Customer Financial Statement Analysis


View the Financial Analysis Models
Click here, then fill out the form and the interactive
spreadsheets will be e-mailed to you.
Note, this product will ONLY be sent to a request from an e-mail address that is related to the company making the request. (Will not be sent to .yahoo, .msn, .aol, etc) It will be sent to students or educators where the institution is recognized in the e-mail domain. (E.g., university.edu).

Methods of customer analysis may be divided into two general categories:
internal and comparative.
These methods may be used separately or in combination. They are part of the tools that enable experienced credit professionals to reach a credit decision.

Financial statements should be spread and analyzed, with appropriate ratios and flows calculated as an aid in the customer evaluation. Statements received directly from the customer should be promptly acknowledged.

As an important first step in internal analysis, the financial statement should be examined for validity and general correctness. Estimates have sometimes been mistaken for accurate figures, vague terminology is often overlooked, unauthorized signatures are accepted and the mere notation of an auditor's name has, at times, been taken as indication of a proper audit. In some instance, neglect of this phase of the customer examination has proved costly to creditors.

After the statement has been accepted as valid and reasonably accurate, ratios should be calculated and the figures analyzed. Internal analysis calls for an examination of items within a single financial statement for the purpose of judging their significance in relation to the capital of the company, its method of operation and conditions prevailing within the industry. When sales, profits or other operating details are not available, emphasis must be placed on internal analysis of the balance sheet. The major tools for internal analysis are balance sheet ratios and a working knowledge of the line of business including the method of operation and seasonal influences.

Ratios are mathematical aids for appraisal and comparison of financial statements. They are used to supplement dollar amount inspection, to examine inter-item relationships and to compare a specific company's performance against its industry standard.

The use of ratios reduces the influence of dollar size on analysis since these comparisons are expressed as a percentage, fraction, decimal or rates of turnover. The number of ratios that can be developed from the balance sheet and income statement is limited only by the combinations that could be made of the items appearing in both schedules. The type of operation represented by the account and the nature of the risk has an important bearing on what ratios are to be computed and studied.

To assist you in your customer analysis, the Credit Research Foundation has developed a model spreadsheet that will allow you to easily and simply spread up to five periods of a customer's financial data. By entering the minimal amounts of data, you will develop a full, comprehensive spreadsheet analysis for a customer.

As a service to the credit community we are, for a limited time, offering a free copy of this spreadsheet in Excel format. All you have to do is simply request this file to be e-mailed to you.

The following is an example of the comprehensive output from the minimal input you will have to enter for each period. Note, only the numbers in blue have to entered, all other data is calculated for you.

This analysis compares financial information generated for five periods. In order to compare a business to similar businesses within its industry, the analyst should obtain and enter industry norms prior to the initial review. Industry norms are available from a variety of sources including Dun & Bradstreet and The Risk Management Association.

The elements of the model include: