A LOOK AT THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS – HOW THEY RELATE TO EACH OTHER AND FINANCIAL STATEMENT ANALYSIS Edward B. Peacock, CPA 214 356 0116 eddie@ebpeacockcpa.com Edward B. Peacock, CPA Topics • Levels of Financial Statements ▫ ▫ ▫ ▫ Example Statements (see handouts) Government-wide statements Fund level statements Statistical Section • Financial Analysis – process of drawing meaning from financial statements ▫ Identifying Available Resources GAAP basis Budgetary basis General fund Proprietary funds • Ratio Analysis Edward B. Peacock, CPA Levels of Financial Statements • Government-wide financial statements ▫ Measurement focus – economic resources ▫ Basis of accounting - accrual basis ▫ Statement of Net Assets – p11 - reports what the government owns and owes at the end of the fiscal year Two columns - governmental activities and businesstype activities – side by side comparison ▫ Statement of Activities - p12-13 – reports financial results during a fiscal year Edward B. Peacock, CPA Levels of Financial Statements • Fund level financial statements, p14-24 ▫ Governmental funds, p14-15 Modified accrual basis Current assets and current liabilities Reconciliations of modified accrual to full accrual basis, p16, p19 ▫ Proprietary funds, W&S, Golf Full accrual basis Current assets and current liabilities are identified in the fund level SNA, p11, p20 Edward B. Peacock, CPA Levels of Financial Statements • Statistical Section ▫ Typically presents information for the most recent 10 years ▫ Usually is not audited ▫ Contains tables of trends – help you understand how your gov’t’s finances have changed over time Financial Revenue capacity Debt capacity Demographic and economic information Operating information Edward B. Peacock, CPA Identifying Available Resources • Government-wide Statements ▫ Restricted versus unrestricted net assets, p11 • Fund level statements ▫ Governmental funds Fund balance, p14 ▫ Proprietary funds Unrestricted net assets, p11, p21 Working capital (current assets less current liabilities) Frequently used in rate analysis Cash basis, p23 Edward B. Peacock, CPA Restricted and Unrestricted Net Assets • Capital assets net of related debt, p11 ▫ Cannot readily be sold and converted into cash • Restricted net assets ▫ External restrictions on how resources may be used • Unrestricted net assets ▫ Resources that don’t fall into the first two categories ▫ Not necessarily liquid Edward B. Peacock, CPA Fund Level Resources • Governmental Funds, p14 ▫ Nonspendable – not a liquid resource ▫ Restricted – externally restricted for a specific purpose Special revenue funds Capital projects funds Debt service funds ▫ Committed – appropriated by governing body ▫ Assigned fund balance – can be unassigned ▫ Unassigned – can be used as beginning resource in the budget Edward B. Peacock, CPA Fund Level Resources • Proprietary Funds, p20-21 ▫ Unrestricted Net Assets Not necessarily liquid ▫ Working capital Roughly equivalent to fund balance (current assets less current liabilities) Could be used as a beginning resource in the budget Frequently used by rate analysts ▫ Cash basis, p23-24 Separate unrestricted cash from restricted in the cash flow statement Edward B. Peacock, CPA General Fund - Unassigned Fund Balance Measures 2011 2012 Unassigned Fund Balance, p14 $8,938,129 $11,741,652 Total Expenditures and Other Financing Sources and Uses, p17 $46,735,773 $44,836,091 Unassigned Fund Balance as a % of Total 19% Expenditures and Other Financing Sources and Uses 26% Total Expenditures and Other Financing Sources and Uses (Per Day) $128,043 $122,839 Unassigned Fund Balance # of Days of Operations 70 81 Edward B. Peacock, CPA Working Capital - Proprietary Funds • A short term measure of the funds’ ability to meet the obligations that will come due over the next year • Current assets less current liabilities • A more stringent approach – compare only the most liquid assets, generally unrestricted cash and cash equivalents to current liabilities Edward B. Peacock, CPA Proprietary Funds – Working Capital FY 2011 Water and Sewer FY 2011 Golf FY 2012 Water and Sewer FY 2012 Golf Current SNA Assets, p20 $15,980,106 $94,032 $15,987,055 $81,224 Less: Current Liabilities, p21 $5,060,044 $1,447,670 $5,328,831 $1,401,595 $10,920,062 -$1,353,638 $10,658,224 -$1,320,371 Working Capital SNA Edward B. Peacock, CPA Proprietary Funds Expenditures – Budgetary Basis FY 2011 FY 2011 Water and Golf Sewer FY 2012 FY 2012 Water and Golf Sewer Operating Expenses, p22 SREV 18,490,100 2,937,825 17,948,243 2,941,753 Less: Depreciation, p22 SREV -2,464,771 -403,024 -2,529,720 -402,428 Add: Transfers, p22 SREV 1,501,990 199,141 1,444,541 232,120 Add: Debt Principal, p23 SCF 1,470,000 285,000 1,540,000 295,000 Add: Interest, p23 SCF 501,768 126,867 274,208 119,525 Total Expenditures 19,499,087 3,145,809 18,677,292 3,185,970 Expenditures per Day 53,422 8,619 51,171 8,729 Edward B. Peacock, CPA Proprietary Funds – Working Capital Measures FY 2011 Water and Sewer FY 2011 Golf FY 2012 Water and Sewer FY 2012 Golf Total Expenditures (Budgetary Basis) 19,499,087 3,145,809 18,677,292 3,185,970 Expenditures per Day 53,422 8,619 51,171 8,729 Working Capital 10,920,062 -1,353,638 10,658,224 -1,320,371 Working Capital as % of Total Expenditures 56% -43% 57% -41% Number of Days Working Capital 204 -157 208 -151 Edward B. Peacock, CPA Proprietary Funds – Unrestricted Cash 2012 W&S 2012 GOLF Current assets: Cash and cash equivalents SNA $13,299,600 $0 Noncurrent assets: Restricted cash and investments SNA $11,844,580 $220,320 Cash and cash equivalents, ending SCF $25,144,180 $220,320 Edward B. Peacock, CPA Ratio Analysis • The act of converting the numbers in the FS into a form which specific decisions can be based • Are created by dividing one number into another • Financial story is not told with a single ratio, but with an accumulation of ratios and other information • If presented ratio information, be careful to ask how it was calculated • Always specify the components of the ratios used in your analyses Edward B. Peacock, CPA Ratio Analysis • To give meaningful financial ratios, always place your ratios in context, i.e., ▫ Compare to PY – improving, declining, holding steady? ▫ Compare to other similar governments – higher, lower, roughly the same? ▫ Is there a commonly accepted benchmark? Edward B. Peacock, CPA Types of Ratios • Common-Size Ratios ▫ $ Dollar Change ▫ % Percentage Change • Short Term Focus – Liquidity ▫ Current Ratio ▫ Quick Ratio • Long Term Focus – Solvency ▫ Debt to Assets Ratio ▫ Debt to Net Assets ▫ Coverage Ratios Interest Coverage Debt Service Coverage Edward B. Peacock, CPA Common-Size Ratios • Serve two valuable purposes ▫ Provide quick overview of finances ▫ How they’ve changed since prior year ▫ Can be applied to any kind of FS information Percentage change – shows magnitude of change Percentage distribution – shows portion of the total represented by individual elements Edward B. Peacock, CPA Dollar Amount and Percentage Change Capital Assets SNA Receivables SNA 2011 2012 $ Change % Change 254,274,206 250,588,786 -3,685,420 -1.45% 15,865,895 17,326,709 1,460,814 9.21% Edward B. Peacock, CPA Percentage Distribution Capital Assets SNA Receivables SNA 2011 2012 254,274,206, 63.53% 250,588,786, 61.16% 15,865,895, 3.96% 17,326,709, 4.23% Edward B. Peacock, CPA Liquidity Ratios • Concerned with the ability to pay immediate obligations • Current ratio ▫ Current assets / current liabilities • Quick ratio ▫ Cash and cash equivalents / current liabilities Edward B. Peacock, CPA Current and Quick Ratios FY 2011 Water and Sewer FY 2011 Golf FY 2012 Water and Sewer FY 2012 Golf SNA 15,980,106 94,032 15,987,055 81,224 Cash and SNA Investments 13,036,960 0 13,299,600 0 Current Liabilities 5,060,044 1,447,670 5,328,831 1,401,595 CURRENT RATIO 3.16 .06 3.00 .06 QUICK RATIO 2.58 0.00 2.50 0.00 Current Assets SNA Edward B. Peacock, CPA Solvency Ratios • Leverage ratios ▫ Measure the degree to which assets are financed through borrowing or other LT obligations Debt to assets ratio (total liabilities – deferred outflows) / (total assets – deferred inflows) Debt to net assets (position) ratio (total liabilities – deferred outflows) / total net position Edward B. Peacock, CPA Debt to Assets/ Net Assets Ratios FY 2011 Gov’t Activities FY 2011 Bus-type Activities FY 2012 Gov’t Activities FY 2012 Bus-type Activities 126,124,878 19,178,899 Total Liabilities SNA 134,496,885 20,374,794 Total Assets SNA 290,699,375 109,518,898 300,845,530 108,848,983 Total Net Assets SNA 156,202,490 89,144,104 174,720,652 89,670,084 DEBT TO ASSETS RATIO 0.46 0.19 0.42 0.18 DEBT TO NET ASSETS RATIO 0.86 0.23 0.72 0.21 Edward B. Peacock, CPA Coverage Ratios • Compare available resources with resource needs ▫ Interest coverage Cash flow from operations + interest expense / interest expense ▫ Debt service coverage Cash flow from operations + debt service / debt service Edward B. Peacock, CPA Coverage Ratios FY 2011 W&S FY 2011 Golf FY 2012 W&S FY 2012 Golf Cash Flow from Operations SCF 6,010,396 545,479 5,790,391 646,330 Interest Expense SREV 482,015 124,004 424,315 111,417 Debt Service NOTES 1,952,015 409,004 1,964,315 406,417 INTEREST COVERAGE 13.47 5.40 14.65 6.80 DEBT SERVICE COVERAGE 4.08 2.33 3.95 2.59 Edward B. Peacock, CPA Summary Analysis General Fund 2011 2012 W&S 2011 Golf 2012 2011 2012 FB, WC % 19% 26% 56% 57% -43% -41% # Days 81 204 208 -157 -151 Current Ratio 3.16 3.00 .06 .06 Quick Ratio 2.58 2.50 0 0 Interest Coverage 13.47 14.65 5.4 6.8 Debt Svc Coverage 4.08 3.95 2.33 2.59 70 Edward B. Peacock, CPA Questions? Eddie Peacock Edward B. Peacock, CPA 214 356 0116 eddie@ebpeacockcpa.com http://www.EBPeacockCPA.com