How Bankers Look at Your Financial Statements

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How Bankers Look at Your Financial Statements
People. Relationships. Results.

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Which Statements?

• Balance sheet
• Income statement
• Statement of cash flows
• Notes

People. Relationships. Results.
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Accountant . Banker

• Accountants concerns
• Bankers concerns
• Wheres Waldo?
• Trends
• Story
• Sources of repayment

People. Relationships. Results.
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Balance Sheet - Assets

• Current Assets / Current Liabilities
• Assets excluded
• Accounts Receivable
• Inventory (COGS, A/P)
• Intangibles
• Unusual accounts

People. Relationships. Results.
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Balance Sheet Assets
People. Relationships. Results.
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Balance Sheet - Liabilities

• Accounts payable (inventory)
• Officer loans/debt
• Leverage
• Liabilities/Tangible Net Worth
• Unusual accounts

People. Relationships. Results.
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Balance Sheet Liabilities, Net Worth
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Income Statement

• Sales
• - COGS
• Gross Profits
• - Selling, General and Administrative Expenses
• Operating Income
• Other Income
• - Other Expenses
• Net Income

People. Relationships. Results.
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Income Statement

• Trends
• Margins
• Profitability
• Officer compensation
• Legal expenses
• Bad debt expense
• Unusual expenses

People. Relationships. Results.
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People. Relationships. Results.
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Statement of Cash Flows

• Indirect Method (SFAS No. 95)
• Direct Method (SFAS No. 95)
• Lenders Direct Method

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UCA Cash Flow - Lenders Direct Method

• Business components
• Order of priority of claims on cash flow

People. Relationships. Results.
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Ratios

• Trends
• Working Capital/Liquidity
• A/R turn/days
• Inventory turn/days
• A/P turn/days
• Leverage
• Operating, net margins
• DSC

People. Relationships. Results.
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Notes

• Business activity
• Accounting Policies
• Revenue recognition
• Property and equipment depreciation
• Cost of sales
• Debt Notes payable (leases)
• Expense detail
• Litigation

People. Relationships. Results.
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Additional information

• Business plan/projections
• Accounts receivable and payable agings
• Company tax returns
• Asset listings
• Personal statement
• Personal tax returns (complete)

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Is your company bankable?

• Cash flow, DSC
• Collateral
• Guarantor support
• Red flags
• Five Cs

People. Relationships. Results.
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Banker conversation

• History of company
• Ownership
• Division of duties
• Management
• Marketing/sales
• Competition
• Differentiation/niche
• Suppliers
• Challenges

• Labor supply
• Key employees
• Facilities/space needs
• Equipment needs
• Banking history
• Plans for the future

People. Relationships. Results.
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Other/Misc

• Presentation issues
• Current issues - appraisals
• LTV
• DSC
• Current banking environment
• Cash management arrangements
• Establish a relationship now

People. Relationships. Results.
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Leslie Mittanck, CPAVice PresidentCommercial
Banking Officer1st Pacific Bank8889 Rio San
Diego Drive, Suite 101San Diego, CA 92108(858)
875-2090lmittanck_at_1stpacbank.com