Financial Analysis Questions to Ask/Answer Assume you are a team member of a $700M project and your PM has tasked you with finding a sub contractor who can manufacture a key component. You have discovered a company that has made similar "one-of"products in the past; but, their bid is so low that you are concerned. Why have they bid so low? You need to analyze this sub-contractor's financial capability stability to complete this part of the project You cannot afford to have this part produced late, or worse, begun and then not completed As part of your due diligence, you will review the company's financial solvency to complete your sub project part. After your analysis and review of the company's financial records, you need to write a report to your PM that either approves or denies the company to begin manufacturing After all, who is to know why the company bid so low. Perhaps they need the work to stay in business, or, perhaps they just need the work to keep their employees from leaving the company during a down-tram in business. It all comes down to is your recommendation Listed below are questions that you should be able to discover when reviewing the company's financial documents. After completing your examination, you need to write a review of the company's financial health and capability to complete the project. I . Income Statement How old is the company? New or old Is the company doing well? Selling Is the company making a profit? Is the company maximizing profit relative to gross sales? Are sales keeping up with the economy/inflation? Is management/ownership old young, educated or self-taraglut? How many employees in the company? Is the company anionized or not? Are expenses too high to sales and if yes why? Is the company located at more than one place? Does the company advertise too much, not enough or...? How many vehicles does the company have? Balance Sheet Does the balance sheet balance? Does the company have too much cash relative to cash or sales? Does the company have too much A R? What is collection policy of the company? What is the accounting department like educated or self-taught? What is the credit policy of the company? What is the purchased department like? Is inventory static, decreasing or increasing? Does the company have intellectual property? What is the depreciation status of the assets? Newlold? Increasing decreasing static? Does the company pay its bill? mo Accessibility: Good to go Focus BE . . . . 5 words Financial Analysis Questions to Ask/Answer What is the relationship of inventory to A/P? How much of the inventory is owned by the company and how much is owned by the vendors? Does the company have long-term debt and is it increasing, decreasing, etc.? Does the company have more than one profit center? How many owners in the company? Is the company public or privately held? Is the value of the company increasing, decreasing, fluctuating? Cash Flow Statement Does the statement of cash flows tie to the balance sheet? How did the company earn its money-operations or finance? How did the company spend its money? Standard Industry Code (SIC) Analysis Overall, how does the company compare to the industry in? Liquidity o Debt o Operations & o Profitability. Ratio Analysis Liquidity Is the company liquid? Debt o Is the company funded by debt or equity? o How leveraged is the company? How are the assets funded? Operations How often does the company collect its accounts receivables (A/Rs)? o How often does the company pay its account payables (A/Ps)? How often does the company turn its inventory and what does this mean? How well does the company use its assets? Profitability Is the company making a profit? . What are their profit margins, net and gross? What is the return on assets? o What is the return on equity? What is the EBIT and EBIDA? Conclusion o What is your recommendation-aire or not to hire