Sample Expanded Report

Report prepared for Rock Castle Construction

Liquidity

92.11

Generally, what is the company”s ability to meet obligations as they come due?

Of all possible scenarios, the company has had the most superior results. What does this mean? Net income and net margins are up, and all areas of liquidity look strong at this specific time. Better, all liquidity indicators have risen from last period, as depicted in the graph area of the report. For example, notice in the graph area that the company”s “current” and “quick” ratios are strong and have risen by 69.10% and 70.70%, respectively. This indicates that both the scope and composition of the liquidity base are sound (as of this particular time). Basically, the company is doing well, even when compared to the competition. When we examine profitability in a subsequent section, we”ll realize even more fully the benefits that a strong liquidity position can yield. If the company can maintain this strong position over time, management may be able to invest in the expense items that can help propel future profits. Present liquidity should help propel future net profitability.

Two components of overall liquidity are accounts receivable days and accounts payable days. In this period, the company”s accounts receivable days are about in line with industry averages. However, the company”s accounts payable days are higher than many of its competitors. Accounts payable days are a rough approximation of the time it takes for a company to pay its bills. Typically, a lower amount of days indicates to creditors that a company pays its vendor accounts in a timely manner.

Still, there are always ways management might be able to improve the company”s position. Here are some things to consider working on: 1) Bill customers more frequently and more often after service has been rendered — this can help to keep cash flow strong. 2) Pay vendors according to terms but never early — vendor/supplier credit is “free” loan money for the company, so management should make the best possible use of it. 3) Use a “sweep” account in the checking account to take advantage of overnight cash balances and to earn more interest. 4) Where possible, use electronic funds transfer (EFT) in collecting accounts receivable.

Profits & Profit Margin

87.81

Are profitability trends favorable in the company?

For the company, net profit margins have improved while sales have improved by 53.97%. The company is generating significantly more revenue than last period and managing it better by improving net margins — an excellent combination. Whatever the company is doing seems to be working quite well. It looks like the company is pushing itself nicely within its “relevant range” — the company”s operating range for its current cost structure. This situation could also imply that the company may be able to push sales and profits higher concurrently in the future, which is not always easy to achieve.

Because the company is so strong, managers can also think about some general profit management strategies. One good strategy is to make or improve budgets. If managers put together good yearly budgets that are broken down month by month, and those budgets are entered right into the accounting system, managers will be able to pull “variance reports.” These are simply reports that show what budgeted expenses and sales are against actual sales and expenses. They are important management tools.

Sales

91.44

Are sales growing and satisfactory?

Sales have risen significantly, even relative to the sales growth rates of other similar companies, and the company has done it without changing the asset or employee base very much. The existing team has simply found some ways to increase sales without having to hire people or to make long-term capital expenditures. If the company can continue to move sales higher over the long run, the firm should be able to improve profitability, so long as expenses are managed reasonably. The real challenge today is to determine what is responsible for the sales increase and then to leverage those factors. For example, employee or asset levels did not need to change very much to leverage higher sales. One challenge for managers is to find out which resources are helping in certain areas to achieve company objectives, and then to employ those resources in the right way. From a finance perspective, note that “asset turns” have increased this period, which is a favorable result.

Borrowing

77.50

Is the company borrowing profitably?

In this case, net profitability improved by 4,415.36% while debt was lowered. In other words, a reduction in total debt coincided with improved profitability, at least for this period. Not only this, but the net profit margins and overall liquidity actually improved. This is a very good situation. Profitability was able to expand without additional debt. This dynamic should help long-term profitability, especially if it can be continued over multiple periods.

Although the overall score is high in this area, the company does not have much debt relative to equity. Consequently, we should not put too much emphasis on this section of the report; debt is not a significant part of the Balance Sheet at this time.

Capacity planning is a challenge here. This involves simply thinking out into the future: how long can profitability improve without increasing borrowing? Analyzing the relationship between investments in resources such as assets and profitability improvement as well as effectively forecasting sales and cash flow can help answer this question and lead to the best borrowing policies for the near future.

Assets

91.25

Is the company using fixed assets effectively?

This period, profitability improved significantly by 4,415.36%, but fixed asset levels stayed relatively flat. This means that: 1) profitability was able to improve without adding assets and, 2) the company may not need any more assets to continue to improve profitability at this specific time. In other words, the company may be able to grow a bit more with the level of assets currently in place. This should also continue to help improve net margins, which also improved this period. An improvement in net margins is an indication of improved efficiency as the company has a relatively stable asset base.

Other positive points include the above average return on assets and return on equity that the company earned this period. If profits are moving positively against assets and the company is generating good returns on investments and assets, this area will continue to score very well, as has been the case this period.

Employees

84.80

Is the company hiring effectively?

This company did very strong work in this area. Net profitability has improved significantly, and the company has done this with relatively the same employee and asset bases. Essentially, this implies that the company is managing the business more effectively — it is managing its resources better. It also means that the key to success (at least in the short run) may be “off the books” — may involve factors other than assets or employees. This is because both the company”s assets and employee base stayed relatively flat — the company did not require much more of them to improve net profitability. Simply, the company is improving the amount of profitability driven through existing resources, which is excellent.

Managers should think about how net profitability improved without increasing assets or employees. This may be the way the company will want to expand in the short run because it will not generally involve the larger types of expenses.

A NOTE ON SCORING: Each section of this report (Liquidity, Profits & Profit Margin, Sales, etc.) contains a numerical score/grade, which is a rough measure of overall performance in the area. Each grade represents a score from 1 to 100, with 1 being the lowest score and 100 being the highest. Generally, a score above 50 would be a “good” score and a score below 50 would be a “poor” score. The scores are derived by evaluating the company”s trends, either positive or negative, over time and by comparing the company to industry averages for different metrics.

Raw Data

Current Period

Prior Period

Income Statement Data

Sales (Income)

$82,810

$53,782

Cost of Sales (COGS)

$7,426

$3,345

Gross Profit

$75,384

$50,437

Gross Profit Margin

91.03%

93.78%

Depreciation and Amortization

$0

$0

Interest Expense

$0

$0

Net Profit before Taxes

$59,964

$1,328

Net Profit before Taxes Margin

72.41%

2.47%

Net Income

$59,964

$1,328

Balance Sheet Data

Cash (Bank Funds)

$9,834

$61,482

Accounts Receivable

$109,776

$42,442

Inventory

$0

$0

Total Current Assets

$171,466

$150,387

Fixed Assets

$24,853

$24,853

Total Assets

$200,369

$175,915

Accounts Payable

$29,992

$53,456

Total Current Liabilities

$41,419

$61,429

Total Liabilities (Total Debt)

$50,522

$86,032

Employees + Contractors (FTE)

1

1

Benchmark Scorecard

Financial Indicator

Current Period

Benchmark

Distance from Benchmark

Current Ratio

4.14

1.40 to 2.20

+88.18%