Performance Review   

 

For the period ended 12/31/2010  

 

 

Provided By

 

 

 

Page 1 / 15

 

This report is designed to assist you in your business' development. Below you will find your overall ranking, business snapshot and narrative write-up.

Snapshot of: SAMPLE DENTIST OFFICE

Industry: 621210 - Offices of Dentists

Revenue: Less than $1M

Periods: 12 months against the same 12 months from the previous year

 Financial Score for SAMPLE DENTIST OFFICE

LIQUIDITY - A measure of the company's ability to meet obligations as they come due.

PROFITS & PROFIT MARGIN - A measure of whether the trends in profit are favorable for thecompany.

SALES - A measure of how sales are growing and whether the sales are satisfactory for the company.

BORROWING - A measure of how responsibly the company is borrowing and how effectively it is managing debt.

ASSETS - A measure of how effectively the company is utilizing its grossfixed assets.

EMPLOYEES - A measure of how effectively the company is hiring and managing its employees.

Financial Analysis for SAMPLE DENTIST OFFICE

LIQUIDITY A measure of the company's ability to meet obligations as they come due.

  Operating Cash Flow Results The company has generated good cash flow from operations and is profitable for the period. These may be needed results, as overall liquidity conditions appear quite weak (this will be discussed in more detail below). Cash flow is typically the driver of long-run liquidity for most companies.

General Liquidity Conditions The company needs to consider the results carefully here. The firm now has less cash and total current assets relative to short-term financial obligations than it did last period. It is possible that this is the result of lower Income Statement performance, as will be discussed in the next section of the report. The numbers look pretty weak. For example, notice in the graph area of the report that both the company's current and quick ratios have fallen and they are poor relative to other similar companies. In short, the company's liquidity position may need to improve. Otherwise, there may be several negative concurrent events: the company may have a difficult time paying the bills, and management may also have to spend time managing cash flow. Finally, the company may not have the cash available to deal with an unforeseen negative occurrence. While these models are not predictive, the company's general position can still be accurately assessed.

The company's accounts receivable days ratio is comparatively high, indicating that the company may be taking a long time to collect money that is owed by customers. Typically, a high AR days ratio can squeezecash accounts. Over time, in order to help improve its overall liquidity, the company may need to float this liquidity turnover ratio downward.

Page 2 / 15

  

Tips For Improvement Here are some possible actions that management might consider if appropriate (these are ideas that might be thought about):

l Work to quickly collect funds owed to the business by customers and insurance companies. When possible, collect from patients immediately after services are performed to eliminate lag time from insurance companies. Monitor receivables weekly and charge interest/late fees on invoices that arepast due.

l Sell any unnecessary or unproductive assets the business may have. These are assets that are notcontributing sufficiently to the generation of income and cash flow.

l Rent, rather than purchase, office space when it will create savings. l Monitor the amount of money that is being used for activities unrelated to the business, such as

cash taken out of the business on draws to principals.

LIMITS TO LIQUIDITY ANALYSIS: Keep in mind that liquidity conditions are volatile, and this is a general analysis looking at a snapshot in time. Review this section, but do not overly rely on it.

 

 

Generally, this metric measures the overall liquidity position of a company. It is certainly not a perfect

barometer, but it is a good one. Watch for big decreases in this number over time. Make sure the

accounts listed in "current assets" are collectible. The higher the ratio, the more liquid the company is.

This is another good indicator of liquidity, although by itself, it is not a perfect one. If there are receivable accounts included in the numerator, they should be collectible. Look at the length of time the company

has to pay the amount listed in the denominator (current liabilities). The higher the number, the

stronger the company.  

This number reflects the average length of time between credit sales and payment receipts. It is

crucial to maintaining positive liquidity. The lower the better.

Page 3 / 15

PROFITS & PROFIT MARGIN A measure of whether the trends in profit are favorable for the company.

  Despite declines in most of its profitability metrics this period, the company has achieved a net profit margin that is fairly strong. Strong means that the company's net margin is good both overall and relativeto the net margins that are being earned by competing firms in this industry. This is depicted in the graph area of the report; the company is basically very profitable. The net profit margin is important because it measures how effectively the company is balancing its costs and its sales revenues. Earning an above-average net margin may allow the company to make investments in its future growth, which would provide it with a competitive advantage over time.

However, the company should note that net profits, net profit margins, and sales have all fallen in the same financial period. These dynamics could indicate a potential trend of managing a lower level of sales revenue less effectively, which is unfavorable. Generally, companies prefer to compensate for sales declines by cutting costs and operating more efficiently -- the most important time for a company to control its costs is when sales are falling.

Much of the company's profitability declines this period can be attributed to the sales decrease of 26.25%.It is not always true that profit declines are caused by sales declines. Indeed, sometimes sales increases can actually cause profit problems. In this case, it looks like profits have fallen at least partially due to the drop in sales. Companies usually try to keep sales increasing every financial period. The logic behind this challenge is that even when the company is not growing its sales, its competitors are growing their sales.A firm should always be maintaining its current customer base and adding new customers to it, hence increasing sales revenue.

Tips For Improvement Profit and loss management is all about continually finding ways to change things in the business to improve profits. Managers might think about the following ideas/hints/tips:

l Employ a reception staff that treats patients well and optimally schedules patients. Receptionists should have the ability to balance the trade-off between handling more patients to maximize profitsand making sure each patient is getting the best care possible.

l Align with insurance companies that offer plans that benefit the practice and its patients. l Eliminate/reduce some overhead or fixed costs to decrease monthly expenses. Small decreases in

overhead will typically yield large cash savings over time. l Send confidential surveys to patients to ask them how the business might better meet their needs.

The surveys should ask both specific and general questions about how to improve the customer experience. This will increase sales/revenue over time.

 

 

This number indicates the percentage of sales revenuethat is not paid out in direct costs (costs of sales). It is

an important statistic that can be used in business planning because it indicates how many cents of grossprofit can be generated by each dollar of future sales.

Higher is normally better (the company is more efficient).

This is an important metric. In fact, over time, it is oneof the more important barometers that we look at. It

measures how many cents of profit the company is generating for every dollar it sells. Track it carefully

against industry competitors. This is a very important number in preparing forecasts. The higher the better.

 

Page 4 / 15

  

 

This metric shows advertising expense for the company as a percentage of sales.

This metric shows rent expense for the company as a percentage of sales.

 

 

This metric shows G & A payroll expense for the company as a percentage of sales.

This metric shows total payroll expense for the company as a percentage of sales.

SALES A measure of how sales are growing and whether the sales are satisfactory for the company.

  The company's sales have fallen this period, while fixed assets remained relatively stable. This dynamic could negatively affect net profitability if sales continue to fall in the future. Typically, companies want to see revenue increasing over time; this is true because the cost of business continually increases, no matter what the inflation rate is. Of course, as mentioned in the previous section, managers will want to look for longer-term results in this area -- profitability is more important than sales generally.

BORROWING A measure of how responsibly the company is borrowing and how effectively it is managing debt.

  Leverage is using a small item to bring in larger results. Financial leverage can make a business very successful, or it can work against a company, depending on how it is used. In this case, borrowing went down, but so did many other indicators, including the net profit margins, net profitability, and overall liquidity. It is difficult to tell what this means for the future. It is also important to bear in mind that profitability fell at a faster rate than debt. On the surface, this may indicate that reducing debt additionallymay not be the way to drive profitability for the company at this time. Of course, only managers inside thecompany can determine for certain which resource areas need attention.

The trend between profitability and debt is an important one, especially when the company has a relatively high level of debt on the books. Notice that this firm's debt-to-equity ratio is high, even relative to its industry. Higher levels of debt mean that managers are using debt as a tool in the strategic

Page 5 / 15

  

planning function. Still, it does need to be noted that the company is generating earnings in the "normal range" as compared to interest payments, so analysis needs to be deliberate (this report cannot go too far with conclusions in this particular case). In summary, the trend here is worse than the raw score; managers should watch future results closely.

 

 

This ratio measures a company's ability to service debt payments from operating cash flow (EBITDA). An increasing ratio is a good indicator of improving

credit quality. The higher the better.

This Balance Sheet leverage ratio indicates the composition of a company’s total capitalization -- the balance between money or assets owed versus the

money or assets owned. Generally, creditors prefer a lower ratio to decrease financial risk while investors prefer a higher ratio to realize the return benefits of

financial leverage.  

This ratio measures a company's ability to repay debt obligations from annualized operating cash flow

(EBITDA).

ASSETS A measure of how effectively the company is utilizing its gross fixed assets.

  The fixed asset base has remained relatively the same this period, but net profitability is down. This indicates that the assets in place are less efficient than last period -- lower profitability is moving through these assets. This is a sign of poor asset management. The drop in overall liquidity and net margins also support this idea. The company was inefficient in regard to its assets as well as its overall operations, which is a situation the company does not want to turn into a long-term trend.

Notice that the company generated a relatively strong return on assets and equity this period. This is a positive result for both investors/owners and creditors of the company. Assets generally represent a cost to the company that is expected to reap future benefits, so it is good to see the company earning strong profitability relative to its assets.

 

Page 6 / 15

  

 

This measure shows how much profit is being returnedon the shareholders' equity each year. It is a vital

statistic from the perspective of equity holders in a company. The higher the better.

This calculation measures the company's ability to useits assets to create profits. Basically, ROA indicates

how many cents of profit each dollar of asset is producing per year. It is quite important since

managers can only be evaluated by looking at how they use the assets available to them. The higher the

better.  

This asset management ratio shows the multiple of annualized sales that each dollar of gross fixed assets

is producing. This indicator measures how well fixed assets are "throwing off" sales and is very important to businesses that require significant investments in

such assets. Readers should not emphasize this metricwhen looking at companies that do not possess or

require significant gross fixed assets. The higher the more effective the company's investments in Net

Property, Plant, and Equipment are.

EMPLOYEES A measure of how effectively the company is hiring and managing its employees.

  This company's employee levels have stayed relatively the same, but net profitability has decreased this period. The company is now generating a lower level of profitability per employee, which is a key performance indicator for this industry. Of course, these are observations based upon limited data, but managers still need to make a note of this potentially negative trend. Over the long run, resources such as employees should lever higher multiples of profitability for the company.

"Well done is better than well said." -- Benjamin Franklin  

Page 7 / 15

  

 

INDUSTRY-SPECIFIC PERFORMANCE RATIOS

What are the Key Performance Indicators for the business?

This section of the report provides Key Performance Indicators (or KPIs) for the business being analyzed, and they are specific to the business's industry and revenue. Track these KPIs over time and compare them to the industry averages to identify areas where the business might be able to improve operations.

 

 

Dental Supplies to Revenue = Dental Supplies / SalesLaboratory Charges to Revenue = Laboratory Charges /

Sales  

Page 8 / 15

 

Average Production per Visit = Sales / Number of VisitsRevenue per Full Time Professional Dentist = Sales /

Full Time Professional Dentists  

Revenue Per Employee = Sales / Employees

Page 9 / 15

 

RAW DATA

  12/31/2009 12/31/2010

Income Statement Data

Sales (Income) $154,000 $113,568

Cost of Sales (COGS) $0 $0

  Depreciation (COGS-related) $0 $0

  Direct Materials $0 $0

  Direct Labor $0 $0

Gross Profit $154,000 $113,568

Gross Profit Margin 100.00% 100.00%

Depreciation $4,721 $4,415

Amortization $0 $0

Overhead or S,G,& A Expenses $35,888 $68,978

  G & A Payroll Expense $52,000 $65,233

  Rent $686 $337

  Advertising $2,251 $467

  Laboratory Charges $11,253 $10,633

  Dental Supplies $22,583 $9,061

Other Operating Income $0 $0

Other Operating Expenses $0 $0

Operating Profit $113,391 $40,175

Interest Expense $6,013 $6,318

Other Income $0 $0

Other Expenses $0 $0

Net Profit Before Taxes $107,378 $33,857

Adjusted Net Profit before Taxes $107,378 $33,857

Net Profit Margin 69.73% 29.81%

EBITDA $118,112 $44,590

Taxes Paid $29,520 $10,580

Extraordinary Gain $0 $0

Extraordinary Loss $0 $0

Net Income $77,858 $23,277

  12/31/2009 12/31/2010

Balance Sheet Data

Cash (Bank Funds) $2,587 $2,623

Accounts Receivable $65,213 $34,066

Inventory $0 $0

Other Current Assets $0 $0

Total Current Assets $67,800 $36,689

Gross Fixed Assets $159,975 $163,288

Accumulated Depreciation $70,235 $82,970

Net Fixed Assets $89,740 $80,318

Gross Intangible Assets $0 $0

Accumulated Amortization $0 $0

Net Intangible Assets $0 $0

Other Assets $0 $0

Total Assets $157,540 $117,007

Accounts Payable $0 $0

Short Term Debt $0 $0

Notes Payable / Current Portion of Long Term Debt $0 $0

Other Current Liabilities $88,576 $56,899

Total Current Liabilities $88,576 $56,899

Notes Payable / Senior Debt $584,555 $564,235

Notes Payable / Subordinated Debt $0 $0

Other Long Term Liabilities $0 $0

Page 10 / 15

Total Long Term Liabilities $584,555 $564,235

Total Liabilities $673,131 $621,134

Preferred Stock $0 $0

Common Stock $0 $0

Additional Paid-in Capital $0 $0

Other Stock / Equity $0 $0

Ending Retained Earnings ($515,591) ($504,127)

Total Equity ($515,591) ($504,127)

Total Liabilities + Equity $157,540 $117,007

Number of Employees (FTE) 1.0 1.0

Other Non-Financial Accounts

  Number of Visits 978.00 1,066.00

  Full Time Professional Dentists 1.00 1.00

  Number of Hygienists 1.00 1.00

Page 11 / 15

COMMON SIZE STATEMENTS

  12/31/2009 12/31/2010Industry*(7634)

Income Statement Data

Sales (Income) 100% 100%  100%

Cost of Sales (COGS) 0% 0%  5%

  Depreciation (COGS-related) 0% 0%  2%

  Direct Materials 0% 0%  13%

  Direct Labor 0% 0%  28%

Gross Profit 100% 100%  95%

Depreciation 3% 4%  3%

Amortization 0% 0%  0%

Overhead or S,G,& A Expenses 23% 61%  64%

  G & A Payroll Expense 34% 57%  38%

  Rent 0% 0%  6%

  Advertising 1% 0%  1%

  Laboratory Charges 7% 9%  6%

  Dental Supplies 15% 8%  7%

Other Operating Income 0% 0%  0%

Other Operating Expenses 0% 0%  13%

Operating Profit 74% 35%  15%

Interest Expense 4% 6%  1%

Other Income 0% 0%  0%

Other Expenses 0% 0%  0%

Net Profit Before Taxes 70% 30%  14%

Adjusted Net Profit before Taxes 70% 30%  14%

EBITDA 77% 39%  18%

Taxes Paid 19% 9%  0%

Extraordinary Gain 0% 0%  0%

Extraordinary Loss 0% 0%  0%

Net Income 51% 20%  14%

  12/31/2009 12/31/2010

Industry*(7634)

Balance Sheet Data

Cash (Bank Funds) 2% 2%  25%

Accounts Receivable 41% 29%  0%

Inventory 0% 0%  0%

Other Current Assets 0% 0%  1%

Total Current Assets 43% 31%  41%

Gross Fixed Assets 102% 140%  100%

Accumulated Depreciation 45% 71%  52%

Net Fixed Assets 57% 69%  48%

Gross Intangible Assets 0% 0%  4%

Accumulated Amortization 0% 0%  1%

Net Intangible Assets 0% 0%  1%

Other Assets 0% 0%  12%

Total Assets 100% 100%  100%

Accounts Payable 0% 0%  0%

Short Term Debt 0% 0%  0%

Notes Payable / Current Portion of Long Term Debt 0% 0%  1%

Other Current Liabilities 56% 49%  14%

Total Current Liabilities 56% 49%  30%

Notes Payable / Senior Debt 371% 482%  36%

Notes Payable / Subordinated Debt 0% 0%  0%

Page 12 / 15

Other Long Term Liabilities 0% 0%  1%

Total Long Term Liabilities 371% 482%  59%

Total Liabilities 427% 531%  89%

Preferred Stock 0% 0%  0%

Common Stock 0% 0%  1%

Additional Paid-in Capital 0% 0%  2%

Other Stock / Equity 0% 0%  1%

Ending Retained Earnings -327% -431%  3%

Total Equity -327% -431%  11%

Total Liabilities + Equity 100% 100%  100%

*The industry common size figures shown above were taken from all private company data for companies with industry code 621210 for all years in all areas with yearly sales under $1 million.

Page 13 / 15

 

INDUSTRY SCORECARD

Financial Indicator Current Period Industry RangeDistance from Industry

Current Ratio 0.64 1.80 to 2.80 -64.44%= Total Current Assets / Total Current Liabilities

Explanation:  Generally, this metric measures the overall liquidity position of a company. It is certainly not a perfect barometer, but it is a good one. Watch for big decreases in this number over time. Make sure the accounts listed in "current assets" are collectible. The higher the ratio, the more liquid the company is.

Quick Ratio 0.64 1.10 to 2.10 -41.82%= (Cash + Accounts Receivable) / Total Current Liabilities

Explanation:  This is another good indicator of liquidity, although by itself, it is not a perfect one. If there are receivable accounts included in the numerator, they should be collectible. Look at the length of time the company has to pay the amount listed in the denominator (current liabilities). The higher the number, the stronger the company.

Accounts Receivable Days 109.49 Days 1.00 to 10.00 Days -994.90%= (Accounts Receivable / Sales) * 365

Explanation:  This number reflects the average length of time between credit sales and payment receipts. It is crucial to maintaining positive liquidity. The lower the better.

Gross Profit Margin 100.00% 84.00% to 95.50% +4.71%= Gross Profit / Sales

Explanation:  This number indicates the percentage of sales revenue that is not paid out in direct costs (costs of sales). It is an important statistic that can be used in business planning because it indicates how many cents of gross profit can be generated by each dollar of future sales. Higher is normally better (the company is more efficient).

Net Profit Margin 29.81% 2.00% to 12.00% +148.42%= Adjusted Net Profit before Taxes / Sales

Explanation:  This is an important metric. In fact, over time, it is one of the more important barometers that we look at. It measures how many cents of profit the company is generating for every dollar it sells. Track it carefully against industry competitors. This is a very important number in preparing forecasts. The higher the better.

Advertising to Sales 0.41% 0.50% to 2.25% +18.00%= Advertising / Sales

Explanation:  This metric shows advertising expense for the company as a percentage of sales.

Rent to Sales 0.30% 4.50% to 9.00% +93.33%= Rent / Sales

Explanation:  This metric shows rent expense for the company as a percentage of sales.

G & A Payroll to Sales 57.44% 18.00% to 32.00% -79.50%= G & A Payroll Expense / Sales

Explanation:  This metric shows G & A payroll expense for the company as a percentage of sales.

Total Payroll to Sales 57.44% N/A N/A= (Direct Labor + G & A Payroll Expense) / Sales

Explanation:  This metric shows total payroll expense for the company as a percentage of sales.

Interest Coverage Ratio 7.06 5.00 to 15.00 0.00%= EBITDA / Interest Expense

Explanation:  This ratio measures a company's ability to service debt payments from operating cash flow (EBITDA). An increasing ratio is a good indicator of improving credit quality. The higher the better.

Debt-to-Equity Ratio N/A 2.20 to 4.20 N/A= Total Liabilities / Total Equity

Explanation:  This Balance Sheet leverage ratio indicates the composition of a company’s total capitalization --the balance between money or assets owed versus the money or assets owned. Generally, creditors prefer a lower ratio to decrease financial risk while investors prefer a higher ratio to realize the return benefits of

Page 14 / 15

financial leverage.

Debt Leverage Ratio 13.93 N/A N/A= Total Liabilities / EBITDA

Explanation:  This ratio measures a company's ability to repay debt obligations from annualized operating cash flow (EBITDA).

Return on Equity N/A 8.00% to 20.00% N/A= Net Income / Total Equity

Explanation:  This measure shows how much profit is being returned on the shareholders' equity each year. It is a vital statistic from the perspective of equity holders in a company. The higher the better.

Return on Assets 19.89% 6.00% to 12.00% +65.75%= Net Income / Total Assets

Explanation:  This calculation measures the company's ability to use its assets to create profits. Basically, ROAindicates how many cents of profit each dollar of asset is producing per year. It is quite important since managers can only be evaluated by looking at how they use the assets available to them. The higher the better.

Fixed Asset Turnover 0.70 3.00 to 8.00 -76.67%= Sales / Gross Fixed Assets

Explanation:  This asset management ratio shows the multiple of annualized sales that each dollar of gross fixed assets is producing. This indicator measures how well fixed assets are "throwing off" sales and is very important to businesses that require significant investments in such assets. Readers should not emphasize this metric when looking at companies that do not possess or require significant gross fixed assets. The higher the more effective the company's investments in Net Property, Plant, and Equipment are.

    

NOTE: Exceptions are sometimes applied when calculating the Financial Indicators. Generally, this occurs when the inputs used to calculate the ratios are zero and/or negative.

READER: Financial analysis is not a science; it is about interpretation and evaluation of financial events. Therefore, some judgment will always be part of our reports and analyses. Before making any financial decision, always consult an experienced and knowledgeable professional (accountant, banker, financial planner, attorney, etc.).

Page 15 / 15