Maximizing Your Financial Position
Basic Components of an Income
Statement
Basic Components of a Balance
Sheet
6 Key Targeted Percentages on
Your Income Statement
9 Key Rations to Analyze Your
Financial Position
1
Income Statement
• Shows financial performance over a
“period of time”
• Income = total of all cash and credit sales
• Expenses = costs of doing business
(directs, equipment, indirects)
• Net Income/Loss = Income - Expenses
2
Income Statement Example
• Income
Direct Costs
Equipment Overhead
Indirect Job Overhead
Total Cost of Goods Sold
•
•
•
•
$500,000
$250,000
$75,000
$35,000
$360,000
Income From Operations
Administrative Overhead $50,000
Total Expense
$50,000
Net Income
$140,000
$90,000
3
Income Statement Ratios Maintenance
• Contract vs. Enhancement
80%/20%
• Direct costs 48-55%(Sunbelt)37-45%(Snowbelt)
(Includes burden of Payroll taxes and Workers Comp.)
• Equipment overheads
10% - 14%
• Indirect overheads
6% - 9%
• Income from operations
35% - 25%
• Administrative overheads
10% - 12%
• Net Profit 7% - 12%
4
Income Statement-Design Build
•
•
•
•
•
•
•
Gross Margin 40%-45%
Equipment Overheads 5%-8%
Indirect Overheads 6-10%
Sales Costs 3-5% (Sales people)
Income from operations 20-25%
Administrative Overheads 10%-12%
Net Profit 8-15%
5
Bid Build Construction
•
•
•
•
•
•
Direct Costs 62-68%
Equipment Costs 5-7.5%
Indirect costs 6-8%
Contribution Margins 15%-20%
Administrative Costs 10-13%
Net Profit 5-7%
6
Balance Sheet
• Shows financial position at a “given moment” in
time
• Assets = something of value in monetary
• Liabilities= debts and accounts that are payable
(what the business owes)
• Owner’s Equity = portion of assets owner has
claims to after all liabilities have been paid
• Assets = Liabilities + Owner’s Equity
7
Balance Sheet Example
Liabilities & Owner’s Equity
Assets
Current Assets
Checking/Savings
Accounts Receivable
Total Current Assets
Fixed Assets
Vehicles
Trailers
Equipment
Office Equipment
Total Fixed Assets
Total Assets
$100,000
$50,000
$150,000
$65,000
$25,000
$50,000
$10,000
$150,000
$300,000
Current Liabilities
Accounts Payable
Credit Cards
Total Current Liabilities
Long Term Liabilities
Vehicle Loan
Trailer Loan
Equipment Loan
Office Equipment Loan
Total Long Term Liabilities
Total Liabilities
Equity
Retained Earnings
Net Income
Total Equity
Total Liabilities & Owners’ Equity
$30,000
$5,000
$35,000
$20,000
$10,000
$30,000
$5,000
$65,000
$100,000
$110,000
$90,000
$200,000
$300,000
8
Current Ratio
Current Assets
$150,000
_______________________= Current Ratio
Current Liabilities
7.14:1
$35,000
• The current ratio expresses the relationship of twelvemonth assets to their twelve-month liabilities
• Important to short-term creditors
• Desirable range
1.25 and 2.25
9
Debt To Equity
Total Liabilities
$100,000
__________________________= Debt to Equity
Stockholder Equity
.5:1
$200,000
•Measures the investment of owners against the debt creditors have
extended
•Important to the bank
•Desirable range
between 1.00 and 2.50
10
Degree of Fixed Asset Newness
Net Fixed Assets
$70,000
__________________________= Degree of Fixed
Gross Fixed Assets
Asset Newness
$150,000
46%
• Measures current book value of fixed assets against their
original purchase price
• Gives information relative to age and efficiency
• Desirable range
between 40% and 50%
11
Quick Ratio
Cash + Receivables
$150,000
___________________________= Quick Ratio
Current Liabilities
4.28:1
$35,000
• Snapshot version of the current ratio
• Seeks relationship of the most liquid of assets versus
current liabilities
• Desirable range
between 1.00 and 1.75
12
Working Capital
Current Assets - Current Liabilities =
$150,000
$35,000
Working Capital
$115,000
• The amount of financial backing needed to support a dollar
in sales
• The amount of working capital will fluctuate
13
Net Profit to Net Worth
Net Profit Before Tax
$90,000
__________________________= Net Profit to
Net Worth (Equity)
Net Worth
$200,000
45%
• Demonstrates efficiency in producing net earnings on the
capital invested
• Desirable range
at least 35%
14
Average Age of Accounts Receivable
Accounts Receivable
$50,000
__________________________ x Days in Period =
Earned Revenue
Average Age of
$500,000
A.R. 36.5 Days
• Measures the company’s internal billing and collection
efficiency
• Gauges the time span from point work is performed and billed
to the time the money is received
• Desirable range
should not exceed 45 days
15
Rate of Return on Assets
Income Before Taxes
$90,000
__________________________= Return on Assets
Total Assets
30%
$300,000
• Measures the income (profit) that is generated by the use of the
assets
• Varies a great deal depending on the industry and the amount of
fixed assets required and the amount of cash, etc.
• Desirable range
should be more than 20%
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Summary: Financial Ratios
• Enlighten your Team
• Provide snapshots of your company’s current
financial position
• Assist you in making financial decisions that
control day-to-day operations
• Allow you to compare performance with the
industry
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