Financial Statement School: Recent Comments

Comment on Cash Basis versus Accrual Basis Accounting

2010-06-30T18:15:22Z

Nice overview of these differences between cash and accrual. One easy way to see corporate financial statements translated into "cash basis" is by looking at the statement of cash flows. It may not be exactly a cash basis financial statement but conceptually it helps you achieve your objectives.

Comment on Balance Sheet

2010-06-28T01:23:46Z

Here is an interesting balance sheet explanation and example:
http://www.accountingelf.com/how-to-read-a-balance-sheet/

Comment on Senior Debt to Tangible Net Worth Ratio

2010-05-19T13:57:21Z

A debt equity ratio of 1 might be regarded as middle-strong, but a debt/equity ratio of 8 is precarious.

Comment on Return on Assets or "ROA"

2010-04-17T17:02:21Z

If the period of time over which you are measuring the ROA is characterized by significant asset growth with return on those assets anticipated in future periods, then the ROA may turn out to be less than you would expect. For example, a company that is growing its inventory for future sales may have a relatively lower ROA.

Comment on Accounts Receivable

2009-06-15T10:47:38Z

Accounts that are due every thirty days are also known as Net30 accounts. It simply means that the wholesaler or vendor provides credit to its customer for 30 days period. Many times there is also a credit limit as wholesalers want to keep the risk factor as little as possible. If the account reaches the credit limit before 30 days, the customer has to make a payment to make new purchases. If the customer makes these payments in a timely fashion, does not have over due invoices and does not have a so-called "problem account" then, the creditworthiness of the account is re-evaluated and the credit limit is increased over a period of time. But if the account remains unpaid or is late on payments, the business will suffer. Therefore, it is very important to be able to schedule payments in a timely fashion.

Comment on Cash Basis versus Accrual Basis Accounting

2009-06-11T14:48:26Z

This is very good information for people who are learning the basics of accounting. Many business professionals need these insights to be able to create a functional and manageable business model, and accounting is a key part of it. It can make it or break it for the business. Moving forward, in my personal accounts i like to deal with it Cash Basis but for business, Accrual based accounting is a very good option when you need to get an overview of what's going on. However, it cannot replace the importance of exactly how much you have in hand to play with.

Comment on Traditional Debt Service Coverage used by Banks

2008-12-19T17:33:53Z

You'll also find more information about debt service coverage on my other website, commercialloananalysis.com.

Comment on Traditional Debt Service Coverage used by Banks

2008-12-19T01:20:39Z

I train lenders on tax return analysis. DCR comes up and is frequently calculated based on tax returns.

The available amount on an operating line of credit is not something you can find on a tax return so you'll need additional information from your borrower.

Most lenders in my experience base the denominator on the current portion of long-term debt and interest-only on available lines of credit, as if they were fully advance all year.

Another option, especially if the line of credit is not seasoned, is to calculate term debt payments as if the line had to be termed out over 3 or 5 years. That is much more conservative.

I agree, Ken, that the choice of cash or accrual basis will make a difference. Not only in this calculation, but often in trying to compare the financial statements to the tax returns for the same period.

Here is the link to a blog post on the comparison:
http://www.lindakeithcpa.com/ask-linda/ask-linda-2.htm

Linda Keith CPA
www.LindaKeithCPA.com
www.LendersOnlineLibrary.com

Comment on Income Statement

2008-12-12T01:08:14Z

A sample income statement is here, and a sample common size income statement is here.

Comment on Income Statement

2008-12-12T00:12:30Z

Need some examples of actual income statements to look at!