Transcript Financial Statement Analysis

A LOOK AT THE FINANCIAL
STATEMENTS
FINANCIAL STATEMENTS –
HOW THEY RELATE TO EACH
OTHER AND FINANCIAL
STATEMENT ANALYSIS
Edward B. Peacock, CPA
214 356 0116
[email protected]
Edward B. Peacock, CPA
Topics
• Levels of Financial Statements
▫
▫
▫
▫
Example Statements (see handouts)
Government-wide statements
Fund level statements
Statistical Section
• Financial Analysis – process of drawing meaning
from financial statements
▫ Identifying Available Resources
 GAAP basis
 Budgetary basis
 General fund
 Proprietary funds
• Ratio Analysis
Edward B. Peacock, CPA
Levels of Financial Statements
• Government-wide financial statements
▫ Measurement focus – economic resources
▫ Basis of accounting - accrual basis
▫ Statement of Net Assets – p11 - reports what the
government owns and owes at the end of the fiscal
year
 Two columns - governmental activities and businesstype activities – side by side comparison
▫ Statement of Activities - p12-13 – reports financial
results during a fiscal year
Edward B. Peacock, CPA
Levels of Financial Statements
• Fund level financial statements, p14-24
▫ Governmental funds, p14-15
 Modified accrual basis
 Current assets and current liabilities
 Reconciliations of modified accrual to full accrual
basis, p16, p19
▫ Proprietary funds, W&S, Golf
 Full accrual basis
 Current assets and current liabilities are identified in
the fund level SNA, p11, p20
Edward B. Peacock, CPA
Levels of Financial Statements
• Statistical Section
▫ Typically presents information for the most recent
10 years
▫ Usually is not audited
▫ Contains tables of trends – help you understand
how your gov’t’s finances have changed over time
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Financial
Revenue capacity
Debt capacity
Demographic and economic information
Operating information
Edward B. Peacock, CPA
Identifying Available Resources
• Government-wide Statements
▫ Restricted versus unrestricted net assets, p11
• Fund level statements
▫ Governmental funds
 Fund balance, p14
▫ Proprietary funds
 Unrestricted net assets, p11, p21
 Working capital (current assets less current
liabilities)
 Frequently used in rate analysis
 Cash basis, p23
Edward B. Peacock, CPA
Restricted and Unrestricted Net Assets
• Capital assets net of related debt, p11
▫ Cannot readily be sold and converted into cash
• Restricted net assets
▫ External restrictions on how resources may be
used
• Unrestricted net assets
▫ Resources that don’t fall into the first two
categories
▫ Not necessarily liquid
Edward B. Peacock, CPA
Fund Level Resources
• Governmental Funds, p14
▫ Nonspendable – not a liquid resource
▫ Restricted – externally restricted for a specific
purpose
 Special revenue funds
 Capital projects funds
 Debt service funds
▫ Committed – appropriated by governing body
▫ Assigned fund balance – can be unassigned
▫ Unassigned – can be used as beginning resource
in the budget
Edward B. Peacock, CPA
Fund Level Resources
• Proprietary Funds, p20-21
▫ Unrestricted Net Assets
 Not necessarily liquid
▫ Working capital
 Roughly equivalent to fund balance (current assets
less current liabilities)
 Could be used as a beginning resource in the budget
 Frequently used by rate analysts
▫ Cash basis, p23-24
 Separate unrestricted cash from restricted in the
cash flow statement
Edward B. Peacock, CPA
General Fund - Unassigned Fund
Balance Measures
2011
2012
Unassigned Fund Balance, p14
$8,938,129
$11,741,652
Total Expenditures and Other Financing
Sources and Uses, p17
$46,735,773
$44,836,091
Unassigned Fund Balance as a % of Total 19%
Expenditures and Other Financing
Sources and Uses
26%
Total Expenditures and Other Financing
Sources and Uses (Per Day)
$128,043
$122,839
Unassigned Fund Balance # of Days of
Operations
70
81
Edward B. Peacock, CPA
Working Capital - Proprietary Funds
• A short term measure of the funds’ ability to
meet the obligations that will come due over the
next year
• Current assets less current liabilities
• A more stringent approach – compare only the
most liquid assets, generally unrestricted cash
and cash equivalents to current liabilities
Edward B. Peacock, CPA
Proprietary Funds – Working Capital
FY 2011
Water and
Sewer
FY 2011
Golf
FY 2012
Water and
Sewer
FY 2012
Golf
Current
SNA
Assets, p20
$15,980,106
$94,032
$15,987,055
$81,224
Less:
Current
Liabilities,
p21
$5,060,044
$1,447,670
$5,328,831
$1,401,595
$10,920,062
-$1,353,638
$10,658,224
-$1,320,371
Working
Capital
SNA
Edward B. Peacock, CPA
Proprietary Funds Expenditures –
Budgetary Basis
FY 2011
FY 2011
Water and Golf
Sewer
FY 2012
FY 2012
Water and Golf
Sewer
Operating Expenses, p22 SREV
18,490,100
2,937,825
17,948,243
2,941,753
Less: Depreciation, p22
SREV
-2,464,771
-403,024
-2,529,720
-402,428
Add: Transfers, p22
SREV
1,501,990
199,141
1,444,541
232,120
Add: Debt Principal, p23
SCF
1,470,000
285,000
1,540,000
295,000
Add: Interest, p23
SCF
501,768
126,867
274,208
119,525
Total Expenditures
19,499,087
3,145,809
18,677,292
3,185,970
Expenditures per Day
53,422
8,619
51,171
8,729
Edward B. Peacock, CPA
Proprietary Funds – Working Capital
Measures
FY 2011
Water
and
Sewer
FY 2011
Golf
FY 2012
Water
and
Sewer
FY 2012
Golf
Total Expenditures
(Budgetary Basis)
19,499,087
3,145,809
18,677,292
3,185,970
Expenditures per Day
53,422
8,619
51,171
8,729
Working Capital
10,920,062 -1,353,638
10,658,224
-1,320,371
Working Capital as %
of Total Expenditures
56%
-43%
57%
-41%
Number of Days
Working Capital
204
-157
208
-151
Edward B. Peacock, CPA
Proprietary Funds – Unrestricted Cash
2012 W&S
2012 GOLF
Current assets:
Cash and cash equivalents
SNA
$13,299,600
$0
Noncurrent assets:
Restricted cash and investments
SNA
$11,844,580
$220,320
Cash and cash equivalents, ending
SCF
$25,144,180
$220,320
Edward B. Peacock, CPA
Ratio Analysis
• The act of converting the numbers in the FS into
a form which specific decisions can be based
• Are created by dividing one number into another
• Financial story is not told with a single ratio, but
with an accumulation of ratios and other
information
• If presented ratio information, be careful to ask
how it was calculated
• Always specify the components of the ratios used
in your analyses
Edward B. Peacock, CPA
Ratio Analysis
• To give meaningful financial ratios, always place
your ratios in context, i.e.,
▫ Compare to PY – improving, declining, holding
steady?
▫ Compare to other similar governments – higher,
lower, roughly the same?
▫ Is there a commonly accepted benchmark?
Edward B. Peacock, CPA
Types of Ratios
• Common-Size Ratios
▫ $ Dollar Change
▫ % Percentage Change
• Short Term Focus – Liquidity
▫ Current Ratio
▫ Quick Ratio
• Long Term Focus – Solvency
▫ Debt to Assets Ratio
▫ Debt to Net Assets
▫ Coverage Ratios
 Interest Coverage
 Debt Service Coverage
Edward B. Peacock, CPA
Common-Size Ratios
• Serve two valuable purposes
▫ Provide quick overview of finances
▫ How they’ve changed since prior year
▫ Can be applied to any kind of FS information
 Percentage change – shows magnitude of change
 Percentage distribution – shows portion of the total
represented by individual elements
Edward B. Peacock, CPA
Dollar Amount and Percentage Change
Capital
Assets
SNA
Receivables SNA
2011
2012
$ Change
% Change
254,274,206
250,588,786
-3,685,420
-1.45%
15,865,895
17,326,709
1,460,814
9.21%
Edward B. Peacock, CPA
Percentage Distribution
Capital
Assets
SNA
Receivables SNA
2011
2012
254,274,206, 63.53%
250,588,786, 61.16%
15,865,895, 3.96%
17,326,709, 4.23%
Edward B. Peacock, CPA
Liquidity Ratios
• Concerned with the ability to pay immediate
obligations
• Current ratio
▫ Current assets / current liabilities
• Quick ratio
▫ Cash and cash equivalents / current liabilities
Edward B. Peacock, CPA
Current and Quick Ratios
FY 2011
Water and
Sewer
FY 2011
Golf
FY 2012
Water and
Sewer
FY 2012
Golf
SNA
15,980,106
94,032
15,987,055
81,224
Cash and
SNA
Investments
13,036,960
0
13,299,600
0
Current
Liabilities
5,060,044
1,447,670
5,328,831
1,401,595
CURRENT
RATIO
3.16
.06
3.00
.06
QUICK
RATIO
2.58
0.00
2.50
0.00
Current
Assets
SNA
Edward B. Peacock, CPA
Solvency Ratios
• Leverage ratios
▫ Measure the degree to which assets are financed
through borrowing or other LT obligations
 Debt to assets ratio
 (total liabilities – deferred outflows) / (total assets –
deferred inflows)
 Debt to net assets (position) ratio
 (total liabilities – deferred outflows) / total net position
Edward B. Peacock, CPA
Debt to Assets/ Net Assets Ratios
FY 2011
Gov’t
Activities
FY 2011
Bus-type
Activities
FY 2012
Gov’t
Activities
FY 2012
Bus-type
Activities
126,124,878
19,178,899
Total
Liabilities
SNA
134,496,885
20,374,794
Total Assets
SNA
290,699,375
109,518,898 300,845,530 108,848,983
Total Net
Assets
SNA
156,202,490
89,144,104
174,720,652
89,670,084
DEBT TO
ASSETS
RATIO
0.46
0.19
0.42
0.18
DEBT TO
NET ASSETS
RATIO
0.86
0.23
0.72
0.21
Edward B. Peacock, CPA
Coverage Ratios
• Compare available resources with resource
needs
▫ Interest coverage
 Cash flow from operations + interest expense /
interest expense
▫ Debt service coverage
 Cash flow from operations + debt service / debt
service
Edward B. Peacock, CPA
Coverage Ratios
FY 2011
W&S
FY 2011
Golf
FY 2012
W&S
FY 2012
Golf
Cash Flow
from
Operations
SCF
6,010,396
545,479
5,790,391
646,330
Interest
Expense
SREV
482,015
124,004
424,315
111,417
Debt
Service
NOTES 1,952,015
409,004
1,964,315
406,417
INTEREST
COVERAGE
13.47
5.40
14.65
6.80
DEBT
SERVICE
COVERAGE
4.08
2.33
3.95
2.59
Edward B. Peacock, CPA
Summary Analysis
General Fund
2011
2012
W&S
2011
Golf
2012
2011
2012
FB, WC % 19%
26%
56%
57%
-43%
-41%
# Days
81
204
208
-157
-151
Current
Ratio
3.16
3.00
.06
.06
Quick
Ratio
2.58
2.50
0
0
Interest
Coverage
13.47
14.65
5.4
6.8
Debt Svc
Coverage
4.08
3.95
2.33
2.59
70
Edward B. Peacock, CPA
Questions?
Eddie Peacock
Edward B. Peacock, CPA
214 356 0116
[email protected]
http://www.EBPeacockCPA.com