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Assessing Vendor Financial
Viability – Reprise
David S. Goble, Dean of Libraries
[email protected] /704-330-6441
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
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
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
Think Like a Banker
Manage Risk
Risk Factors
$ Amount
Impact on Services
Impact on Operations
Worst Case Scenario
Time
Common Risks
Third Party Payments
– 3rd 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
Financial Analysis
“…a riddle wrapped in a mystery inside an
enigma.”
Winston Churchill - October, 1939
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
Balance Sheet
Current Assets
Current Liabilities
Fixed Assets
Less Depreciation
Long-Term Liabilities
Intangibles
Total Liabilities
Retained Earnings
Owners Equity
Total Liabilities &
Stockholders Equity
Total Assets
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
Cash-Flow Statement
Cash Flows From Operating Activities
Received from customers
Paid for taxes
Net Cash provided (used) by Operating activities
$ 500
(100)
400
Cash Flows From Investing Activities
Purchase of Equipment
Sale of Property
Net Cash Provided (used) by investing activities
$(300)
1000
700
Cash flows from financing activities
Proceeds from issuing stock
Payment to retire bonds
Net Cash Provided (used) by Financing Activities
$ 200
(1000)
(800)
Net increase (decrease) in cash
$ 300
Cash January 1, 200X
Cash December 31, 200X
$ 150
$ 450
Relationship of Financial
Statements
Balance Sheet
Income Statement
Balance Sheet
Jan. 1, 200X
Statement of Cash
Flows
Jan. 1, 200Y
Major Tools
Comparative Financial Statements
Common Size Statement
Ratio Analysis
Specialized Analytical Tools
Selected Balance Sheet #s
divine, inc.
Cash
Receivables
Current Assets
Intangibles
Total Assets
Current Liabilities
Long-term Liabilities
Total Liabilities
Stock Holders Equity
Total Liabilities & SHE
2001
$104,480
2000
$252,533
200,833
601,565
211,075
2,143
281,799
8,621
$874,711
$521,658
$101,294
$622,952
$420,181
$ 25,571
$ 24,727
$ 52,298
$251,759
$874,711
$367,883
$420,181
Selected Balance Sheet #s
divine, inc.
2001
Cash
$104,480
Receivables
200,833
Current Assets
601,565
Intangibles
211,075
Total Assets
$874,711
Current Liabilities
$521,658
Long-term Liabilities
$101,294
Total Liabilities
$622,952
Stock Holders Equity $251,759
Total Liabilities & SHE $874,711
% Tot. Assets
11.9%
23.0%
68.8%
24.1%
100.0%
59.6%
11.6%
71.2%
28.8%
100.0%
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
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
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
Profitability
Earnings Per Share
divine,inc.
2001
2000
1999
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)
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
Cash Flow Analysis
divine, inc.
2001
Operating Activities $(237,872)
2000
$(153,792)
Investing Activities
79,460
(217,933)
Financing Activities
11,299
461,417
Exchange Rate
(940)
Net (Decrease)
(148,053)
89,692
252,533
162,841
$ 104,480
$ 252,533
Beginning of Period
End of Period
Other Things to Know
Independent Auditor’s Report
Notes to the Financial Statement
What Do You Know?
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
1.
Why Think Like a Banker
 Our Customers
 Our Institutions
 Our funding sources
 Our Colleagues
 Our Selves