Assessing Vendor Financial Viability – Reprise

1. Assessing Vendor Financial Viability – Reprise David S. Goble, Dean of Libraries David.goble@cpcc.edu /704-330-6441

2. ALA Chicago - 2006 How To Assess Your Vendor’s Financial Viability James Gray CEO Coutts Information Services LTD Dan Tonkery Vice President Business Development EBSCO Information Services

3. A Thought from James Gray “A library vendor will get into financial difficulty some time soon. Who knows where, who knows when, but it will happen again-it’s a certainty.” James Gray – CEO Coutts Information Services, LTD

4. Thoughts from Dan Tonkery 1. “Don’t be afraid to operate with a professional business relationship with formal contracts and/or agreements. 2. “Avoid personal or emotional factors when dealing with a vendors. It is just a business.” 3. “Don’t be slow to take action if you are uncomfortable with any factor.” Dan Tonkery VP Business Development EBSCO Information Services

5. Think Like a BankerManage Risk Risk Factors • $ Amount • Impact on Services • Impact on Operations • Worst Case Scenario • Time

6. Common Risks • Third Party Payments • 3rd Party Payments-Subscription • Prepayments • Deposit Accounts • Pro-forma Accounts • Databases • Service Dependencies • Integrated Library Systems • Collection Development Software • Outsourced Services • Software Located on Vendor Server

7. Financial Analysis “…a riddle wrapped in a mystery inside an enigma.” Winston Churchill - October, 1939

8. What Do You Know? • Balance Sheet – Presents the results of financial activities for the period covered T/F • Annual Report – Prepared by auditors is an infallible report of financial results T/F • Profit and Loss Statement – A snap shot of financial condition at year end T/F • Current ratio- a measure of how many books the vendor has checked out and what % are not past due T/F

9. Balance Sheet

10. Income State

11. Cash-Flow Statement

12. Relationship of Financial Statements Balance Sheet Jan. 1, 200X Income Statement Statement of Cash Flows Balance Sheet Jan. 1, 200Y

13. Major Tools • Comparative Financial Statements • Common Size Statement • Ratio Analysis • Specialized Analytical Tools

14. Selected Balance Sheet #s

15. Selected Balance Sheet #s

16. Liquidity • Current Ratio = Current Assets/Current Liabilities divine, inc

17. Liquidity • Accounts Receivable Turnover=Net Credit Sales/Average Accounts Receivable divine, inc.

18. Profitability • Profit Margin on Sales = Operating Income/Net Sales divine, inc.

19. Profitability • Earnings Per Share

20. Profitability • Return on Assets = Net Income/Average Total Assets • Return on Stock Holder’s Equity • Comprehensive Return on Investment

21. Cash Flow Analysis

22. Other Things to Know • Independent Auditor’s Report • Notes to the Financial Statement

23. What Do You Know? • Balance Sheet – Presents the results of financial activities for the period covered T/F • Annual Report – Prepared by auditors is an infallible report of financial results T/F • Profit and Loss Statement – A snap shot of financial condition at year end T/F • Current ratio- a measure of how many books the vendor has checked out and what % are not past due T/F

24. Why Think Like a Banker • Our Customers • Our Institutions • Our funding sources • Our Colleagues • Our Selves