Here is a list of my business and accounting courses in college:

1.

2.

3.

I was an education (teaching) specialist so I didn’t get anything in the financial statements “FS”. When I started out as a bail bond underwriting apprentice, I realized that I had no idea what a balance sheet was, but I learned.

If your first reaction when looking at an FS is “Duh”, we’ll fix it right now. Keep reading! This will be a view from 30,000 feet. Big picture.

To be complete, each financial statement must include As minimum:

1) Balance sheet

2) Profit and loss statement

The balance sheet

This document is a one-day snapshot of the company’s funds (Assets) and who owns them (Liabilities). Assets and liabilities have an equal “balance” because each dollar of the company is shown from two points of view: the asset and who owns it, the liability.

The Balance has Three important parts that we can review initially. Let’s identify them based on their functionality.

Current Assets – This line item is a subtotal near the middle of the Assets column. Represent those assets easily convertible into cash within the next fiscal year (as accounts receivable).

Current liabilities: they are located near the middle of the Liabilities column, they are debts that owe paid out in the next fiscal year (as Accounts Payable).

Total Stockholders’ Equity, also known as Net Worth – Usually the last subsection near the bottom of the Liabilities column. This is the net worth of the company that would remain if they closed and liquidated everything.

The profit and loss statement

This is a historical summary of all money received (Sales, also known as Income) and money spent (Expenses) during the previous period, usually one year. At the bottom of the column is net profit, which is the money the business “earned” during the year after paying all related bills and taxes.

Now that you can pick a couple of strategic numbers in any FS, what are we going to do with them?

Calculate the working capital

This is a primary measure of financial strength used by all analysts, including guarantors, banks, and other creditors. It is found by subtracting Current Liabilities from Current Assets. It is an indicator of the expected cash flow in the next year.

The sniff test

Here’s a quick simplified evidence to use when considering a particular offer or performance bond. The evaluation is carried out based on expectations contract (no deposit) amount. This is an instant indication of the adequacy of finances with respect to the next project.

First part: the target amount of working capital is 15% of the contract amount. For example, if the contract amount is $ 1,000,000, the guarantors expect to see a Working Capital of at least $ 150,000.

Part Two: The target amount of net worth is 20% of the contract amount or around $ 200,000 in our example.

Certainly, there is more to underwriting bonds than this simple analysis. However, by using this method, you can get a quick idea of ​​whether the financial statement easily supports the bond or it can be a tranche. If your analysis reveals negative numbers, which are shown in parentheses in financial reports, it is obviously a bad sign.

Also note that applicants who do not meet these can still qualify for bonuses based on other factors, and the reverse is also true. The surety subscription requires many factors in consideration. In this article we are offering a very simplified version of the process although it is valid as a quick review. This procedure will allow you to conduct a quick financial assessment and relate it to the next surety exposure.

Summary

This article does not make you a bonus subscriber, but now when you get a new FS instead of “Duh!” you can say “Let me analyze this!”

Running one more quick scan the sniff test it will indicate the probability of obtaining surety support. You learned a lot in three minutes, but when you have a link that fails the crawl test, that’s where our experience and market access come into play. Call us!