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Interim Financials For The Current Fiscal Period

Most financing providers will accept interim financial statements that have been prepared by your accountant or that have been generated from your accounting software by the business owner, manager, or business employee.

The interim financial statements should cover the period of time from the first day of the current fiscal period to the last completed and closed month end of the current year.  As an example, let’s say that a business is applying for financing on September 20th and its annual year end date is January 31.  The interim period for this application should then cover the period from February 1st to August 31st  of the same calendar year.

The interim financials, at a minimum, should include a balance sheet and an income statement.  Most financing providers would also like to see an aged accounts receivable report, an aged accounts payable report, and if applicable, inventory reports broken down into raw material, work in process, and finished goods.

And while a financing provider understands that internal reports generated from your own bookkeeping system may not be fully reconciled, you should make sure that all material entries have been made, or at least explained, so that an accurate financial picture of the current year can be presented.

When a financing provider reviews interim financial statements, they’re going to perform a similar analysis to what they did with the past financial statements, but with a greater emphasis on cash flow, debt structure, and if possible, comparing budgets to actual results.

Here is a fairly comprehensive list of ways the interim financial information may be reviewed by an underwriter or some form of credit officer.  Once again, there can be considerable variability of the actual analysis performed based on the financing request and the targeted lender.

1.            Liquidity Analysis:  

Current and Quick Ratios: These ratios measure the company's ability to meet short-term obligations with its current or quick assets. A higher ratio indicates better liquidity.

Working Capital Analysis: Evaluates the difference between current assets and current liabilities to assess the company's short-term financial health.

2.            Profitability Analysis:

Gross Profit Margin: Assesses the efficiency of production/manufacturing by comparing gross profit to sales.

Net Profit Margin: Determines the overall profitability of the business after all expenses, including interest and taxes.

Return on Assets (ROA) and Return on Equity (ROE): Measure how effectively the company uses its assets to generate profit and the return generated on shareholders' equity, respectively.

3.            Debt Analysis:

Debt-to-Equity Ratio: Evaluates the company's financial leverage by comparing total liabilities to shareholders' equity.

Interest Coverage Ratio: Assesses the company's ability to meet its interest obligations from its earnings.

4.            Cash Flow Analysis:

Operating Cash Flow: Looks at cash generated from the business's core operations.

Free Cash Flow: Evaluates the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Cash Burn Rate: For startups or businesses not yet profitable, this measures how quickly the company is using up its cash reserves.

5.            Trend Analysis:

Comparative Financial Statements: Comparing the current interim financial statements to previous periods to identify trends, such as increasing expenses or declining revenues.

Year-over-Year (YoY) Analysis: Looks at the changes in key financial metrics compared to the same period in the previous year.

6.            Budget vs. Actual Analysis:

Compares the forecasted or budgeted figures with the actual figures to assess the company's performance against its own projections.

7.            Solvency Analysis:

Evaluates the company's ability to meet long-term obligations and its financial stability over the long term.

8.            Efficiency Ratios:

Ratios such as inventory turnover, accounts receivable turnover, and accounts payable turnover provide insights into how efficiently the company is managing its assets.

9.            Quality of Earnings:

Assessing the sustainability and quality of earnings, including analysis of non-recurring items, revenue recognition policies, and other factors that might influence reported profits.

While some lenders will perform exhaustive analysis, others will focus their time on fewer metrics.  This will all depend largely on 1) what you require financing for, 2) the amount of financing required, and 3) the lender you're applying to for business financing.

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