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--- using-offtoa:analyze-business:financial-review:balance-sheet-analysis [2016/05/29 09:19]
mdavis
+++ using-offtoa:analyze-business:financial-review:balance-sheet-analysis [2016/09/19 13:01] (current)
@@ Line 32: / Line 32: @@
 **Questions:**
-**What does //pro forma // mean?**
+**[[:faqs:balance-sheet:ar-on-cfs-vs-bs|Why doesn't the Accounts Receivable on my balance sheet equal Accounts Receivable on my cash flow statement?]]**
-When financial statements are being used to document your prediction of what the company will do, they are called //pro forma//. In this context, pro forma means "projected future status" based on all your business assumptions, as opposed to your company's real financial statements. It is Latin for "as a matter of form."
+**[[:faqs:balance-sheet:current-ratio-good-value|What is a good value for current ratio?]]**
-**Why doesn't the Accounts Receivable on my balance sheet equal Accounts Receivable on my cash flow statement?**
+**[[:faqs:balance-sheet:debt-equity-good-value|What is a good value for debt to equity?]]**
-The A/R line on the balance sheet shows the actual amount of money that customers owe you; it is your outstanding accounts receivable. Meanwhile, the A/R line on your cash flow statement reports changes in your accounts receivable since the last period.
+**[[:faqs:balance-sheet:roe-good-value|What is a good value for return on equity?]]**
-**What is a good value for the current ratio?**
+**[[:faqs:balance-sheet:nwc-good-value|What is a good value for net working capital?]]**
-A value less than 1.0 is a fairly good indication that the company is going to have problems, although there are often short-term fixes for short-term problems. As your company evolves, your current ratio should become (and remain) above 1.2.
+**[[:faqs:balance-sheet:inventory-turnover-good-value|What is a good value for inventory turnover?]]**
-**What is a good value for debt to equity?**
+**[[:faqs:customer-payments:ar-different-industry|What should I do if my accounts receivable days are very different than the industry average?]]**
-There is no single "right" value for a D/E ratio for a start-up. The two primary drivers of what will be the right value for you are: (a) the standards for your industry, and (b) your comfort level with debt.
+**[[:faqs:balance-sheet:techniques-reduce-ar|What techniques exist to reduce average days outstanding for payments you receive from customers?]]**
-  * A value of 1.0 means that you are getting half from loans and half from investors.
+**So what of my accounts payable are different than the rest of the industry?**
-  * A value greater than 1.0 means that more of your money is from loans and less is from investors. The disadvantages of this are that you must continually make payments on loans (this drains cash and decreases profits), and loans are extremely difficult for start-up businesses to secure without collateral. The advantage however is that likely you will be able to maintain more ownership of the company for yourself.
-  * A value less than 1.0 means that more of your money is from investors and less is from loans. This is more typical for a start-up.
-**What is a good value for return on equity?**
-For the first few years, most start-ups are not profitable, so ROE will be negative, and that is okay. If the company has accepted investor money, and plans to share profits with those investors (as opposed to having an exit strategy such as an acquisition or IPO), then ROE will become important once the company becomes profitable. For publicly traded companies, an ROE of 15% to 20% is generally considered good.
-**What is a good value for net working capital?**
-A negative value means you will have a shortfall of cash, and unless something drastic is done (like securing short-term loans), you will not be able to continue as you are.
-**What is a good value for inventory turnover?**
-It is highly dependent on the industry. Thus, for example, a fresh seafood retail business would expect an inventory turnover of around 365, while an art dealer would expect an inventory turnover of around 2.
-**So what of my accounts receivable is different than the rest of the industry?**
-This is not so terrible as long as you understand exactly why it is so. Your A/R will not differ from your peer companies just because you think it will be. You must take specific strategic steps to make it so. Are you accepting only cash while your competitors are accepting only credit? Do you convert checks into ACH while competitors do not? Do you demand payment upon ordering while competitors demand payment upon product delivery?
-**So what of my accounts payable is different than the rest of the industry?**
 This is not so terrible as long as you understand exactly why it is so. Your A/P will not differ from your peer companies just because you think it will be. You must take specific strategic steps to make it so. Have you already negotiated payment terms with your vendors and suppliers? If not, you'd better stick with industry averages.
@@ Line 75: / Line 55: @@
 This is not so terrible as long as you understand exactly why it is so. Your turnover will not differ from your peer companies just because you think it will be. You must take specific strategic steps to make it so. Meanwhile, if you maintain less inventory than competition, you may run out of stock. If you maintain more inventory than competition, you risk spoilage or obsolescence. Be careful.
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