The Discovery Analysis™ Key Findings Report
We use state-of-the-art software that confidentially compares a company’s KPIs (Key Performance Indicators) to industry standards. This information is helpful to owners when they make key decisions about running their companies. Additionally, the business owner, with possession of this information, knows how bankers view their company when making decisions to lend money. Below are a few examples of the educational information we have shared with owners of privately-held companies during The Discovery Analysis™ process.
A Contracting Company
Report Summary – The following is the Report Summary for this company compared to its industry. The categories in red (Liquidity, Borrowing, Assets and Employees) are significantly below industry averages. The item in orange (Profitability) is slightly below the industry average. Sales are above industry average.
A Consulting & Staff Augmentation Services Company
Revenues per Employee – The revenue per employee is $113,147. The industry standard is $169,036. According to August’s financial statements, the company’s efficiency per employee appears to be much lower than industry benchmarks. As a result of over-hiring, payroll will quickly out-strap the company’s cash.
Engineering Services Company
Current Ratio – Perhaps the most important ratio to measure a company’s ability to pay its expenses is the Current Ratio. The industry standard is 2.40 and this company has a negative Current Ratio. A banker will most likely not lend money to a company with this kind of ratio. Liquidity is a serious issue. Liquidity has decreased in all major areas from last period. Generally, the company also does not seem to have enough money invested specifically in cash and near-cash accounts. All of this could make it difficult to meet obligations over the long run.
Gross Profit Margin – The industry Gross Profit Margin (Sales minus Cost of Goods Sold) is 66.5%. The latest financial statements of the company show a gross profit margin of 41.02%, which is 25.48% below the company’s industry standard. The company can start in the right direction by working on gross margins: they are any company’s first line of defense. Gross profits determine how much money managers have available to pay operating expenses. In this case, gross margins have fallen substantially, which could be dangerous when the overall condition in this area is weak.
A Commercial Lighting Company
Accounts Receivable Days – The Accounts Receivable Days for the industry is 60 days and this company has an average of more than 90 days. This number reflects the average length of time between credit sales (the invoice date to a customer) and payment receipts. It is crucial to maintaining positive liquidity. The lower the number of days the better, especially when accounts payable averages 30 days.
A Retail Company
EBITDA: The discussion of the sale of your business is its preliminary stages. It is still unknown how much of a factor the Company’s EBITDA (Earnings before interest, taxes, depreciation and amortization) will be to a prospective buyer. However, it is highly likely that any buyer will be interested in the historical EBITDA of the Company. The historical numbers from the Company’s internal financial statements are as follows:
Adjusted EBITDA: There may be “adjustments” to the Company’s EBITDA. These potential adjustments may have the effect of either increasing or decreasing the historical EBITDA of the Company. Time needs to be spent to discover the amounts of these items and the potential effect, if any, to the Company’s EBITDA.
A Manufacturing Company
Revenue per Employee – This is a good-news statistic, with an interesting twist. This metric reflects the amount of sales dollars per employee. The higher the better. This company far exceeds industry average in Revenue per Employee, however, there has been a decrease of $135,218 from the prior year. In comparison to the real time number (the industry average), it may indicate an understaffed situation. This metric should be monitored to determine an appropriate amount for the company.
A Software Company
EBITDA: The discussion of your transition out of the business is in its early preliminary stages. It is still unknown how much of a factor the Company’s EBITDA will be to a prospective financier or buyer of your share of the Company. However, it is highly likely that the discussion of value will start with a look at the historical EBITDA of the Company. The historical numbers from the Company’s internal financial statements are as follows:
Unearned Revenue: The Company recorded a prepayment for future services in the period in which the prepayment was received. Recording the prepayment as unearned revenue will reduce EBITDA for 2016 (but might increase revenue for another period).
A Beverage Company
Inventory Days – This metric shows how much inventory (in days) is on-hand. It indicates how quickly a company can respond to market and/or product changes. The lower the number of days the better.
A Contracting Company
Net Profit Margin – 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. The Net Profit Margin decreased by 65% in 2015 from the previous year and is about 43% below industry averages.