Financial Analysis

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The Delta Links Resort Project

GSSC Underwriting Working Session

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Financial Analysis

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Financial Analysis Kickoff

90 minutes to analyze WCC’s financial strength

30-minute briefing

60-minute working session

Work in small groups

Team wrap-up discussion to reach consensus

Conclusions and supporting detail to be documented in a findings template

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Issues/Risks Unique to Construction

Pricing without total cost visibility

Need for working capital

Billing practices / front-loading

Cash flow management

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How do you analyze financial strength?

Working capital and working capital ratios

Project history and profitability

Balance sheet

Access to short-term financing, if necessary

Debt/Equity: ratios and trends

Income statement

Overall company profitability: ratios and trends

G&A expenses: ratios and trends

Backlog

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Items to review

WCC selected audited financial statements

Balance sheet

Other financial information

General and administrative expenses

GSSC worksheet

3-year trends

Benchmark analysis

Contract schedule

WIP Schedule

Construction industry financial metrics

Newspaper article

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Working Capital

Key questions

Items to review

  • How much working capital does the company have? In the event of unforeseen circumstances, would the company be able to finance operations?
  • What is the quality of the current assets? Will they be converted to cash in the near term at the amount presented in the financial statements?
  • Are all current liabilities reflected in the financial statements?
  • How does the company’s working capital ratio compare to industry benchmarks and/or underwriting guidelines
  • WCC selected financial statements: balance sheet and notes
  • GSSA worksheet
  • National Association of Surety Underwriters Annual Survey

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Project History

Key questions

Items to review

  • How consistent are gross margins by job?
  • What is the trend in margins over the last year?
  • What is the cause for any deviations on individual projects (good or bad) from the company’s historical trends?
  • What have been the company’s financial results on projects most similar to the one being considered?
  • Contract schedule
  • Construction industry financial metrics
  • Newspaper article

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Balance Sheet

Key questions

Items to review

  • How much available credit is in place? Would it be sufficient to fund operations in the event of any unforeseen problems in the business?
  • What is the ratio of net worth to total liabilities, and how does this compare to industry norms and/or underwriting guidelines?
  • Are bills paid on time? How does Days Payable compare to industry norms?
  • Are invoices collected on time? How does Days Receivable compare to industry norms?
  • WCC selected financial statements: balance sheet and notes
  • GSSA worksheet
  • National Association of Surety Underwriters Annual Survey

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Income Statement

Key questions

Items to review

  • What is the company’s overall gross margin and how does this compare to industry norms and/or underwriting guidelines? What have been trends in company’s gross margins?
  • What is the company’s overall net profit margin and how does this compare to industry norms and/or underwriting guidelines? What have been trends in company’s gross margins?
  • How does the company’s G&A expense compare to industry norms and/or underwriting guidelines? What have been trends in company’s gross margins?
  • WCC selected financial statements: income statement, general and administrative expenses
  • GSSA worksheet
  • National Association of Surety Underwriters Annual Survey

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Backlog

Key questions

Items to review

  • How many months of backlog (in revenue) is the company currently projecting?
  • What is the trend in backlog?
  • Based on current backlog levels, does company expect to grow, shrink or stay about the same in the next year?
  • WCC selected financial statements: notes

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Findings Template

Based on your evidence, decide whether each consideration is strong, neutral, or weak

List specific observations support a “weak” rating

List specific observations support a “strong” rating

Describe your overall conclusion about WCCs financial strength.

Decide whether or not the WCC’s financial strength supports underwriting the bond

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Important Tips

Keep an eye on the clock

Don’t spend too long on any one item

Compare to the requirements of the job

Evaluate both current strength and trends

Make specific observations

Ask questions!

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Findings Discussion

Group A

Group B

Group C

Group D

FINANCING CONSIDERATIONS

PROJECT HISTORY

BALANCE SHEET

BACKLOG

DEBT: RATIOS AND TRENDS

EQUITY: RATIOS AND TRENDS

G&A EXPENSES

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Debrief

Lessons learned

Key finds, misses

What would you have done differently?

Questions?