Assessing Vendor Assessing Vendor Financial Viability – Financial Viability – Reprise Reprise David S. Goble, Dean of Libraries [email protected] /704-330- 6441
Jan 19, 2016
Assessing Vendor Financial Assessing Vendor Financial Viability – RepriseViability – Reprise
David S. Goble, Dean of Libraries
[email protected] /704-330-6441
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
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
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
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
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
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
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
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
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
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
Relationship of Financial Relationship of Financial StatementsStatements
Balance Sheet
Jan. 1, 200X
Income Statement
Statement of Cash Flows
Balance Sheet
Jan. 1, 200Y
Major ToolsMajor Tools
Comparative Financial StatementsComparative Financial Statements
Common Size StatementCommon Size Statement
Ratio AnalysisRatio Analysis
Specialized Analytical ToolsSpecialized Analytical Tools
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
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%
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
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
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
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)
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
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
Other Things to KnowOther Things to Know
Independent Auditor’s ReportIndependent Auditor’s Report
Notes to the Financial StatementNotes to the Financial Statement
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
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