Maximizing Your Financial Position

1. 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 Maximizing Your Financial Position

2. 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

3. Income Statement Example • Income $500,000 Direct Costs $250,000 Equipment Overhead $75,000 Indirect Job Overhead $35,000 Total Cost of Goods Sold $360,000 • Income From Operations $140,000 • Administrative Overhead $50,000 • Total Expense $50,000 • Net Income $90,000

4. 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%

5. 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%

6. 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%

7. 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

8. Assets Current Assets Checking/Savings $100,000 Accounts Receivable $50,000 Total Current Assets $150,000 Fixed Assets Vehicles $65,000 Trailers $25,000 Equipment $50,000 Office Equipment $10,000 Total Fixed Assets $150,000 Total Assets $300,000 Balance Sheet Example Liabilities & Owner’s Equity Current Liabilities Accounts Payable $30,000 Credit Cards $5,000 Total Current Liabilities $35,000 Long Term Liabilities Vehicle Loan $20,000 Trailer Loan $10,000 Equipment Loan $30,000 Office Equipment Loan $5,000 Total Long Term Liabilities $65,000 Total Liabilities $100,000 Equity Retained Earnings $110,000 Net Income $90,000 Total Equity $200,000 Total Liabilities & Owners’ Equity $300,000

9. Current Ratio Current Assets $150,000 _______________________= Current Ratio Current Liabilities 7.14:1 $35,000 • The current ratio expresses the relationship of twelve-month assets to their twelve-month liabilities • Important to short-term creditors • Desirable range 1.25 and 2.25

10. 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

11. 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%

12. 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

13. 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

14. 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%

15. 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

16. 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%

17. 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