Business Financial Analysis - Case Study

"Health Check" The client is a manufacturer. They had just completed a year where they had increased revenue by 9% but wondered why their bottom line profit had only marginally increased. We used the financial information from that year and the years previous and did a "health check" or revue of their business. We found several good things happening; revenue increased, gross profit increased and net assets had increased. However we found several potentially disastrous issue; average debtor days increased by 11%, cost of goods sold increased by 3%, and short term borrowing had increased by 14%. "What if" We then did some very simple "what if" scenarios using their current year actual results and ratios and projected into the next year. We did this on the basis that one of their goals was to build a new factory on land they already held, without borrowing - i.e. build the factory completely out of cash flow and at the same time reduce their short term borrowings to 2 year ago levels. The Result The result of this meeting was an immediate increase in prices of 3% with an agreed quarterly increase of 1%, employing a part time credit controller to reduce their average debtor days to 60 days (the same level that their suppliers required of them) and negotiate settlement discounts with major suppliers.   Did they build the new factory? We have just taken them through this planning exercise again …did they build the new factory? No! …but they do have the cash in the bank to do it without borrowing. Did they achieve all we set out to do? Not everything …but they turned their cash flow, debtor collections and cost of goods sold problems into positive territory and are continuing to work on these and other highlighted areas. Are they happy with the BOS Report results? "It gave us valuable insight into what was actually driving the profitability and cash flow of our business. This is a fee we actually look forward to incurring".

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