1. Assessing Vendor Financial Viability – Reprise David S. Goble, Dean of Libraries David.goble@cpcc.eduDavid.goble@cpcc.edu /704-330-6441

2. ALA Chicago - 2006 How To Assess Your Vendor’s Financial Viability James Gray CEO Coutts Information Services LTD Dan Tonkery Vice President Business Development EBSCO Information Services

3. A Thought from James Gray “A library vendor will get into financial difficulty some time soon. Who knows where, who knows when, but it will happen again-it’s a certainty.” James Gray – CEO Coutts Information Services, LTD

4. Thoughts from Dan Tonkery 1. “Don’t be afraid to operate with a professional business relationship with formal contracts and/or agreements. 2. “Avoid personal or emotional factors when dealing with a vendors. It is just a business.” 3. “Don’t be slow to take action if you are uncomfortable with any factor.” Dan Tonkery VP Business Development EBSCO Information Services

5. Think Like a Banker Manage Risk Risk Factors $ Amount Impact on Services Impact on Operations Worst Case Scenario Time

6. Common Risks Third Party Payments –3 rd Party Payments-Subscription Prepayments –Deposit Accounts –Pro-forma Accounts –Databases Service Dependencies –Integrated Library Systems –Collection Development Software –Outsourced Services –Software Located on Vendor Server

7. Financial Analysis “…a riddle wrapped in a mystery inside an enigma.” Winston Churchill - October, 1939

8. What Do You Know? Balance Sheet – Presents the results of financial activities for the period covered T/F Annual Report – Prepared by auditors is an infallible report of financial results T/F Profit and Loss Statement – A snap shot of financial condition at year end T/F Current ratio- a measure of how many books the vendor has checked out and what % are not past due T/F

9. Balance Sheet Current Assets Current Liabilities Fixed Assets Less Depreciation Long-Term Liabilities Intangibles Total Liabilities Retained Earnings Owners Equity Total Assets Total Liabilities & Stockholders Equity

10. Income State Net Sales or Revenues Less Cost of Goods Sold Less Operating Expenses: SGA/Depreciation Income From Operations Other Income (Expense): Interest/Dividends Income Before Taxes Less Federal Taxes Net Income Earnings (Losses) per Share

11. Cash-Flow Statement Cash Flows From Operating Activities Received from customers Paid for taxes Net Cash provided (used) by Operating activities $ 500 (100) (100) 400 400 Cash Flows From Investing Activities Purchase of Equipment Sale of Property Net Cash Provided (used) by investing activities $(300) 1000 1000 700 700 Cash flows from financing activities Proceeds from issuing stock Payment to retire bonds Net Cash Provided (used) by Financing Activities $ 200 (1000) (800) (800) Net increase (decrease) in cash $ 300 Cash January 1, 200X Cash December 31, 200X $ 150 $ 450

12. Relationship of Financial Statements Balance Sheet Jan. 1, 200X Income Statement Statement of Cash Flows Balance Sheet Jan. 1, 200Y

13. Major Tools Comparative Financial Statements Common Size Statement Ratio Analysis Specialized Analytical Tools

14. Selected Balance Sheet #s divine, inc. 20012000 Cash$104,480$252,533 Receivables 200,833 200,833 2,143 2,143 Current Assets 601,565 601,565 281,799 281,799 Intangibles 211,075 211,075 8,621 8,621 Total Assets $874,711$420,181 Current Liabilities $521,658 $ 25,571 Long-term Liabilities $101,294 $ 24,727 Total Liabilities $622,952 $ 52,298 Stock Holders Equity $251,759$367,883 Total Liabilities & SHE $874,711$420,181

15. Selected Balance Sheet #s divine, inc. 2001 % Tot. Assets Cash$104,480 11.9% 11.9% Receivables 200,833 200,833 23.0% 23.0% Current Assets 601,565 601,565 68.8% 68.8% Intangibles 211,075 211,075 24.1% 24.1% Total Assets $874,711100.0% Current Liabilities $521,658 59.6% 59.6% Long-term Liabilities $101,294 11.6% 11.6% Total Liabilities $622,952 71.2% 71.2% Stock Holders Equity $251,759 28.8% 28.8% Total Liabilities & SHE $874,711100.0%

16. Liquidity Current Ratio = Current Assets/Current Liabilities divine, inc 2001 $601,565 / $521,658 Current Ratio 1.20 2000 $281,799 / $27,571 Current Ratio 10.22

17. Liquidity Accounts Receivable Turnover=Net Credit Sales/Average Accounts Receivable divine, inc. 2001 $199,598 / $200,833 Acct.s Rec. Turnover.99 2000 $44,079 / $7,678 Acct.s Rec. Turnover 5.74

18. Profitability Profit Margin on Sales = Operating Income/Net Sales divine, inc. 2001 PM = $(331,672) / $199,598 Profit Margin -1.66 2000 PM = $(302,542) / $ 44,079 Profit Margin -6.86

19. Profitability Earnings Per Share divine,inc.200120001999 Basic & Diluted Net Loss Per Share $(2.13)$(7.84)$(4.59) Basic & Diluted Net Loss Per Share after Extraordinary Gains $(2.06)$(7.84)$(4.59)

20. Profitability Return on Assets = Net Income/Average Total Assets Return on Stock Holder’s Equity Comprehensive Return on Investment Divine, inc. 2001 $(330,556) $874,711 + $420,181/2 ROA-.51

21. Cash Flow Analysis divine, inc. 20012000 Operating Activities $(237,872)$(153,792) Investing Activities 79,460 79,460 (217,933) (217,933) Financing Activities 11,299 11,299 461,417 461,417 Exchange Rate (940) (940) Net (Decrease) (148,053) (148,053) 89,692 89,692 Beginning of Period 252,533 252,533 162,841 162,841 End of Period $ 104,480 $ 252,533

22. Other Things to Know Independent Auditor’s Report Notes to the Financial Statement

23. What Do You Know? 1. Balance Sheet – Presents the results of financial activities for the period covered T/F 2. Annual Report – Prepared by auditors is an infallible report of financial results T/F 3. Profit and Loss Statement – A snap shot of financial condition at year end T/F 4. Current ratio- a measure of how many books the vendor has checked out and what % are not past due T/F

24. Why Think Like a Banker  Our Customers  Our Institutions  Our funding sources  Our Colleagues  Our Selves