How Bankers Look at Your Financial Statements People. Relationships. Results.

Which Statements? Balance sheet Balance sheet Income statement Income statement Statement of cash flows Statement of cash flows Notes Notes People. Relationships. Results.

Accountant …. Banker Accountant’s concerns Accountant’s concerns Banker’s concerns Banker’s concerns Where’s Waldo? Where’s Waldo? Trends Trends Story Story Sources of repayment Sources of repayment People. Relationships. Results.

Balance Sheet - Assets Current Assets / Current Liabilities Current Assets / Current Liabilities Assets excluded Assets excluded Accounts Receivable Accounts Receivable Inventory (COGS, A/P) Inventory (COGS, A/P) Intangibles Intangibles Unusual accounts Unusual accounts People. Relationships. Results.

Balance Sheet Assets People. Relationships. Results.

Balance Sheet - Liabilities Accounts payable (inventory) Accounts payable (inventory) Officer loans/debt Officer loans/debt Leverage Leverage = Liabilities/Tangible Net Worth = Liabilities/Tangible Net Worth Unusual accounts Unusual accounts People. Relationships. Results.

Balance Sheet Liabilities, Net Worth

Income Statement Sales - COGS = Gross Profits - Selling, General and Administrative Expenses = Operating Income + Other Income - Other Expenses = Net Income People. Relationships. Results.

Income Statement Trends Trends Margins Margins Profitability Profitability Officer compensation Officer compensation Legal expenses Legal expenses Bad debt expense Bad debt expense Unusual expenses Unusual expenses People. Relationships. Results.

Statement of Cash Flows Indirect Method (SFAS No. 95) Indirect Method (SFAS No. 95) Direct Method (SFAS No. 95) Direct Method (SFAS No. 95) Lender’s Direct Method Lender’s Direct Method People. Relationships. Results.

UCA Cash Flow - Lender’s Direct Method Business components Business components Order of priority of claims on cash flow Order of priority of claims on cash flow People. Relationships. Results.

Ratios Trends Trends Working Capital/Liquidity Working Capital/Liquidity A/R turn/days A/R turn/days Inventory turn/days Inventory turn/days A/P turn/days A/P turn/days Leverage Leverage Operating, net margins Operating, net margins DSC DSC People. Relationships. Results.

Notes Business activity Business activity Accounting Policies Accounting Policies Revenue recognition Revenue recognition Property and equipment – depreciation Property and equipment – depreciation Cost of sales Cost of sales Debt: Notes payable (leases) Debt: Notes payable (leases) Expense detail Expense detail Litigation Litigation People. Relationships. Results.

Additional information Business plan/projections Business plan/projections Accounts receivable and payable agings Accounts receivable and payable agings Company tax returns Company tax returns Asset listings Asset listings Personal statement Personal statement Personal tax returns (complete) Personal tax returns (complete) People. Relationships. Results.

Is your company bankable? Cash flow, DSC Cash flow, DSC Collateral Collateral Guarantor support Guarantor support Red flags Red flags Five C’s Five C’s People. Relationships. Results.

Banker conversation History of company History of company Ownership Ownership Division of duties Division of duties Management Management Marketing/sales Marketing/sales Competition Competition Differentiation/niche Differentiation/niche Suppliers Suppliers Challenges Challenges People. Relationships. Results. Labor supply Labor supply Key employees Key employees Facilities/space needs Facilities/space needs Equipment needs Equipment needs Banking history Banking history Plans for the future Plans for the future

Other/Misc Presentation issues Presentation issues Current issues - appraisals Current issues - appraisals LTV LTV DSC DSC Current banking environment Current banking environment Cash management arrangements Cash management arrangements Establish a relationship now Establish a relationship now People. Relationships. Results.

Leslie Mittanck, CPA Vice President Commercial Banking Officer 1 st Pacific Bank 8889 Rio San Diego Drive, Suite 101 San Diego, CA (858)