A LOOK AT THE FINANCIAL STATEMENTS FINANCIAL STATEMENTS – HOW THEY RELATE TO EACH OTHER AND FINANCIAL STATEMENT ANALYSIS Edward B. Peacock, CPA

Topics Levels of Financial Statements ▫Example Statements (see handouts) ▫Government-wide statements ▫Fund level statements ▫Statistical Section Financial Analysis – process of drawing meaning from financial statements ▫Identifying Available Resources  GAAP basis  Budgetary basis  General fund  Proprietary funds Ratio Analysis Edward B. Peacock, CPA

Levels of Financial Statements Government-wide financial statements ▫Measurement focus – economic resources ▫Basis of accounting - accrual basis ▫Statement of Net Assets – p11 - reports what the government owns and owes at the end of the fiscal year  Two columns - governmental activities and business- type activities – side by side comparison ▫Statement of Activities - p12-13 – reports financial results during a fiscal year Edward B. Peacock, CPA

Levels of Financial Statements Fund level financial statements, p14-24 ▫Governmental funds, p14-15  Modified accrual basis  Current assets and current liabilities  Reconciliations of modified accrual to full accrual basis, p16, p19 ▫Proprietary funds, W&S, Golf  Full accrual basis  Current assets and current liabilities are identified in the fund level SNA, p11, p20 Edward B. Peacock, CPA

Levels of Financial Statements Statistical Section ▫Typically presents information for the most recent 10 years ▫Usually is not audited ▫Contains tables of trends – help you understand how your gov’t’s finances have changed over time  Financial  Revenue capacity  Debt capacity  Demographic and economic information  Operating information Edward B. Peacock, CPA

Identifying Available Resources Government-wide Statements ▫Restricted versus unrestricted net assets, p11 Fund level statements ▫Governmental funds  Fund balance, p14 ▫Proprietary funds  Unrestricted net assets, p11, p21  Working capital (current assets less current liabilities)  Frequently used in rate analysis  Cash basis, p23 Edward B. Peacock, CPA

Restricted and Unrestricted Net Assets Capital assets net of related debt, p11 ▫Cannot readily be sold and converted into cash Restricted net assets ▫External restrictions on how resources may be used Unrestricted net assets ▫Resources that don’t fall into the first two categories ▫Not necessarily liquid Edward B. Peacock, CPA

Fund Level Resources Governmental Funds, p14 ▫Nonspendable – not a liquid resource ▫Restricted – externally restricted for a specific purpose  Special revenue funds  Capital projects funds  Debt service funds ▫Committed – appropriated by governing body ▫Assigned fund balance – can be unassigned ▫Unassigned – can be used as beginning resource in the budget Edward B. Peacock, CPA

Fund Level Resources Proprietary Funds, p20-21 ▫Unrestricted Net Assets  Not necessarily liquid ▫Working capital  Roughly equivalent to fund balance (current assets less current liabilities)  Could be used as a beginning resource in the budget  Frequently used by rate analysts ▫Cash basis, p23-24  Separate unrestricted cash from restricted in the cash flow statement Edward B. Peacock, CPA

General Fund - Unassigned Fund Balance Measures Unassigned Fund Balance, p14$8,938,129$11,741,652 Total Expenditures and Other Financing Sources and Uses, p17 $46,735,773$44,836,091 Unassigned Fund Balance as a % of Total Expenditures and Other Financing Sources and Uses 19%26% Total Expenditures and Other Financing Sources and Uses (Per Day) $128,043$122,839 Unassigned Fund Balance # of Days of Operations 7081 Edward B. Peacock, CPA

Working Capital- Proprietary Funds A short term measure of the funds’ ability to meet the obligations that will come due over the next year Current assets less current liabilities A more stringent approach – compare only the most liquid assets, generally unrestricted cash and cash equivalents to current liabilities Edward B. Peacock, CPA

Proprietary Funds – Working Capital FY 2011 Water and Sewer FY 2011 Golf FY 2012 Water and Sewer FY 2012 Golf Current Assets, p20 SNA$15,980,106$94,032$15,987,055$81,224 Less: Current Liabilities, p21 SNA$5,060,044$1,447,670$5,328,831$1,401,595 Working Capital $10,920,062-$1,353,638$10,658,224-$1,320,371 Edward B. Peacock, CPA

Proprietary Funds Expenditures – Budgetary Basis FY 2011 Water and Sewer FY 2011 Golf FY 2012 Water and Sewer FY 2012 Golf Operating Expenses, p22SREV18,490,1002,937,82517,948,2432,941,753 Less: Depreciation, p22SREV-2,464, ,024-2,529, ,428 Add: Transfers, p22SREV1,501,990199,1411,444,541232,120 Add: Debt Principal, p23SCF1,470,000285,0001,540,000295,000 Add: Interest, p23SCF501,768126,867274,208119,525 Total Expenditures19,499,0873,145,80918,677,2923,185,970 Expenditures per Day53,4228,61951,1718,729 Edward B. Peacock, CPA

Proprietary Funds – Working Capital Measures FY 2011 Water and Sewer FY 2011 Golf FY 2012 Water and Sewer FY 2012 Golf Total Expenditures (Budgetary Basis) 19,499,0873,145,80918,677,2923,185,970 Expenditures per Day53,4228,61951,1718,729 Working Capital10,920,062-1,353,63810,658,224-1,320,371 Working Capital as % of Total Expenditures 56%-43%57%-41% Number of Days Working Capital Edward B. Peacock, CPA

Proprietary Funds – Unrestricted Cash 2012 W&S2012 GOLF Current assets: Cash and cash equivalents SNA$13,299,600$0 Noncurrent assets: Restricted cash and investments SNA$11,844,580$220,320 Cash and cash equivalents, endingSCF$25,144,180$220,320 Edward B. Peacock, CPA

Ratio Analysis The act of converting the numbers in the FS into a form which specific decisions can be based Are created by dividing one number into another Financial story is not told with a single ratio, but with an accumulation of ratios and other information If presented ratio information, be careful to ask how it was calculated Always specify the components of the ratios used in your analyses Edward B. Peacock, CPA

Ratio Analysis To give meaningful financial ratios, always place your ratios in context, i.e., ▫Compare to PY – improving, declining, holding steady? ▫Compare to other similar governments – higher, lower, roughly the same? ▫Is there a commonly accepted benchmark? Edward B. Peacock, CPA

Types of Ratios Common-Size Ratios ▫$ Dollar Change ▫% Percentage Change Short Term Focus – Liquidity ▫Current Ratio ▫Quick Ratio Long Term Focus – Solvency ▫Debt to Assets Ratio ▫Debt to Net Assets ▫Coverage Ratios  Interest Coverage  Debt Service Coverage Edward B. Peacock, CPA

Common-Size Ratios Serve two valuable purposes ▫Provide quick overview of finances ▫How they’ve changed since prior year ▫Can be applied to any kind of FS information  Percentage change – shows magnitude of change  Percentage distribution – shows portion of the total represented by individual elements Edward B. Peacock, CPA

Dollar Amount and Percentage Change $ Change% Change Capital Assets SNA254,274,206250,588,786-3,685, % ReceivablesSNA15,865,89517,326,7091,460, % Edward B. Peacock, CPA

Percentage Distribution Capital Assets SNA254,274,206, 63.53%250,588,786, 61.16% ReceivablesSNA15,865,895, 3.96%17,326,709, 4.23% Edward B. Peacock, CPA

Liquidity Ratios Concerned with the ability to pay immediate obligations Current ratio ▫Current assets / current liabilities Quick ratio ▫Cash and cash equivalents / current liabilities Edward B. Peacock, CPA

Current and Quick Ratios FY 2011 Water and Sewer FY 2011 Golf FY 2012 Water and Sewer FY 2012 Golf Current Assets SNA15,980,10694,03215,987,05581,224 Cash and Investments SNA13,036,960013,299,6000 Current Liabilities SNA5,060,0441,447,6705,328,8311,401,595 CURRENT RATIO QUICK RATIO Edward B. Peacock, CPA

Solvency Ratios Leverage ratios ▫Measure the degree to which assets are financed through borrowing or other LT obligations  Debt to assets ratio  (total liabilities – deferred outflows) / (total assets – deferred inflows)  Debt to net assets (position) ratio  (total liabilities – deferred outflows) / total net position Edward B. Peacock, CPA

Debt to Assets/ Net Assets Ratios FY 2011 Gov’t Activities FY 2011 Bus-type Activities FY 2012 Gov’t Activities FY 2012 Bus-type Activities Total Liabilities SNA134,496,88520,374,794126,124,87819,178,899 Total AssetsSNA290,699,375109,518,898300,845,530108,848,983 Total Net Assets SNA156,202,49089,144,104174,720,65289,670,084 DEBT TO ASSETS RATIO DEBT TO NET ASSETS RATIO Edward B. Peacock, CPA

Coverage Ratios Compare available resources with resource needs ▫Interest coverage  Cash flow from operations + interest expense / interest expense ▫Debt service coverage  Cash flow from operations + debt service / debt service Edward B. Peacock, CPA

Coverage Ratios FY 2011 W&S FY 2011 Golf FY 2012 W&S FY 2012 Golf Cash Flow from Operations SCF6,010,396545,4795,790,391646,330 Interest Expense SREV482,015124,004424,315111,417 Debt Service NOTES1,952,015409,0041,964,315406,417 INTEREST COVERAGE DEBT SERVICE COVERAGE Edward B. Peacock, CPA

Summary Analysis General FundW&SGolf FB, WC %19%26%56%57%-43%-41% # Days Current Ratio Quick Ratio Interest Coverage Debt Svc Coverage Edward B. Peacock, CPA

Questions? Eddie Peacock Edward B. Peacock, CPA Edward B. Peacock, CPA