How to analyze our company's true financial condition and find ways to improve?

Perform ratio analysis over 3-5 yrs and compare to competitors in the industry.

Basically, you can consider using financial ratios including GPM, ROCE, Liquidity ratios, investing ratios and so on... quick a lot. As to the competitor, consider the results ratios from listed companies. In one word, step by step, it is not too difficult

While benchmarking ratio analysis is the traditional starting point, the hard part comes afterwards when you discover that some ratios indicate that you're company is not as efficient as others. What to do then? That's where you begin delving into operational and financial strategies to improve your business. Working capital management is often a good starting point: cash management, credit management, inventory management, etc.

Proformative is offering a webinar on October 29th, Best Practices in Understanding & Increasing your Company Valuation (https://www.proformative.com/events/best-practices-understanding-increasing-your-company-valuation-webinar-october-29-2013), which may offer some valuable insights. The webinar has the following in its description: “Discover specific actions you can take to determine a valuation strategy that goes beyond a benchmark. Learn what it means to truly have your financial house in order”.

Ratios are certainly an important part of the picture. Before you can use ratios though, it's important for you to choose the right ones to track. Limiting yourself to "pure" financial ratios will give you limited results. Broaden your view to include operations, sales, marketing, labor, website, etc.

Besides ratios, its important for you to generate a variety of internal reports along the sames lines as the ratios I outlined above. The more perspectives you have of a business the better. Lastly, make sure to generate reports that allow you to compare many months side by side (13 is preferable). By comparing your results to yourself, you're able to spot trends and errors.

This is the area where the management accountant can make major contributions! Besides the comments above, let me suggest reading "Best-Practice EVA" by G. Bennet Stewart III (Wiley, 2013). This focuses on metrics that tie directly to shareholder value, better than traditional ratios.

Ratios compared to industry or other benchmarks is the start to help identify where serious variations exist. Improvements require modification of the drivers, in manufacturing effectiveness [cost of goods sold, product quality, on-time performance, inventory], logistics [cost of goods sold or S,G, &A], product design and customer service [defects, returns, complaints], working capital management [receivables, payables] and financing management [interest expense]. also look for under used or unused physical capacity.

I'd start by digging into cash flow. What's it been like in the past and what do you forecast it to be in the future?

If your cash flow forecast looks okay, you have time to analyze and improve the other measures. But if not, the other measures don't matter; only cash flow matters.

Establish a set of key ratios and metrics (aka Key Performance Indicators, or KPIs), both financial and operational, that are relevant to your company. KPIs vary by industry and other factors - there are good online resources that can help you identify KPIs for your industry.

Benchmarking is very important. Once you’ve calculated KPIs over a few periods, compare them to peer companies. Consider peer group attributes like growth stage, funding model, and sales approach.

The hard part is taking action to improve your results. Building some financial models should help you determine how an improvement in one area of your business will change your KPI results.

Make your analysis repeatable through use of business software and by determining in advance the data and definitions that will be used for every calculation. The quality of your data and your process are critical to successful business analysis.

Marc

All these ideas are great, but has anyone pushed us out of the "technical bean counter mode" and looked beyond?

I'm talking about communication with customers and vendors and how they perceive the financial health of our company.

We may be solvent and in great shape technically - but if our company is perceived to be troubled, that's not going to help keep the revenue stream.

Case in point is an article I quickly perused in this months CFO magazine about some of the largest US companies that are slowest to pay their vendors ("Beware These Corporate Laggards").

So glad I'm not listed in their table of "laggards" :)

Believe it or not, one thing you can do is talk to your bank. Especially if you are currently borrowing. They have analysts whose job it is to assess your financial condition. Ask your account officer what the bank thinks and whether he/she has any recommendations. The recommendations will probably involve your using additional bank services but that could be a help to you and if not at least you will have obtained the opinion of an expert who knows your company. If you use more than one bank go to all of them and then compare.

Link key financial ratios to competitor performance, non financial aspects driving that performance, long term aspects and mostly LINK TO COMPANY'S OBJECTIVES AND GOALS

It depends on what type of business you are accessing. Debt leverage and free cash flow are two areas we focus on.