Credit Analysis Solutions COMMERCIAL

Transcription

1 Credit Analysis Solutions COMMERCIAL

2 FINPACK 130 Ruttan Hall 1994 Buford Avenue St. Paul, Minnesota Phone: (612) Toll-Free: (800) Fax: (612) Online:

3 What does FINPACK do for you? Used by lenders since 1980, FINPACK sets the industry standard for superior credit analysis tools, training and technical support. Simply enter tax returns and balance sheets and FINPACK will generate reports displayed on the following pages. Helps you accomplish your work more efficiently than ever before It is fast and easy to learn. You will be amazed at how much time it can save you. Delivers better information about your customers financial situation Superior planning tools, global cash flow analysis, RMA structured financial analysis, and historic spreads provide the most accurate picture of borrower performance. Lets you do the banking while we do the technical work No need to double check spreadsheet formulas Gives you an edge in building better customer relations Provides financial information your customers can understand and use to manage their businesses Offers you the most cost effective credit analysis available When compared to other systems or maintaining your own spreadsheets, FINPACK saves you money period 1

4 What does FINPACK do for you? FINPACK lets you choose the tools you need for each borrower whether it s the Credit Decision Scorecard, Commercial Real Estate, Commercial and Industry Analysis, Global Cash Flow Analysis, or Risk Rating. C&I Analysis Use data from tax returns and balance sheets to generate sophisticated financial analysis, global cash flow analysis, risk rating and more Commercial Real Estate Commercial Real Estate Understand the sensitivity of a property s ability to meet its debt obligations by calculating supportable loan amounts and vacancy rate thresholds Credit Decision Scorecard Develop your own customized scorecard using the criteria most important to you, evaluate customer data compared to minimum approval criteria that you establish About This Book The FINPACK Sample Guide provides an overview of the entire set of tools and reports that FINPACK can give you. If you have wondered what exactly FINPACK does or how it presents financial information, this book will give you the answers. The book gives you a quick overview for each FINPACK tool. Each section includes a short description of the financial tool and then shows you a sample report. Will you ever use all of FINPACK s tools? Probably not, so take a look at the tools that you regularly use. You may also want to look at other tools that you would like to use but haven t had an easy way to implement at your institution. FINPACK has been upgraded annually for over 30 years based on comments from lenders who use the software. With this history of field testing and refinement, we think it will serve your needs well. 2

5 FINPACK Commercial at a Glance Financial Analysis Income Spreads Balance Sheet Spreads C&I Analysis with RMA Comparisons Commercial Real Estate Analysis Global Cash Flow Projections Annual Projection Credit Analysis Credit Decision Scorecard Risk Rating Collateral Analysis Loan Presentation Training and Support Customer Support FINPACK Training p. 5 p. 9 p. 13 p. 21 p. 27 p. 31 p. 37 p. 39 p. 41 p. 43 p. 51 p. 53 3

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7 Income Spreads Income Spreads Use Tax Forms and Income Statements to gather historical financial information. Whether you are working from audited income statements, company prepared income statements or tax returns, this section of FINPACK has all the bases covered. With Income Spreads, you can: Spread historical income and expenses from any of the following formats: Schedule C, Schedule F, Form 1065 Partnerships, Form 1120 Corporate, Form 1120-S Corporate, Schedule E, Form 8825 rentals, personal financial statements, and company prepared or accountant prepared statements Provide data for the Commercial Real Estate Analysis, C&I Financial Analysis, RMA comparisons and Global Cashflow Analysis Consolidate financial history from multiple entities Transfer historic data into cash flow plans 5

8 Income Spreads 6

9 Tax year Average Statement type Tax Return Tax Return Tax Return Sam & Pat Dunn 1120-S - Dunn Auto Service Income Spreads B. Business code Accounting method Accrual Accrual Accrual Income 1a. Merchant card and third-party payments 1,292,892 1,330,386 1,094,110 1,239,129 1b. Gross receipts or sales not on line 1a ,528 91,176 1c. Add lines 1a and 1b 1,292,892 1,330,386 1,367,638 1,330,305 1d. Returns and allowances e. Subtract 1d from 1c 1,292,892 1,330,386 1,367,638 1,330, Cost of goods sold (Form 1125-A) 594, , , , Gross profit 698, , , , Net gain or loss from Form Other income Total income 698, , , ,302 Deductions 7. Compensation of officers 69,973 69,973 69,973 69, Salaries and wages 216, , , , Repairs and maintenance 24,684 44,398 60,666 43, Bad debts Rents 136, , , , Taxes and licenses Interest 9,557 9,475 9,211 9, Depreciation 24,501 26,766 29,103 26, Depletion Advertising 7,564 4,036 5,988 5, Pension, profit-sharing, etc., plans Employee benefit programs 67,219 66,698 69,110 67, Other deductions 110, , , , Total deductions 666, , , , Ordinary business income or loss 31,227 50,380 45,045 42,217 Schedule A: Cost of Goods Sold 1. Inventory at beginning of year 49,491 52,634 54,864 52, Purchases 595, , , , Cost of labor Additional section 263A costs Other costs Total. Add lines 1 through 5 645, , , , Inventory at end of year 50,634 54,864 57,382 54, Cost of goods sold. Subtract line 7 from line 6 594, , , ,003 Schedule K 2. Net rental real estate income or loss c. Other net rental income or loss Interest income a. Ordinary dividends Royalties Net short-term capital gain or loss FINPACK Center For Farm Financial Management Prepared by: Dale Nordquist Center for Farm Financial Mgmt 7

10 Income Spreads Sam & Pat Dunn Tax Form / Income Statement: 1120-S Page 2 2/6/2013 4:20:16 PM Tax year Average 8a. Net long-term capital gain or loss Net section 1231 gain or loss Other income or loss d. Distributions 25,000 26,000 28,000 26,333 Schedule M-1 1. Net income (loss) per books 31,227 50,380 45,045 42,217 3a. Depreciation (on books, not included on Sch. K) a. Depreciation (not on books, included on Sch K) Cash Flow for Debt Service Net income per books 31,227 50,380 45,045 42,217 + Net depreciation 24,501 26,766 29,103 26,790 + Depletion Interest 9,557 9,475 9,211 9,414 + Depreciation, depletion, interest in COGS Non-recurring income Non-recurring expense = Cash available for debt service 65,285 86,621 83,359 78,422 Annual P&I payments on noncurrent debt 10,051 9,504 8,957 9,504 Debt coverage ratio Debt repayment margin 55,234 77,117 74,402 68,918 FINPACK Center For Farm Financial Management Prepared by: Dale Nordquist Center for Farm Financial Mgmt 8

11 Balance Sheet Spreads Balance Sheets Balance sheet data entry is simple and straightforward. Once the first balance sheet is complete, it is easy to copy and revise for the next renewal. FINPACK provides two balance sheet formats detailed or summary. Detailed Balance Sheets: Track assets and loans using as much detail as desired Detail flows seamlessly into spread reports and ratio analysis Consolidate balance sheets from multiple entities Summary Balance Sheets: Input simple, single column balance sheets Quick and easy format to spread company or accountant prepared reports Efficiently enter past history for new customers Both balance sheet formats provide data directly to FINPACK s financial analysis, risk rating, and loan presentation manager. 9

12 Balance Sheets 10

13 Dunn Auto Service Balance Sheets at Cost Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012 Current Assets Cash and checking 57,952 39,721 37,157 23,068 Prepaid expenses and supplies 5,391 5,541 5,901 6,285 Accounts receivable 32,955 35,861 39,842 44,817 Inventory 49,491 52,634 54,864 57,382 Total Current Assets 145, , , ,552 Noncurrent Assets Machinery and equipment 170, , , ,266 Other long term assets 32,799 35,403 37,359 39,423 Total Noncurrent Assets 203, , , ,689 Total Business Assets 348, , , ,241 Total Personal Assets Total All Assets 348, , , ,241 Current Liabillities Accounts payable 40,683 41,583 42,771 43,902 Other accrued expenses 2,808 2,952 3,105 3,261 CPLTD 7,293 7,293 7,293 7,293 Current loans 34,737 47,609 56,906 62,572 Total Current Liabilities 85,521 99, , ,028 Balance Sheets Noncurrent Loans 39,504 32,211 24,918 17,625 Total Business Liabilities 125, , , ,653 Personal liabilities Total Liabilities 125, , , ,653 Annual Noncurrent Debt Payments Business P & I payments 10,598 10,051 9,504 8,957 Equity Contributed capital 9,000 9,000 9,000 9,000 Retained earnings 214, , , ,588 Net worth 223, , , ,588 Retained earnings change 0 6,227 24,380 17,045 Ratio Analysis Current ratio Current ratio (business and personal) Quick ratio Working capital 60,268 34,320 27,689 14,524 Working capital (business and personal) 60,268 34,320 27,689 14,524 Current pct in debt 59 % 74 % 80 % 89 % Noncurrent pct in debt 19 % 14 % 10 % 6 % Total debt to asset ratio 36 % 36 % 35 % 33 % Total equity to asset ratio 64 % 64 % 65 % 67 % Total debt to equity ratio FINPACK Center For Farm Financial Management Prepared by: Dale Nordquist Center for Farm Financial Mgmt 11

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15 Commercial & Industrial (C&I) Analysis with RMA Comparisons Commercial and Industrial Analysis gives you a complete financial analysis of your borrower s business situation and compares it to RMA industry standards. With C&I Analysis you can: Produce common-sized and percent change balance sheets and income statement C&I Analysis Generate common debt coverage, liquidity, leverage and operating ratios Compare the ratios, income statements and balance sheets to RMA industry benchmarks Review UCA cash flow reports for borrower s with accrual records 13

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17 Art Wholesale Supply Financial Analysis Balance Sheet - Common Sized 1120-S - Art Wholesale NAICS Code Other Miscellaneous Nondurable Goods Merchant Wholesalers Number of Statements: Unqualified(80), Reviewed(116), Compiled(107), Tax Returns(138), Other(224) Industry Data Source (c) 2008 by The Risk Management Association. All rights reserved Industry Ending Balance Sheet (cost) Dec 31, 2006 Dec 31, 2007 Dec 31, Thousands $ and Common Size $ $ $ Assets Cash & equivalents Trade receivables (net) Inventory All other current assets Total current assets 1, , , Fixed assets (net) Intangibles (net) All other non-current assets Total assets 1, , , Liabilities Notes payable - short term Current maturities - LTD Trade payables Income taxes payable All other current liabilities Total current liabilities Long term debt Deferred taxes All other non-current liabilities Net worth Total liabilities & Net worth 1, , , C&I Analysis FINPACK Center For Farm Financial Management Prepared by: Wynn Richardson 15

18 Art Wholesale Supply : Financial Analysis Page 2 9/16/2009 1:41:46 PM Income - Common Sized 1120-S - Art Wholesale NAICS Code Other Miscellaneous Nondurable Goods Merchant Wholesalers Number of Statements: Unqualified(80), Reviewed(116), Compiled(107), Tax Returns(138), Other(224) Industry Data Source (c) 2008 by The Risk Management Association. All rights reserved Industry Ending Balance Sheet (cost) Dec 31, 2006 Dec 31, 2007 Dec 31, Thousands $ and Common Size $ $ $ Income data Gross sales 3,855-3,942-4, Returns and allowances Net sales 3, , , Costs of goods sold 2,599-2,520-3, Gross profit 1, , , Operating expenses 1, , , Operating profit All other expenses (net) Profit before taxes C&I Analysis FINPACK Center For Farm Financial Management Prepared by: Wynn Richardson 16

19 Art Wholesale Supply : Financial Analysis Page 3 9/16/2009 1:41:47 PM Balance Sheet - % Change 1120-S - Art Wholesale Ending Balance Sheet (cost) Dec 31, 2006 Dec 31, 2007 Dec 31, 2008 Thousands $ and Percent Change $ % chg $ % chg $ % chg Assets Cash & equivalents Trade receivables (net) Inventory All other current assets Total current assets 1,205-1, , Fixed assets (net) Intangibles (net) All other non-current assets Total assets 1,406-1, , Liabilities Notes payable - short term Current maturities - LTD Trade payables Income taxes payable All other current liabilities Total current liabilities Long term debt Deferred taxes All other non-current liabilities Net worth Total liabilities & Net worth 1,406-1, , C&I Analysis FINPACK Center For Farm Financial Management Prepared by: Wynn Richardson 17

20 Art Wholesale Supply : Financial Analysis Page 4 9/16/2009 1:41:47 PM Income - % Change 1120-S - Art Wholesale Ending Balance Sheet (cost) Dec 31, 2006 Dec 31, 2007 Dec 31, 2008 Thousands $ and Percent Change $ % chg $ % chg $ % chg Income data Gross sales 3,855-3, , Returns and allowances Net sales 3,855-3, , Costs of goods sold 2,599-2, , Gross profit 1,256-1, , Operating expenses 1,245-1, , Operating profit All other expenses (net) Profit before taxes , C&I Analysis FINPACK Center For Farm Financial Management Prepared by: Wynn Richardson 18

21 Art Wholesale Supply : Financial Analysis Page 5 9/16/2009 1:41:47 PM 1120-S - Art Wholesale NAICS Code Other Miscellaneous Nondurable Goods Merchant Wholesalers Number of Statements: Unqualified(80), Reviewed(116), Compiled(107), Tax Returns(138), Other(224) Industry Data Source (c) 2008 by The Risk Management Association. All rights reserved Industry Ending Balance Sheet (cost) Dec 31, 2006 Dec 31, 2007 Dec 31, Liquidity Ratios 2.7 Current ratio Quick ratio Sales/Receivables Days' receivables Cost of Sales/Inventory Days' inventory Cost of Sales/Payables Days' Payables Sales/Working capital C&I Analysis Coverage Ratios 8.3 EBIT/Interest Net Profit+deprec/CPLTD EBITDA/CPLTD+Interest FINPACK Center For Farm Financial Management Prepared by: Wynn Richardson 19

22 Art Wholesale Supply : Financial Analysis Page 6 9/16/2009 1:41:47 PM 1120-S - Art Wholesale NAICS Code Other Miscellaneous Nondurable Goods Merchant Wholesalers Number of Statements: Unqualified(80), Reviewed(116), Compiled(107), Tax Returns(138), Other(224) Industry Data Source (c) 2008 by The Risk Management Association. All rights reserved Industry Ending Balance Sheet (cost) Dec 31, 2006 Dec 31, 2007 Dec 31, Leverage Ratios 0.1 Fixed/Worth Debt/Worth C&I Analysis Operating Ratios 46.3 % Profit before taxes/net worth 0.6 % 7.0 % 1.5 % 18.0 % 4.4 % 14.6 % Profit before taxes/total assets 0.3 % 3.6 % 0.7 % 5.5 % 0.9 % Sales/Fixed assets Sales/Total assets Expense to Sales Ratios 0.3 % Depreciation/Sales 0.8 % 0.6 % 0.3 % 0.6 % 1.4 % Altman Z-Scores Public firms (original model) Private firms FINPACK Center For Farm Financial Management Prepared by: Wynn Richardson 20

23 Commercial Real Estate (CRE) Analysis Commercial Real Estate Analysis is used to analyze key metrics for an income producing, investor owned real estate property. The analysis can be completed using data from an 8825, Schedule E, income statement or with completely new financial information. With Commercial Real Estate Analysis you can: Analyze historical and projected income for an individual property Calculate key ratios related to net operating income, loan information and collateral Understand the sensitivity of the property s ability to meet its debt obligations by calculating supportable loan amounts and vacancy rate thresholds Generate stress reports to analyze the property s income given alternative vacancy, rental rate and interest rate scenarios CRE Analysis Produce a standardized output for analyzing all income producing, investor owned real estate property 21

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25 Sam & Pat Dunn Apartment Complex Property type: Address: Actual $ Residential-multi family 1234 Maple St Somewhere, MN Year Average Statement type Tax Return Tax Return Proforma Description Income Summary Potential gross rental income 342, , , ,559 Vacancy rate % % % % - Vacant income 34,237 42,637 60,000 45,625 + Other income = Effective gross income 308, , , ,934 - Total expenses 259, , , ,104 = Net profit or loss 48,406 52,618 36,466 45,830 - Capital replacement reserves 15,000 15,000 15,000 15,000 + Depreciation 48,000 48,000 48,000 48,000 + Interest 80,089 77,783 77,783 78,551 - Interest on current debt - - 2, = Net operating income 161, , , ,581 Property Value Use cap rate to estimate property value? No No No Cap rate Estimated property value 1,600,000 1,600,000 1,600,000 1,600,000 Term Loan Information Beginning principal balance 1,247,730 1,213,298 1,213,298 1,224,775 Interest rate Annual P&I payments 114, , , ,520 Collateral & Repayment Capacity Loan to value Debt service coverage ratio Debt repayment margin 46,974 48,881 30,329 42,061 Supportable Loan Amount Loan to value of ,280,000 1,280,000 1,280,000 1,280,000 Debt service coverage ratio of ,407,622 1,384,941 1,227,694 1,340,086 Vacancy Rate Thresholds Current vacancy rate % % % % Vacancy rate for DSCR of % % % % Vacancy rate for DSCR of % % % % CRE Analysis FINPACK Center For Farm Financial Management Prepared by: Wynn Richardson 23

26 Sam & Pat Dunn Commercial Real Estate Analysis Page 2 12/4/2013 9:57:23 AM Stress Report Actual $ Year Statement type Tax Return Tax Return Proforma Description 15% Vacancy Rate Net operating income 144, , ,249 Cap rate Estimated property value 1,600,000 1,600,000 1,600,000 Loan to value Debt service coverage ratio Supportable loan amount (LTV=0.80) 1,280,000 1,280,000 1,280,000 Supportable loan amount (DSCR=1.25) 1,258,414 1,294,596 1,298,890 20% Vacancy Rate Net operating income 127, , ,249 Cap rate Estimated property value 1,600,000 1,600,000 1,600,000 Loan to value Debt service coverage ratio Supportable loan amount (LTV=0.80) 1,280,000 1,280,000 1,280,000 Supportable loan amount (DSCR=1.25) 1,109,206 1,144,022 1,146,327 10% Decrease in Rental Rates Net operating income 130, , ,249 Cap rate Estimated property value 1,600,000 1,600,000 1,600,000 Loan to value Debt service coverage ratio Supportable loan amount (LTV=0.80) 1,280,000 1,280,000 1,280,000 Supportable loan amount (DSCR=1.25) 1,139,047 1,119, , Basis Point Increase in Interest Rates Annual P&I payments on term debt 142, , ,924 Debt service coverage ratio Supportable loan amount (DSCR=1.25) 998, , ,638 CRE Analysis FINPACK Center For Farm Financial Management Prepared by: Wynn Richardson 24

27 Sam & Pat Dunn Commercial Real Estate Analysis Page 3 12/4/2013 9:57:23 AM Rental Income Detail Description Status Quantity Rented Per Rental Rate Monthly Total Annual Total 1 bedroom Occupied 4 unit (monthly) /unit/month 3,000 36,000 2 bedroom Occupied 17 unit (monthly) 1, /unit/month 17, ,000 3 bedroom Occupied 4 unit (monthly) 1, /unit/month 5,000 60,000 1 Bedroom Vacant 1 unit (monthly) /unit/month 750 9,000 2 Bedroom Vacant 3 unit (monthly) 1, /unit/month 3,000 36,000 3 Bedroom Vacant 1 unit (monthly) 1, /unit/month 1,250 15,000 Totals 30 unit (monthly) 1, /unit/month 30, ,000 CRE Analysis FINPACK Center For Farm Financial Management Prepared by: Wynn Richardson 25

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29 Global Cash Flow Global Cash Flow analysis calculates debt coverage ratios to help analyze the commingling of multiple businesses and personal funds. It allows you to see how each business performs by itself, then brings in personal financial statements to measure how personal sources and uses of cash impact overall debt servicing. With Global Cash Flow, you can: Spread historic debt repayment capacity for multiple business and personal sources Combine all cash flows into an overall debt coverage ratio Get the full picture of potential weaknesses, as well as strengths for multiple entities and guarantors Evaluate repayment when there are multiple guarantors for the business 27 Global Cash Flow

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31 Dunn Auto Service S & P Dunn Actual $ Average 1120-S - Dunn Auto Service Net income per books 31,227 50,380 45,045 42,217 + Net depreciation 24,501 26,766 29,103 26,790 + Depletion Interest 9,557 9,475 9,211 9,414 + Depreciation, depletion, interest in COGS Non-recurring income Non-recurring expense = Cash available for debt service 65,285 86,621 83,359 78,422 Debt payments 10,051 9,504 8,957 9,504 Debt coverage ratio Debt coverage margin 55,234 77,117 74,402 68, S & P Realty Net rental real estate income 56,735 60,867 66,279 61,294 + Depreciation 16,050 16,050 16,050 16,050 + Interest 42,505 36,643 30,358 36,502 - Non-recurring income Non-recurring expense = Cash available for debt service 115, , , ,846 Debt payments 123, , , ,586 Debt coverage ratio Debt coverage margin -8,296-10,026-10,899-9,740 Sch C - Pat Dunn Photography Net profit or loss -1,350 1,274 4,957 1,627 + Depreciation Interest Disallowed meals and entertainment (50%) Depreciation, depletion, interest in COGS Expenses for business use of your home Non-recurring income Non-recurring expense = Cash available for debt service -1,350 1,274 4,957 1,627 Debt payments Debt coverage ratio Debt coverage margin -1,350 1,274 4,957 1,627 Sch E - Partnerships Net rental real estate and royalty income Depreciation, depletion Interest Non-recurring income Non-recurring expense = Cash available for debt service Debt payments Debt coverage ratio Debt coverage margin FINPACK Center For Farm Financial Management Continued on next page Prepared by: Dale Nordquist Center for Farm Financial Mgmt Global Cash Flow

32 Dunn Auto Service Global Cash Flow Analysis: S & P Page 2 2/6/2013 4:47:50 PM Actual $ Average Sam & Pat Dunn Total income 153, , , ,805 + Other non-taxable income Non-recurring income Non-recurring expense = Recurring total income 153, , , ,805 - Federal income tax 17,079 22,978 24,821 21,626 - State, other taxes 11,854 13,596 14,038 13,163 - Living expenses 50,000 50,000 50,000 50,000 = Cash available for debt service 74,680 90,946 92,422 86,016 Debt payments 59,380 62,184 64,766 62,110 Debt coverage ratio Debt coverage margin 15,300 28,762 27,656 23,906 Global Debt Coverage Business and personal cash available for debt service 253, , , ,910 - Business income included in personal income 88, , , ,805 = Net global cash available for debt service 165, , , ,106 Total debt payments 193, , , ,200 Total debt coverage ratio Global Cash Flow FINPACK Center For Farm Financial Management 30 Prepared by: Dale Nordquist Center for Farm Financial Mgmt

33 Annual Projection Annual Projection When you need a plan for a commercial borrower, FINPACK s Annual Projection gives you quick and accurate cash and accrual information. The Annual Projection will give you consistent projections regardless of the source of the business financial history. The Annual Projection is a quick and easy projection that includes: Projected debt coverage ratios A pro-forma income statement and balance sheet Projected change in working capital Projected earned net worth change Links to past history for accurate and convenient data entry Stress-test individual credits 31

34 Annual Projection 32

35 Projected Cash Flow Summary Executive Summary Term Debt Coverage Dunn Auto Service 2013 Restructure Debt Total operating inflow 1,589,500 Net income from operations 117,928 Total operating outflow (-) 1,407,600 Depreciation (+) 57,660 Capital purchases (-) - Personal income (+) 72,000 Capital sales (+) - Owner withdrawals (-) 50,000 New credit (+) 376,772 Personal loan payments (-) 64,765 Loan payments (-) 502,646 Income and social security tax (-) 40,000 Net cash flow (=) 56,026 Interest paid on term debt (+) 23,800 Capital debt repayment capacity (=) 116,623 Beginning cash balance (+) 48,674 Operating loan borrowings (+) - Term debt payments 434,751 Operating loan principal payments (-) - Payments from cap sales & refinance (-) 376,772 Ending cash balance (=) 104,700 Normal term debt payments (=) 57,979 Term debt coverage 2.01 Beginning operating loan balance 62,572 Ending operating loan balance 62,572 Financial Ratios Annual Projection Projected Change in Working Capital Liquidity Ratios Beginning Ending Current ratio Change in cash 56,026 Quick ratio Change in current inventories (+) 2,618 Change in operating loan balance (-) - Sales/Receivables 31.3 Change in other current loans (-) - Days' receivables 12 Change in princ due on term loans (-) -70,896 Cost of Sales/Inventory 10.8 Estimated change in working capital (=) 129,540 Days' inventory 34 Cost of Sales/Payables 14.2 Projected Income Statement Days' payables 26 Sales/Working capital Net receipts 1,405,000 Cost of goods sold - 622,382 Coverage Ratios Gross profit (=) 782,618 EBIT/Interest 5.4 Other income + 112,500 Net profit+deprec/cpltd 1.3 Gross income (=) 895,118 EBITDA/CPLTD + Interest 1.5 Interest expense 26,930 Leverage Ratios Beginning Ending Depreciation (+) 57,660 Fixed/Worth Other expenses (+) 692,600 Debt/Worth Total expense (=) 777,190 Net income before taxes 117,928 Operating Ratios Return on equity 16.7 % Projected Earned Net Worth Change Return on assets 9.7 % Sales/Fixed assets 1.3 Net income 117,928 Sales/Total assets 1.2 Personal income (+) 72,000 Owner withdrawals (-) 50,000 Expense to Sales Ratios Income & social security tax (-) 40,000 Depreciation/Sales 4.1 % Personal loan interest expense (-) 8,922 Officer compensation/sales 5.1 % Personal asset depreciation (-) 4,500 Change in personal accounts payable (-) 26,810 Shocks to Term Debt Coverage Ratio Earned net worth change (=) 59,696 10% decrease in gross income % increase in operating expenses % increase in interest rates 1.65 FINPACK Center For Farm Financial Management Prepared by: Dale Nordquist CFFM 33

36 Annual Projection Dunn Auto Service Annual Plan: 2013 Restructure Page 2 2/13/ :11:43 AM PROJECTED INCOME STATEMENT Income Quantity Price Amount Expense Amount Compensation of officers 72,000 Receipts or sales Salaries and wages 230,000 Merchant card payments 1,125,000 Repairs and maintenance 62,500 Other gross receipts or s 280,000 Rents 136,000 Subtotal receipts 1,405,000 Advertising 6,100 Net receipts 1,405,000 Employee benefit programs 71,000 Other expenses 115,000 Cost of sales Depreciation & depletion 57,660 Beginning inventory 57,382 Interest 26,930 Purchases 625,000 Subtotal 682,382 Inventory changes Ending inventory 60,000 Cost of goods sold 622,382 Gross profit 782,618 Other income Other income 112,500 Inventory changes Total income 895,118 Total expense 777,190 Net income before taxes 117,928 Income taxes -40,000 Net income 77,928 FINPACK Center For Farm Financial Management Prepared by: Dale Nordquist CFFM 34

37 Dunn Auto Service Annual Plan: 2013 Restructure Page 3 2/13/ :11:43 AM PROJECTED NET CASH FLOW Cash Inflows Quantity Price Inflow Cash Outflows Outflow Merchant card payments 1,125,000 Purchases 625,000 Other gross receipts or s 280,000 Compensation of officers 72,000 Other income 112,500 Salaries and wages 230,000 Personal wages & salary 67,000 Repairs and maintenance 62,500 Personal business income 5,000 Rents 136,000 Total operating inflows 1,589,500 Advertising 6,100 Employee benefit programs 71,000 New Credit Other expenses 115,000 5th-Bldg Refi 376,772 Family living/owner draw 50,000 Total new credit 376,772 Income & social sec taxes 40,000 Total operating outflows 1,407,600 Annual Projection Loan Payments 5th National Bank-bldg 376,772 5th National Bank-Equipment 8,911 Bank of America-2nd Mort 9,096 Chase-Auto 9,408 Visa-Cap 2 11,930 Visa-Cap 3 14,879 Bank of America-Mortgage 19,452 5th National Bank-Bldg Refi 49,068 Annual operating loan interest 3,130 Total loan payments 502,646 Total cash inflows 1,966,272 Total cash outflows 1,910,246 Net cash flow 56,026 FINPACK Center For Farm Financial Management Prepared by: Dale Nordquist CFFM 35

38 Annual Projection Dunn Auto Service Annual Plan: 2013 Restructure Page 4 2/13/ :11:43 AM PROJECTED BALANCE SHEET Projected Beginning Ending Current Assets Cash and checking 48, ,700 Prepaid exp. & suppl. 6,285 6,285 Accounts receivable 44,817 44,817 Invent. 57,382 60,000 Total current assets 157, ,802 Noncurrent Assets Equipment 235, ,739 Land 100, ,000 Bldgs & improve. 682, ,541 Other noncurrent 39,423 39,423 Total noncurrent assets 1,057, ,704 Total business assets 1,214,522 1,215,506 Personal assets 384, ,720 Total assets 1,598,742 1,595,226 Current Liabilities Accounts payable 43,902 43,902 Other accrued expenses 3,261 3,261 Operating loan(s) 62,572 62,572 Principal due on term loans 107,260 36,364 Total current liabilities 216, ,099 Noncurrent Liabilities 5th National Bank-bldg 274,620-5th National Bank-Equipment 17,625 10,332 5th National Bank-Bldg Refi - 318,631 Total noncurrent liabilities 292, ,962 Total business liabilities 509, ,061 Personal liabilities 193, ,635 Total liabilities 702, ,696 Net worth 895, ,530 Net worth change 59,696 Debt to asset ratio 44 % 40 % FINPACK Center For Farm Financial Management Prepared by: Dale Nordquist CFFM 36

39 Credit Decision Scorecard Credit Decision Scorecard Use FINPACK s Credit Decision Scorecard to fast track the review and decision making process for smaller loans. With Credit Decision Scorecard, you can: Develop your own customized scorecard using the criteria most important to you Allows you to define essential criteria that must be met to make the loan Gathers the customer data that you specify Evaluates customer data compared to minimum approval criteria that you establish Provides the flexibility to document reasons to override automatic approvals or rejections 37

40 Sam & Pat Dunn New equipment purchase Scorecard: Sample small business Pre-qualifying Criteria Must meet ALL criteria for automatic approval Yes Is the requested loan amount less than $50,000? Yes Is this loan to a business, not an individual? Credit Decision Scorecard Yes Yes Yes Is the purpose of this loan other than a line of credit or for inventory? Has at least one principal personally guaranteed the loan? Has the business generated a positive net profit each of the last three years? Customer Data Applicant credit score 690 Co-applicant credit score 670 Loan amount 35,000 Collateral value 60,000 Financial Criteria Must meet ALL criteria for automatic approval 0.58 Loan to value 0.75 or less 670 Minimum credit score 650 or greater 24 Debt to income 40 or less Approval:Yes, meets scorecard criteria By:Ima Lender FINPACK Center For Farm Financial Management Prepared by: Wynn Richardson 38

41 Risk Rating FINPACK s flexible risk rating/credit scoring tool meets the needs of your institution. Risk Rating automatically links to data from borrower plans and analyses. FINPACK makes risk rating fast and consistent. With Risk Rating, you can: Create your own risk rating model(s) Risk Rating Link to data from the balance sheets, collateral analysis and financial analysis Include customized external criteria, such as credit score 39

42 Dunn Auto Service 2012 Risk Rating Model: Loan Scoring, Commercial, Cost Balance Sheets Balance Sheet(s): December 31, Dunn Auto Service; December 31, 2011; December 31, 2010; December 31, 2009 Annual Plan: 2013 Restructure Debt S & P Dunn: 2012,2011,2010 CRITERIA RESULT SCORE xweight = TOTAL Liquidity Current ratio Solvency Debt to equity ratio Net worth growth % 8.8 (Average) Repayment Capacity Total debt coverage ratio 0.89 (Average) Risk Rating Security Analysis Loan to value Overall Rating: 6 -- Above average risk Total Score: 44.5 OVERALL RATINGS Total Weighted Points From To Rating Recommendation Highest quality, very low risk High quality, minimal risk Good quality, little risk Acceptable risk Average risk Above average risk High degree of risk Low quality Lowest quality - liquidation possible Notes FINPACK Center For Farm Financial Management Prepared by: Dale Nordquist Center for Farm Financial Mgmt 40

43 Collateral Analysis FINPACK s Collateral Analysis builds from the balance sheets to calculate Loan to Value and the Collateral Margin. Proposed loans and projected collateral can be added to complete the picture. Collateral Analysis can feed directly into Presentation Manager and Risk Rating. With Collateral Analysis, you can: Select loans and collateral from the balance sheet Enter multiple collateral groups, when applicable Standardize discount percentages (although discount percentages can also be overridden for individual analysis) Link loan to value and collateral margin to the Risk Rating and Presentation Manager components of FINPACK Collateral Analysis 41

44 Dunn Auto Service 12/31/ Dunn Auto Service Balance Sheet Collateral Analysis Principal Market Disc. Discounted Prior Net Loan to Loan Balance Collateral Value Pct. Value Liens Collateral Value All 5th-Equipment 24,918 Cash and checking 23, ,761-20,761 5th National Bank-LOC 62,572 Accounts receivable 44, ,372-31,372 Inventory 57, ,429-34,429 Machinery and equipment 235, , ,160 Total 87, , , , % Total loan to value 87, , % Collateral coverage margin 2.60 Collateral margin 140,232 Collateral Analysis 42

45 Loan Presentation Manager The FINPACK Loan Presentation Manager provides a consistent and concise loan presentation format customized to your bank s needs. Users of the FINPACK Loan Presentation Manager can: Combine FINPACK data and your narrative into a loan presentation Base loan presentations on a template that can be customized and standardized for the entire institution Take advantage of powerful and familiar word-processing features Select which data to import from balance sheets, collateral analysis, financial analysis, risk rating, and cash flow plans Automatically update linkages to imported data when source data changes from year to year Attach virtually any document as an appendix, such as a balance sheet or historical financial spread 43 Loan Presentation Manager

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47 Credit Presentation Borrower Information Borrower: Sam & Pat Dunn Address: Fair Lake, MN Telephone: (123) Type of Business: Auto Service Years in Business: 2 1 Date: January 12, 2013 Loan Officer: Joe Lender Date of Last Review: January, 2012 Risk Rating Score: 50.5 (6 -- Above average risk) Tax ID# Customer Since: 2002 Nature of Business/Operation Description: Auto service station Purpose of Request: Renew LOC and restructure S &P Realty loan on the service station building. Sources of Repayment: Service station revenues Page 1 45 Loan Presentation Manager

48 Present and Proposed Loans Loan Present Balance Proposed Balance Int. Rate Rate Formula Term(s) Maturity Date 5th-Equipment 24,918 24, year variable 06/2016 5th National Bank-LOC 62,572 62, Annual Renewal 01/2014 Dunn Realty 0 376, year fixed 01/ , , Collateral Analysis Loan Principal Balance Collateral Discounted Value Prior Liens Net Collateral 5th-Equipment 24,918 Cash and checking 20,761-20,761 5th National Bank-LOC 62,572 Accounts receivable 31,372-31,372 Dunn Realty 376,772 Inventory 34,429-34,429 Machinery and equipment 141, ,160 Dunn Realty Building 477, ,873 Totals 464, , ,594 Loan tovalue 66% Collateral margin 241,333 Ratio Analysis Current ratio 1.1 Debt to asset ratio (mkt) 33.1 Debt to equity ratio (mkt) 0.50 Loan to value 66 Total assets (mkt) 406,241 Total liabilities 134,653 Loan Presentation Manager Page 2 46

49 Recommendation Strengths: Dunn Auto Service is a well established business with strong management of business operations. Mr. Dunn is very knowledgeable about the auto service business. Business has shown consistent profits over the past three years through the recession. Weaknesses: Risk rated 50.5 (6 -- Above average risk) mostly caused by weak debt coverage history. Debt coverage has been a problem because of the short term of repayment on the Dunn Realty loan which has made cash flow for the Dunn's very tight. This problem is mitigated by this loan application by lengthening the term on the real estate loan. Exceptions to Policy: None Conclusion and Recommendation: By restructuring the Dunn Realty loan over a 10 year repayment period, this business shows a global cash flow debt coverage of Security is adequate. Recommend approval. Loan Officer Date Page 3 47 Loan Presentation Manager

50 Dunn Auto Service Cost Balance Sheets, Comm. Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012 Dunn Auto Service Current Assets Cash and checking 57,952 39,721 37,157 23,068 Prepaid expenses and supplies 5,391 5,541 5,901 6,285 Accounts receivable 32,955 35,861 39,842 44,817 Inventory 49,491 52,634 54,864 57,382 Total Current Assets 145, , , ,552 Noncurrent Assets Machinery and equipment 170, , , ,266 Other long term assets 32,799 35,403 37,359 39,423 Total Noncurrent Assets 203, , , ,689 Total Business Assets 348, , , ,241 Total Personal Assets Total All Assets 348, , , ,241 Current Liabillities Accounts payable 40,683 41,583 42,771 43,902 Other accrued expenses 2,808 2,952 3,105 3,261 CPLTD 7,293 7,293 7,293 7,293 Current loans 34,737 47,609 56,906 62,572 Total Current Liabilities 85,521 99, , ,028 Noncurrent Loans 39,504 32,211 24,918 17,625 Total Business Liabilities 125, , , ,653 Personal liabilities Total Liabilities 125, , , ,653 Annual Noncurrent Debt Payments Business P & I payments 10,598 10,051 9,504 8,911 Equity Contributed capital 9,000 9,000 9,000 - Retained earnings 214, , , ,588 Net worth 223, , , ,588 Retained earnings change 0 6,227 24,380 26,045 Loan Presentation Manager Ratio Analysis Current ratio Current ratio (business and personal) Quick ratio Working capital 60,268 34,320 27,689 14,524 Working capital (business and personal) 60,268 34,320 27,689 14,524 Current pct in debt 59 % 74 % 80 % 89 % Noncurrent pct in debt 19 % 14 % 10 % 6 % Total debt to asset ratio 36 % 36 % 35 % 33 % Total equity to asset ratio 64 % 64 % 65 % 67 % Total debt to equity ratio Loan to value % % Collateral margin ,333 FINPACK Center For Farm Financial Management 48 Prepared by: Dale Nordquist Center for Farm Financial Mgmt

51 Dunn Auto Service 1120-S - Dunn Auto Service Tax year Average Statement type Tax Return Tax Return Tax Return B. Business code Accounting method Accrual Accrual Accrual Income 1a. Merchant card and third-party payments 1,292,892 1,330,386 1,094,110 1,239,129 1b. Gross receipts or sales not on line 1a ,528 91,176 1c. Add lines 1a and 1b 1,292,892 1,330,386 1,367,638 1,330,305 1d. Returns and allowances e. Subtract 1d from 1c 1,292,892 1,330,386 1,367,638 1,330, Cost of goods sold (Form 1125-A) 594, , , , Gross profit 698, , , , Net gain or loss from Form Other income Total income 698, , , ,302 Deductions 7. Compensation of officers 69,973 69,973 69,973 69, Salaries and wages 216, , , , Repairs and maintenance 24,684 44,398 60,666 43, Bad debts Rents 136, , , , Taxes and licenses Interest 9,557 9,475 9,211 9, Depreciation 24,501 26,766 29,103 26, Depletion Advertising 7,564 4,036 5,988 5, Pension, profit-sharing, etc., plans Employee benefit programs 67,219 66,698 69,110 67, Other deductions 110, , , , Total deductions 666, , , , Ordinary business income or loss 31,227 50,380 45,045 42,217 Schedule A: Cost of Goods Sold 1. Inventory at beginning of year 49,491 52,634 54,864 52, Purchases 595, , , , Cost of labor Additional section 263A costs Other costs Total. Add lines 1 through 5 645, , , , Inventory at end of year 50,634 54,864 57,382 54, Cost of goods sold. Subtract line 7 from line 6 594, , , ,003 Schedule K 2. Net rental real estate income or loss c. Other net rental income or loss Interest income a. Ordinary dividends Royalties Net short-term capital gain or loss FINPACK Center For Farm Financial Management 49 Prepared by: Dale Nordquist Center for Farm Financial Mgmt Loan Presentation Manager

52 Dunn Auto Service Tax Form / Income Statement Page 2 2/13/2013 2:24:52 PM Tax year Average 8a. Net long-term capital gain or loss Net section 1231 gain or loss Other income or loss d. Distributions 25,000 26,000 28,000 26,333 Schedule M-1 1. Net income (loss) per books 31,227 50,380 45,045 42,217 3a. Depreciation (on books, not included on Sch. K) a. Depreciation (not on books, included on Sch K) Cash Flow for Debt Service Net income per books 31,227 50,380 45,045 42,217 + Net depreciation 24,501 26,766 29,103 26,790 + Depletion Interest 9,557 9,475 9,211 9,414 + Depreciation, depletion, interest in COGS Non-recurring income Non-recurring expense = Cash available for debt service 65,285 86,621 83,359 78,422 Annual P&I payments on noncurrent debt 10,051 9,504 8,957 9,504 Debt coverage ratio Debt repayment margin 55,234 77,117 74,402 68,918 Loan Presentation Manager FINPACK Center For Farm Financial Management 50 Prepared by: Dale Nordquist Center for Farm Financial Mgmt

53 Customer Support Customer Support The FINPACK team is committed to providing world-class service and technical support. Our qualified technical support professionals are prepared to handle your support needs on a case-by-case basis or in an ongoing partnership. We provide timely, reliable service to ensure every customer s business success. 51

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55 FINPACK Training FINPACK Training We want you to be able to quickly use FINPACK powerful capabilities, so we offer a number of training opportunities to help you learn how to fully use FINPACK. Contact us to learn about: Two-day FINPACK workshops for lenders On-site training for your staff Webinars customized for your institution Online training courses Periodic webinars on specific FINPACK topics 53

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58 FINPACK 130 Ruttan Hall 1994 Buford Avenue St. Paul, Minnesota Phone: (612) Toll-Free: (800) Fax: (612) Online: