|
Break-even |
Is
it high / low ? What are the sales needed to reach it?
Is
this sales objective easy to reach?
|
|
Financial structure
elements
(Balance sheet)
for the last 3 or 5 years
|
Main
assets / liabilities (take as model the profitability
table
above)
+ comments
on solvency / liquidity
|
|
Risk (and opportunity) factors
on revenues / costs / solvency
|
Main
risk /
opportunity factors.
Is the sensitivity of earnings low / high?
What are the balance sheet fragilities / strengths?
|
C. TARGETED QUESTIONS
The
presentation document will not be a mess of observations, only the main remarks will appear.
But, behind the curtain, a good
analyst is above all a good detective, quite nosy, always asking questions:
-
Why
does this specific item found in the balance sheet or in the P&L account (income statement) changes faster /
slower than that other one?
-
Your sales fall, stagnate or rise less
than those of your competitors. Is it related to the quantities sold? or to the selling prices?
-
OK,
your sales grow. But does your market share grow or do you lose ground compared to your competitors?
-
Fine, profits rise by 18%! OK, but
sales rise by 26%. Look, behind the scene, margins are shrinking! Costs are rising by 32%. Are
there some productivity problems, are unit costs rising or not decreasing enough? Or are you pumping up sales by lowering selling prices
to fight fierce competition?
-
Your equipment and premises have a
small / large valuation in your balance sheet. Are they state of the art and productive? Or obsolete, insufficient (or on the
contrary too sophisticated, big and costly) unsuited or dilapidated?
-
Why
is your inventory so large ? What does it include? What is its real value compared to its accounting value?
-
I
see that your customer accounts are larger and larger, while the reserves for non payment stay low. How many
customers pay late, for what amount and with what delay?
-
I
see your ST debts are rising. Are you late in paying your suppliers, employers, taxes, social levies?
-
Look,
I have problems to understand those "off balance sheet"
lines, and also those "footnotes". Do those hide something I should not see?
-
Etc.,
Etc, on any other thing that puzzles you. Here, experience (*), imagination, curiosity, but also, strangely, routine
and discipline come into play (need of written analysis procedures with a check-list of things to look at).
|
(*)
To analyze, unless superficially, accounts of stores, farmers, restaurants, builders, low tech / high tech manufacturers, insurance brokers,
real
estate developers, etc., supposes a good knowledge of the peculiarities of those sectors of activity,
to gather benchmarks and
to have a long
practice of analyzing their accounts.
You can find a larger list of analysis principles and ratios at:
=> http://www.quickmba.com/
D.
WRAP
UP
The last section is a wrap up that gives synthetic elements to help
the decision making process. This final section has to:
|
1) Be based on the company's economic aptitudes |
This supposes to have done a "SWOT" analysis:
Strength, Weaknesses, Opportunities,
Threats. |
|
2) Be based on scenarios of the business future evolution |
This supposes to have done
a
prospective
analysis |
|
3) Include specificities
related to the
decision objectives |
Stock valuation, credit decision, complex
project:
see the precisions below:. |
D1. Wrap up on equity analysis / stock or business valuation?
Start from LT (5 years for example)
earnings per share
prevision scenarios:
-
If
possible, do it by building simplified prospective P&L accounts (use the table above that shows the past
profitability).
-
For this purpose,
analyze revenues / costs / earnings sensitivity
and do a prospective analysis of the main evolution factors.
-
Use,
at the end, the evaluation models
[valuation sheet]
and the
classification
of stock images [image categories].
D.2 Wrap up on credit decision?
Start from the repayment capability.
The
ratio (annual debt repayments / cash earnings) is an indicator.
But better have a
multi-annual funding plan (resources vs. use of resources).
We need also, as the docs say, complementary analyses:
-
Types and valuation of collaterals,
-
Legal situation / precautions / conditions,
-
Criteria for follow up and alert.
D.3 Wrap up on complex project (business creation, acquisition, merger)?
For this type of
financial study related to the implantation of an economic project,
we can take elements
from
D1+D2 seen above,
It is also useful to have a little look at
the marketing plan section,
and specifically
business plan.
END (for the time being ?) of the
financial analysis section
