Using Financial Statements in the Credit Review Process. Wendi Rosenblatt, Hearst Television

Transcription

1 Using Financial Statements in the Credit Review Process Wendi Rosenblatt, Hearst Television

2 Agenda What is Available Financial Statement Overview DineEquity, Inc. Annual Report/Form 10K Review

3 Availability of Financial Statements Most small businesses do not prepare and/or are unwilling to provide financial statements Larger, publicly traded companies must file audited financial statements with the SEC these are generally accessible on the company website

4 Balance Sheet Example Example Company Balance Sheet December 31, 2012 ASSETS LIABILITIES Current Assets Current Liabilities Cash $2,100 Notes payable $5,000 Petty cash 100 Accounts payable 35,900 Temporary Investments 10,000 Wages payable 8,500 Accounts Receivable - net 40,500 Interest payable 2,900 Inventory 31,000 Taxes payable 6,100 Supplies 3,800 Warranty liability 1,100 Prepaid Insurance 1,500 Unearned revenues 1,500 Total current assets 89,000 Total current liabilities 61,000 Investments 36,000 Long term liabilities Notes payable 20,000 Property, plant & equipment Bonds payable 400,000 Land 5,500 Total long term liabiliities 420,000 Land improvements 6,500 Buildings 180,000 Equipment 201,000 Total liabilities 481,000 Less: accum depreciation (56,000) Prop, plant & equip - net 337,000 Intangible assets STOCKHOLDERS EQUITY Goodwill 105,000 Common stock 110,000 Trade names 200,000 Retained earnings 229,000 Total intangible assets 305,000 Less: treasury stock (50,000) Total stockholders equity 289,000 Other assets 3,000 Total assets $770,000 Total liab. & stockholders equity $770,000

5 Balance Sheet Terminology Goodwill arises when one company purchases another. In an acquisition, it reflects the amount paid for the company over book value. In many cases, it represents the value of a company s brand or reputation. Unearned revenue (deferred income) money received for goods or services which has not yet been earned. Examples maintenance contracts and software licenses Bonds payable - bonds are a loan or form of indebtedness. Bonds normally have a defined term and the issuers have priority over stockholders in the event of bankruptcy.

6 Balance Sheet Terminology Common stock value of equity shares issued. Common stockholders receive the remaining funds after bondholders, creditors and preferred stockholders in the event of bankruptcy. Retained earnings the portion of net income that is retained by the company rather than distributed to shareholders as dividends Treasury stock value of shares the company has reacquired of its own stock. Represents cash paid. Companies typically repurchase shares to increase the stock price and/or in anticipation of going private.

7 Income Statement Example Example Company Income Statement For the Six Months ending June 30, 2013 Sales Revenue: Total Sales $137,460 Less: Returns (2,060) Less: Discounts (5,190) Net Revenue 130,210 Cost of Goods Sold Beginning Stock 12,300 Purchases 67,310 Freight In 4,450 Purchase Discounts (3,900) Purchase Returns (1,000) Ending Stock (16,170) Cost of goods sold 62,990 Gross Profit 67,220 Operating Expenses Selling Expenses: Freight 6,150 Advertising 5,790 Sales commissions 3,470 Administrative Expenses: Office Salaries 18,510 Rent 14,000 Office Supplies 5,330 Total Operating Expenses 53,250 Operating Income 13,970 Other Income and Expenses Gain on Sale of Equipment 2,430 Loss on Sale of Investment (1,640) Interest Expense (930) Net Other Income and Expenses (140) Net Income $13,830

8 Statement of Cash Flows Summarizes cash transactions of a business and classifies them in three categories. Shows how cash moved during the period and assists in assessing a company s liquidity, quality of earnings and solvency Cash Flows from Operating Activities CF from the principal revenue generation activities such as sale and purchase of goods/services Cash Flows from Investing Activities CF from activities intended to generate income and cash flows in the future Cash Flows from Financing Activities CF related to transactions with stockholders and creditors

9 Statement of Cash Flows Example Example Company Cash Flow Statement For the Year Ended December 31, 2012 Cash Flows from Operating Activities: Operating Income (EBIT) $489,000 Depreciation 112,400 Loss on Sale of Equipment 7,300 Gain on Sale of Land (51,000) Increase in Accounts Receivable (84,664) Decrease in Prepaid Expense 8,000 Decrease in Accounts Payable (97,370) Decrease in Accrued Expenses (113,860) Net Cash Flow from Operating Activities 269,806 Cash Flows from Investing Activities: Sale of Equipment 89,000 Sale of Land 247,000 Purchase of Equipment (100,000) Net Cash Flow from Investing Activities 236,000 Cash Flows from Financing Activities: Payment of Dividends (90,000) Payment of Bonds Payable (200,000) Net Cash Flow from Financing Activities (290,000) Net Change in Cash $215,806 Beginning Cash Balance 319,730 Ending Cash Balance $535,536

10 Dine Equity The company purchased Applebees and added it to its legacy chain, IHOP. For the last five years they have focused on re-franchising and lowering debt while improving the product. Let s take a look