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‡ Best tool we have to build a business case
‡ Motivator with dealers« Ego« dealer vs. others
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‡ Conversation starter into any departmental topic at a dealership.
‡ Identifies areas of opportunity for training and growth
‡ Leaving $ opportunity on the table
‡ Another opportunity to create a relationship with dealer
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‡ The Financial Statement is the fruit of a dealer¶s labor« sales and
profit

‡ How programs, sales, and dealer investment materializes

ÈBalance Sheet Analysis
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‡ Dealership Liquidity and Cash Flow

‡ B/S ratios, paying bills, too many ³A¶s´

‡ The Dealer¶s Investment and Leverage

‡ Own funds invested vs. ³OPM´

‡ Lots of OPM but no substantial dealer stake (NW)

‡ Poor Financing Decisions

‡ Match S-T/L-T assets with S-T/L-T liabilities
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‡ Review current statement for general condition:
‡ High or unusual values and items requiring explanation
‡ Trend balances in order to identify:
‡ Significant changes in balances
‡ Increases in assets that might affect adversely cash and working
capital
‡ Changes in accounts that usually don¶t change during the year
(e.g., LIFO)
‡ Lack of change in accounts that should vary monthly (e.g.,
receivables, accruals)
‡ Review ratios for:
‡ Positive/negative trends, compare to standards
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‡ Is there any cash?
‡ Understanding cash flow begins with recognizing changes in the
balance sheet

‡ How is the Profit (pg 2 ) affecting cash?

‡ If profit loss (expenses > GP after inc/rsr), cash

‡ How is the Working Capital (vs. the requirement)?

‡ CA-CL, (cash + receivables + inventories) vs. $ owed
‡ Ability to pay bills and vendors, continue operations

‡ How much dealer investment (Net Worth) vs. OPM is there?

‡ Net worth reality- always subtract out (unofficially) line 79 ³Total Other
Assets´ for realistic picture
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‡ Is there much vehicle equity?
‡ How much of which has been floor planned?
‡ Total NV/Demo inventory- line 30
‡ Notes payable new PC/LT/Demo line 6

‡ How do inventory units look versus monthly unit sale?

‡ Days supply
‡ Line 26, NV units, ÷ monthly sales, pg 4

‡ Are there significant ³past due´ receivables or aged inv?

‡ Lines 6 and 7 (total customer receivables) ³past due´
ÈBalance Sheet Ratios
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‡ Liquidity
‡ The ability of the dealership to pay its bills and survive
adverse short term changes in sales or cash flow

‡ Safety
‡ The ability to meet long term obligations under adverse
conditions
ÈLiquidity Measures
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& Excess of assets converting into cash over payments

due soon.

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& > RORA requirement!

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& Dealers need Working Capital in order to carry out
day-to-day operations.
‡ How can dealers increase it?
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‡To ensure that there is no indication of potential financial distress in the
dealer network.

‡One of the first lines of defense for identifying if a dealer has enough
capital, cash or owners¶ equity, invested specifically in the M-B
dealership to maintain a certain level of business operations.

‡Every dealer needs a certain amount of vehicle and parts inventories,

receivables, and short-term payables, just to run the business every
day.

‡Working capital compared to the requirement simply monitors the

amount of cushion that a dealer has (actual WC) vs. should have
(required WC) between its current assets and current liabilities in order
to remain solvent.
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& The surplus of cash, vehicle inventory and money due
on sales over floor plan debt (Floor plan debt= customer deposits and
vehicle notes payable)

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& > RORA requirement of one month average expense

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& USA added this measure as a requirement in 2004.
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& For every dollar of liabilities due soon, we have $X in

assets converting into cash.

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& Minimum 2.0:1 Higher is better.

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& Some manufacturers calculate this ratio before
deducting flooring debt from both current assets and liabilities because that
is the traditional definition. How soon will flooring be paid?!
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& For every dollar of liabilities due soon, we have $X in

very liquid assets converting into cash

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& Minimum 1.0:1 Higher is better

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& The reason this is called the "modified" ratio is that a
standard bank quick ratio only looks at cash + receivables over all current
liabilities. Dealers, however, do not expect to pay off the "short term"
flooring line
ÈSafety Measures
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22%
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& For every dollar of the dealer's money in the

dealership, $X is owed to creditors - not including Floor Plan

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& Maximum 1.0:1 Lower is better

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& NADA and USA use this ratio. However, one large
risk from high leverage is an interest rate hike and this risk clearly applies
to Floor Plan
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& For every dollar of the dealer¶s own money invested in
the dealership, we generate X¢ in profit each year

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& High enough to reward investment risk; at least 20%

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& Net worth may need more adjustments (e.g.,
shareholder loans and receivables, YTD Profit)
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& For every dollar of assets the we own, we generate X¢

in profit each year

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& No common standard available; as close to 10% as
possible and certainly more than the cost of money

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& Assets often need to be adjusted (e.g., LIFO, Other
Assets and Receivables)