2,805,102 $ 2,565,409 $ 2,384,404 $ 3,543,680 $
$ 27,993,100 $ 19,810,323 $ 25,661,489 $ 24,843,024 $
10.0%
12.9%
9.3%
14.3%
#DIV/0!
Retained Earnings to Total Assets
Retained earnings
Retained earnings to Total Assets %
$ 12,344,957 $
44.1%
9,570,367 $ 11,547,670 $ 10,451,460 $
48.3%
45.0%
42.1%
#DIV/0!
$
3,689,778 $
18.6%
Operating income to Total Assets
Operating income
Operating income to Total Assets %
Net Worth to Total Liabilities
Net worth
Total Liabilities
divide by
Net worth to Total Liabilities %
5,516,012 $
19.7%
5,166,000 $
20.1%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
WC / Assets
RE / Assets
Oper Income
2010
2011 20102012
2012 2011
2009 2008
Net Worth
Cost oftoCapital
Liabilities
20.0%
1.00
0.80
15.0%
0.60
10.0%
0.40
5.0%
0.20
5,604,000 $
22.6%
#DIV/0!
0.0%
-
$ 12,344,957
$ 15,648,143
0.79
$ 9,570,367
$ 10,239,956
0.93
$ 11,547,670
$ 14,113,819
0.82
$ 10,451,460
$ 14,391,564
0.73
$
$
2008
2012 2009
2011 2010
2010
#DIV/0!
$ 38,094,006
1.36
$ 28,080,500
1.42
$ 35,000,000
1.36
$ 40,000,000
1.61
$
#DIV/0!
2011
2009
2012
2008
2.00
1.50
$4,000,000
$3,000,000
1.00
$2,000,000
0.50
$1,000,000
- $200820122009
20112010
2010 2011
2009 2012
2008
Z SCORE CALCULATION
Your Z Score
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$2008
2009
Stakeholder
Sales toInterest
Assets Free
Income
Sales to Total Assets
Sales
Sales to Total Assets
Measure
Working Capital to Total Assets
Retained Earnings to Total Assets
Operating income to Total Assets
Net Worth to Total Liabilities
Sales to Total Assets
WC, Ret Earn, Oper Income to Assets
Company Enterprise Value
Weight
1.20
1.40
3.30
0.60
1.00
Weighted Score Weighted Score Weighted Score Weighted Score Weighted Score
0.1
0.2
0.1
0.2
#DIV/0!
0.6
0.7
0.6
0.6
#DIV/0!
0.7
0.6
0.7
0.7
#DIV/0!
0.5
0.6
0.5
0.4
#DIV/0!
1.4
1.4
1.4
1.6
#DIV/0!
3.2
3.4
Z Score
1.8 or less
1.9 to 2.7
2.8 to 2.9
3.0 or higher
3.3
Probability of Failure
Very high
High
Possible
Not likely
3.6
#DIV/0!
Z Score
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
2008
- 11 -
2009
2010
2011
2012
Other Balance Sheet Measurements
Working capital measurements are used to determine the Company's liquidity Which refers to the ability to convert noncash items to cash when needed to meet maturing liabilities. Leverage
measurement tell you how leveraged your capital structure is with debt vs. shareholder capital.
Working Capital Measurements
Working Capital
Working Capital to Assets
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$-
1
1.6
1.4
0.8
1.2
1.0
0.6
0.8
0.4
0.6
0.4
0.2
0.2
0-
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2008
2012
2011
2010
2009
2008
Industry - Profit Cents
2009
$
2010
2011
2012
2008 2009
2,805,102
2,565,409
2,384,404
3,543,680
6,718,344
2010 2011
2012
1.0
2.5
0.8
2.0
0.6
1.5
0.4
1.0
0.2
0.5
2010
0.9
0.8
0.8
0.8
#DIV/0!
1.3
2011
2012
2012
Debt to Equity
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
-
2009
2011
1.3
1.4
1.3
1.5
#DIV/0!
2.2
Assets to Equity
-
2009 2012
2010
Leverage Measurements
Quick Ratio
2008
2008
10.0%
14.2%
10.9%
11.3%
#DIV/0!
24.0%
Working Capital Measurement
2012
2011
2010
2009
2008
Industry - Profit Cents
SGA
to Sales
%
Current
Ratio
2008
2009
2010
2.3
2.1
2.2
2.4
#DIV/0!
2.5
- 12 -
2011
2012
2008
2009
2010
1.3
1.1
1.2
1.4
#DIV/0!
1.5
2011
2012