assessing vendor financial viability – reprise

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Assessing Vendor Assessing Vendor Financial Viability – Financial Viability – Reprise Reprise David S. Goble, Dean of Libraries [email protected] /704-330- 6441

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Assessing Vendor Financial Viability – Reprise. David S. Goble, Dean of Libraries [email protected] /704-330-6441. ALA Chicago - 2006. How To Assess Your Vendor’s Financial Viability James Gray CEO Coutts Information Services LTD Dan Tonkery Vice President Business Development - PowerPoint PPT Presentation

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Page 1: Assessing Vendor Financial Viability – Reprise

Assessing Vendor Financial Assessing Vendor Financial Viability – RepriseViability – Reprise

David S. Goble, Dean of Libraries

[email protected] /704-330-6441

Page 2: Assessing Vendor Financial Viability – Reprise

ALA Chicago - 2006ALA Chicago - 2006

How To Assess Your Vendor’s How To Assess Your Vendor’s Financial ViabilityFinancial Viability

James Gray James Gray CEO Coutts Information Services LTDCEO Coutts Information Services LTD

Dan TonkeryDan TonkeryVice President Business DevelopmentVice President Business Development

EBSCO Information ServicesEBSCO Information Services

Page 3: Assessing Vendor Financial Viability – Reprise

A Thought from James GrayA Thought from James Gray

““A library vendor will get into financial A library vendor will get into financial difficulty some time soon. Who knows difficulty some time soon. Who knows where, who knows when, but it will happen where, who knows when, but it will happen again-it’s a certainty.” again-it’s a certainty.”

James Gray – CEO Coutts Information James Gray – CEO Coutts Information Services, LTDServices, LTD

Page 4: Assessing Vendor Financial Viability – Reprise

Thoughts from Dan TonkeryThoughts from Dan Tonkery

1. “Don’t be afraid to operate with a professional business 1. “Don’t be afraid to operate with a professional business relationship with formal contracts and/or agreements.relationship with formal contracts and/or agreements.

2. “Avoid personal or emotional factors when dealing with 2. “Avoid personal or emotional factors when dealing with a vendors. It is just a business.”a vendors. It is just a business.”

3. “Don’t be slow to take action if you are uncomfortable 3. “Don’t be slow to take action if you are uncomfortable with any factor.”with any factor.”

Dan TonkeryDan TonkeryVP Business DevelopmentVP Business DevelopmentEBSCO Information ServicesEBSCO Information Services

Page 5: Assessing Vendor Financial Viability – Reprise

Think Like a BankerThink Like a BankerManage RiskManage Risk

Risk FactorsRisk Factors

$ Amount$ Amount

Impact on ServicesImpact on Services

Impact on OperationsImpact on Operations

Worst Case ScenarioWorst Case Scenario

TimeTime

Page 6: Assessing Vendor Financial Viability – Reprise

Common RisksCommon RisksThird Party PaymentsThird Party Payments– 33rdrd Party Payments-Subscription Party Payments-Subscription

PrepaymentsPrepayments– Deposit AccountsDeposit Accounts– Pro-forma AccountsPro-forma Accounts– DatabasesDatabases

Service DependenciesService Dependencies– Integrated Library SystemsIntegrated Library Systems– Collection Development SoftwareCollection Development Software– Outsourced ServicesOutsourced Services– Software Located on Vendor ServerSoftware Located on Vendor Server

Page 7: Assessing Vendor Financial Viability – Reprise

Financial AnalysisFinancial Analysis

“…“…a riddle wrapped in a mystery inside an a riddle wrapped in a mystery inside an enigma.”enigma.”

Winston Churchill - October, Winston Churchill - October, 1939 1939

Page 8: Assessing Vendor Financial Viability – Reprise

What Do You Know?What Do You Know?

Balance Sheet – Presents the results of Balance Sheet – Presents the results of financial activities for the period covered T/Ffinancial activities for the period covered T/F

Annual Report – Prepared by auditors is an Annual Report – Prepared by auditors is an infallible report of financial results T/Finfallible report of financial results T/F

Profit and Loss Statement – A snap shot of Profit and Loss Statement – A snap shot of financial condition at year end T/Ffinancial condition at year end T/F

Current ratio- a measure of how many books the Current ratio- a measure of how many books the vendor has checked out and what % are not vendor has checked out and what % are not past due T/Fpast due T/F

Page 9: Assessing Vendor Financial Viability – Reprise

Balance SheetBalance SheetCurrent Assets Current Assets Current LiabilitiesCurrent Liabilities

Fixed AssetsFixed Assets

Less DepreciationLess Depreciation

Long-Term LiabilitiesLong-Term Liabilities

IntangiblesIntangibles Total LiabilitiesTotal Liabilities

Retained EarningsRetained Earnings

Owners Equity Owners Equity

Total AssetsTotal Assets Total Liabilities & Total Liabilities & Stockholders EquityStockholders Equity

Page 10: Assessing Vendor Financial Viability – Reprise

Income StateIncome StateNet Sales or RevenuesNet Sales or Revenues

Less Cost of Goods SoldLess Cost of Goods Sold

Less Operating Expenses: SGA/DepreciationLess Operating Expenses: SGA/Depreciation

Income From OperationsIncome From Operations

Other Income (Expense): Interest/DividendsOther Income (Expense): Interest/Dividends

Income Before Taxes Income Before Taxes

Less Federal TaxesLess Federal Taxes

Net IncomeNet Income

Earnings (Losses) per Share Earnings (Losses) per Share

Page 11: Assessing Vendor Financial Viability – Reprise

Cash-Flow StatementCash-Flow StatementCash Flows From Operating ActivitiesCash Flows From Operating Activities

Received from customersReceived from customers

Paid for taxesPaid for taxes

Net Cash provided (used) by Operating activitiesNet Cash provided (used) by Operating activities

$ 500$ 500

(100)(100)

400400

Cash Flows From Investing ActivitiesCash Flows From Investing Activities

Purchase of EquipmentPurchase of Equipment

Sale of PropertySale of Property

Net Cash Provided (used) by investing activitiesNet Cash Provided (used) by investing activities

$(300)$(300)

10001000

700700

Cash flows from financing activitiesCash flows from financing activities

Proceeds from issuing stockProceeds from issuing stock

Payment to retire bondsPayment to retire bonds

Net Cash Provided (used) by Financing ActivitiesNet Cash Provided (used) by Financing Activities

$ 200$ 200

(1000)(1000)

(800)(800)

Net increase (decrease) in cashNet increase (decrease) in cash $ 300$ 300

Cash January 1, 200XCash January 1, 200X

Cash December 31, 200XCash December 31, 200X

$ 150$ 150

$ 450$ 450

Page 12: Assessing Vendor Financial Viability – Reprise

Relationship of Financial Relationship of Financial StatementsStatements

Balance Sheet

Jan. 1, 200X

Income Statement

Statement of Cash Flows

Balance Sheet

Jan. 1, 200Y

Page 13: Assessing Vendor Financial Viability – Reprise

Major ToolsMajor Tools

Comparative Financial StatementsComparative Financial Statements

Common Size StatementCommon Size Statement

Ratio AnalysisRatio Analysis

Specialized Analytical ToolsSpecialized Analytical Tools

Page 14: Assessing Vendor Financial Viability – Reprise

Selected Balance Sheet #sSelected Balance Sheet #s

divine, inc.divine, inc. 20012001 20002000

CashCash $104,480$104,480 $252,533$252,533

ReceivablesReceivables 200,833200,833 2,1432,143

Current AssetsCurrent Assets 601,565601,565 281,799281,799

IntangiblesIntangibles 211,075211,075 8,6218,621

Total AssetsTotal Assets $874,711$874,711 $420,181$420,181

Current LiabilitiesCurrent Liabilities $521,658$521,658 $ 25,571$ 25,571

Long-term LiabilitiesLong-term Liabilities $101,294$101,294 $ 24,727$ 24,727

Total LiabilitiesTotal Liabilities $622,952$622,952 $ 52,298$ 52,298

Stock Holders EquityStock Holders Equity $251,759$251,759 $367,883$367,883

Total Liabilities & SHETotal Liabilities & SHE $874,711$874,711 $420,181$420,181

Page 15: Assessing Vendor Financial Viability – Reprise

Selected Balance Sheet #sSelected Balance Sheet #sdivine, inc.divine, inc. 20012001 % Tot. Assets% Tot. Assets

CashCash $104,480$104,480 11.9%11.9%

ReceivablesReceivables 200,833200,833 23.0%23.0%

Current AssetsCurrent Assets 601,565601,565 68.8%68.8%

IntangiblesIntangibles 211,075211,075 24.1%24.1%

Total AssetsTotal Assets $874,711$874,711 100.0%100.0%

Current LiabilitiesCurrent Liabilities $521,658$521,658 59.6%59.6%

Long-term LiabilitiesLong-term Liabilities $101,294$101,294 11.6%11.6%

Total LiabilitiesTotal Liabilities $622,952$622,952 71.2%71.2%

Stock Holders EquityStock Holders Equity $251,759$251,759 28.8%28.8%

Total Liabilities & SHETotal Liabilities & SHE $874,711$874,711 100.0%100.0%

Page 16: Assessing Vendor Financial Viability – Reprise

LiquidityLiquidity

Current Ratio = Current Assets/Current LiabilitiesCurrent Ratio = Current Assets/Current Liabilities

divine, incdivine, inc

20012001

$601,565 / $521,658$601,565 / $521,658

Current RatioCurrent Ratio

1.201.20

20002000

$281,799 / $27,571$281,799 / $27,571

Current RatioCurrent Ratio

10.2210.22

Page 17: Assessing Vendor Financial Viability – Reprise

LiquidityLiquidity

Accounts Receivable Turnover=Net Credit Accounts Receivable Turnover=Net Credit Sales/Average Accounts ReceivableSales/Average Accounts Receivable

divine, inc.divine, inc.

20012001

$199,598 / $200,833$199,598 / $200,833

Acct.s Rec. TurnoverAcct.s Rec. Turnover

.99.99

20002000

$44,079 / $7,678$44,079 / $7,678

Acct.s Rec. TurnoverAcct.s Rec. Turnover

5.745.74

Page 18: Assessing Vendor Financial Viability – Reprise

ProfitabilityProfitability

Profit Margin on Sales = Operating Income/Net Profit Margin on Sales = Operating Income/Net SalesSales

divine, inc.divine, inc.

20012001

PM = $(331,672) PM = $(331,672) // $199,598$199,598

Profit MarginProfit Margin

-1.66-1.66

20002000

PM = $(302,542) / $ PM = $(302,542) / $ 44,07944,079

Profit MarginProfit Margin

-6.86-6.86

Page 19: Assessing Vendor Financial Viability – Reprise

ProfitabilityProfitability

Earnings Per ShareEarnings Per Share

divine,inc.divine,inc. 20012001 20002000 19991999

Basic & Diluted Basic & Diluted

Net Loss Per Share Net Loss Per Share

$(2.13)$(2.13) $(7.84)$(7.84) $(4.59)$(4.59)

Basic & Diluted Net Basic & Diluted Net Loss Per Share after Loss Per Share after Extraordinary GainsExtraordinary Gains

$(2.06)$(2.06) $(7.84)$(7.84) $(4.59)$(4.59)

Page 20: Assessing Vendor Financial Viability – Reprise

ProfitabilityProfitability

Return on Assets = Net Income/Average Total Return on Assets = Net Income/Average Total AssetsAssets

Return on Stock Holder’s EquityReturn on Stock Holder’s Equity

Comprehensive Return on InvestmentComprehensive Return on Investment

Divine, inc. 2001Divine, inc. 2001

$(330,556)$(330,556)

$874,711 + $420,181/2$874,711 + $420,181/2

ROAROA

-.51-.51

Page 21: Assessing Vendor Financial Viability – Reprise

Cash Flow AnalysisCash Flow Analysis

divine, inc.divine, inc. 20012001 20002000

Operating ActivitiesOperating Activities $(237,872)$(237,872) $(153,792)$(153,792)

Investing ActivitiesInvesting Activities 79,46079,460 (217,933)(217,933)

Financing ActivitiesFinancing Activities 11,29911,299 461,417461,417

Exchange RateExchange Rate (940)(940)

Net (Decrease)Net (Decrease) (148,053)(148,053) 89,69289,692

Beginning of PeriodBeginning of Period 252,533252,533 162,841162,841

End of PeriodEnd of Period $ 104,480$ 104,480 $ 252,533$ 252,533

Page 22: Assessing Vendor Financial Viability – Reprise

Other Things to KnowOther Things to Know

Independent Auditor’s ReportIndependent Auditor’s Report

Notes to the Financial StatementNotes to the Financial Statement

Page 23: Assessing Vendor Financial Viability – Reprise

What Do You Know?What Do You Know?

1.1. Balance Sheet – Presents the results of Balance Sheet – Presents the results of financial activities for the period covered T/Ffinancial activities for the period covered T/F

2.2. Annual Report – Prepared by auditors is an Annual Report – Prepared by auditors is an infallible report of financial results T/Finfallible report of financial results T/F

3.3. Profit and Loss Statement – A snap shot of Profit and Loss Statement – A snap shot of financial condition at year end T/Ffinancial condition at year end T/F

4.4. Current ratio- a measure of how many books Current ratio- a measure of how many books the vendor has checked out and what % are the vendor has checked out and what % are not past due T/Fnot past due T/F

Page 24: Assessing Vendor Financial Viability – Reprise

Why Think Like a BankerWhy Think Like a Banker

Our CustomersOur Customers Our InstitutionsOur Institutions Our funding sourcesOur funding sources Our ColleaguesOur Colleagues Our SelvesOur Selves