1. Introducing nfospectrum
Maritime Week Americas 2009 – Panama
Financial Statement Analysis
By
Felix Yamasato
felix@infospectrum.net
+1 203 667 1082

2. • Managing Credit Risk
• Financial Statement Analysis
• Miami Week Americas
• 1 June 2009

3. Ratio Analysis
• Traditional balance sheet ratios
Current ratio
Quick ratio
Long-term debt to equity
Total debt to total assets
Long-term debt to fixed assets

4. Ratio Analysis
• Traditional/popular profit ratios
Gross profit margin
Operating profit margin
Pre-tax profit margin
EBITDA margin
Interest coverage
ROE, ROA, Earnings yield

5. Ratio Analysis
Absolute standard vs. trends vs. peer
comparison Operating profit margin
Be creative in creating relevant ratios
to measure and compare companies
Efficiency ratios to determine best
operating companies in sectors
Interest coverage
Adjusted EBITDA

6. Spotting Financial Distress
• Revenue/profit recognition
Are accounts receivable properly scrutinized?
Net change in working capital (cash vs. accounting
revenue).
Liquidity ratios look good, but why is buyer paying
late?
cash earnings (cash accounting) vs. accounting
earnings (accrual accounting).

7. Spotting Financial Distress
• Financing needs and uses
Is short-term debt covering daily activities?
Is long-term debt financing long-term projects
(vessels)?
Discrepancy a sign of poor management?
How does it compare to sector/industry?

8. Practical Examples
• It depends on cash flow margins!
• Why?
– Small margins disappear when debts come due or interest rates rise.
– Interest coverage ratio (toughest test)
• Free cash flow divided by interest expenses
– A ratio below 3 is speculative
» Interest rates rising from 5% to 7% = 40% increase in interest
charges
» Interest rates rising from 4% to 6% = 50% increase in interest
charges
» Interest rates rising from 3% to 5% = 67% increase in interest
charges(4,000,000)
(3,000,000)
(2,000,000)
(1,000,000)
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2006 2005 2004 2003 2002
Maruba SCA
Pre-tax Profit

9. Practical Examples
• Cash flow from operating activities
– Underlying profitability of the business in its latest period
• Cash flow from Investing activities
– Capital expenditures (e.g. vessels, buildings, etc.) and divestitures
• Cash flow from financing activities
– Debt issuances (long- and short-term)
– Debt repayments (long- and short-term)
– Dividend payments
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2006 2005 2004 2003 2002
Maruba SCA
Current Ratio

10. Practical Examples
• Free Cash Flow
– Operating cash flow minus
• Capital expenditures (needed to maintain or grow operations)
• Dividend payments (owners’ take)
• Forward Free Cash Flow
– This uses forecast operating cash flow minus
• Future capital expenditures and
• Future mandatory dividend payments
(4,800,000)
(4,600,000)
(4,400,000)
(4,200,000)
(4,000,000)
(3,800,000)
(3,600,000)
2006 2005 2004 2003 2002
Maruba SCA
Net Change in WC

11. Practical Examples
• Net profits (or losses) + net change in working capital (NCWC)
– Working capital surplus = cash outflows
– Working capital deficit = cash inflows
– NCWC = Net change in current liabilities minus net change in current
assets
• EBITDA (earnings before interest, taxes, depreciation and amortization) +
NCWC
(6,000,000)
(4,000,000)
(2,000,000)
-
2,000,000
4,000,000
6,000,000
2006 2005 2004 2003 2002
Maruba SCA
Pre-tax Profit Net Change in WC

12. Practical Examples
• Net profits (or losses) + net change in working capital (NCWC)
– Working capital surplus = cash outflows
– Working capital deficit = cash inflows
– NCWC = Net change in current liabilities minus net change in current
assets
• EBITDA (earnings before interest, taxes, depreciation and amortization) +
NCWC

13. -
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2006 2005 2004 2003 2002
Maruba SCA
Current Ratio
(6,000,000)
(4,000,000)
(2,000,000)
-
2,000,000
4,000,000
6,000,000
2006 2005 2004 2003 2002
Maruba SCA
Pre-tax Profit Net Change in WC
Enough Cash to pay suppliers?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 75 50 20
Accounts Receivable 20 45 75
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 80 50 30
Short-term Portion of Long-term
Debt 15 45 65
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Working Capital -20 0 20

14. -
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2006 2005 2004 2003 2002
Maruba SCA
Current Ratio
(6,000,000)
(4,000,000)
(2,000,000)
-
2,000,000
4,000,000
6,000,000
2006 2005 2004 2003 2002
Maruba SCA
Pre-tax Profit Net Change in WC
Enough Cash to pay suppliers?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 75 50 20
Accounts Receivable 20 45 75
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 80 50 30
Short-term Portion of Long-term
Debt 15 45 65
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Working Capital -20 0 20
Problems in the medium term?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 60 60 60
Accounts Receivable 45 45 45
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 35 35 35
Short-term Portion of Long-term
Debt 60 60 60
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Long-term Debt 375.00 250.00 125.00
Equity 250.00 250.00 250.00
Long-term Debt to Equity 1.50 1.00 0.50

15. -
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2006 2005 2004 2003 2002
Maruba SCA
Current Ratio
(6,000,000)
(4,000,000)
(2,000,000)
-
2,000,000
4,000,000
6,000,000
2006 2005 2004 2003 2002
Maruba SCA
Pre-tax Profit Net Change in WC
Enough Cash to pay suppliers?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 75 50 20
Accounts Receivable 20 45 75
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 80 50 30
Short-term Portion of Long-term
Debt 15 45 65
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Working Capital -20 0 20
Problems in the medium term?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 60 60 60
Accounts Receivable 45 45 45
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 35 35 35
Short-term Portion of Long-term
Debt 60 60 60
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Long-term Debt 375.00 250.00 125.00
Equity 250.00 250.00 250.00
Long-term Debt to Equity 1.50 1.00 0.50
US$ 2009 2008 2007 2006 2005
Turnover 848,068 4,886,841 4,150,274 3,859,266 3,901,974
Operating Profit (174,378) (133,511) 54,130 (236,248) 159,078
Pre-tax Profit (272,671) (11,991) 153,983 (78,073) 166,792
Net Profit (265,634) (39,203) 116,276 (58,241) 132,303
EBITDA (255,694) 67,966 231,288 (9,589) 231,671
Net change in WC 285,313 263,525 22,386 36,258 (30,567)
Operating Cash Flow (18,099) (192,087) 61,458 (162,359) 226,844

16. -
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2006 2005 2004 2003 2002
Maruba SCA
Current Ratio
(6,000,000)
(4,000,000)
(2,000,000)
-
2,000,000
4,000,000
6,000,000
2006 2005 2004 2003 2002
Maruba SCA
Pre-tax Profit Net Change in WC
Enough Cash to pay suppliers?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 75 50 20
Accounts Receivable 20 45 75
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 80 50 30
Short-term Portion of Long-term
Debt 15 45 65
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Working Capital -20 0 20
Problems in the medium term?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 60 60 60
Accounts Receivable 45 45 45
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 35 35 35
Short-term Portion of Long-term
Debt 60 60 60
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Long-term Debt 375.00 250.00 125.00
Equity 250.00 250.00 250.00
Long-term Debt to Equity 1.50 1.00 0.50
US$ 2009 2008 2007 2006 2005
Turnover 848,068 4,886,841 4,150,274 3,859,266 3,901,974
Operating Profit (174,378) (133,511) 54,130 (236,248) 159,078
Pre-tax Profit (272,671) (11,991) 153,983 (78,073) 166,792
Net Profit (265,634) (39,203) 116,276 (58,241) 132,303
EBITDA (255,694) 67,966 231,288 (9,589) 231,671
Net change in WC 285,313 263,525 22,386 36,258 (30,567)
Operating Cash Flow (18,099) (192,087) 61,458 (162,359) 226,844
US$ 2008 2007 2006 2005
Change in Turnover 17.75% 7.54% -1.09% 45.28%
Change in Net Profits -133.72% -299.65% -144.02% -36.12%
Change in Operating Profits -346.65% -122.91% -248.51% 9.44%
Change in EBITDA -70.61% -2512.01% -104.14% -21.88%
Change in Operating CF -413% -138% -172% 0%
Change in FCF -15% -166% -164% -434%

17. -
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2006 2005 2004 2003 2002
Maruba SCA
Current Ratio
(6,000,000)
(4,000,000)
(2,000,000)
-
2,000,000
4,000,000
6,000,000
2006 2005 2004 2003 2002
Maruba SCA
Pre-tax Profit Net Change in WC
Enough Cash to pay suppliers?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 75 50 20
Accounts Receivable 20 45 75
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 80 50 30
Short-term Portion of Long-term
Debt 15 45 65
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Working Capital -20 0 20
Problems in the medium term?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 60 60 60
Accounts Receivable 45 45 45
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 35 35 35
Short-term Portion of Long-term
Debt 60 60 60
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Long-term Debt 375.00 250.00 125.00
Equity 250.00 250.00 250.00
Long-term Debt to Equity 1.50 1.00 0.50
US$ 2009 2008 2007 2006 2005
Turnover 848,068 4,886,841 4,150,274 3,859,266 3,901,974
Operating Profit (174,378) (133,511) 54,130 (236,248) 159,078
Pre-tax Profit (272,671) (11,991) 153,983 (78,073) 166,792
Net Profit (265,634) (39,203) 116,276 (58,241) 132,303
EBITDA (255,694) 67,966 231,288 (9,589) 231,671
Net change in WC 285,313 263,525 22,386 36,258 (30,567)
Operating Cash Flow (18,099) (192,087) 61,458 (162,359) 226,844
US$ 2008 2007 2006 2005
Change in Turnover 17.75% 7.54% -1.09% 45.28%
Change in Net Profits -133.72% -299.65% -144.02% -36.12%
Change in Operating Profits -346.65% -122.91% -248.51% 9.44%
Change in EBITDA -70.61% -2512.01% -104.14% -21.88%
Change in Operating CF -413% -138% -172% 0%
Change in FCF -15% -166% -164% -434%
US$ 3/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005
Current Assets 650,894 806,341 1,155,637 1,124,262 1,132,964
Fixed Assets, net 630,846 614,613 323,807 279,970 272,086
Other Assets 430,048 441,389 462,013 332,237 373,221
Total Assets 1,711,788 1,862,343 1,941,457 1,736,469 1,778,271
Current Liabilities 719,706 589,840 675,611 621,850 594,294
Long-term Debt 410,442 429,111 372,682 353,686 360,653
Other Liabilities - - - - (32,007)
Minority Interests 16,941 19,087 13,323 12,720 28,317
Equity 564,699 824,305 879,841 748,213 827,014

18. -
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2006 2005 2004 2003 2002
Maruba SCA
Current Ratio
(6,000,000)
(4,000,000)
(2,000,000)
-
2,000,000
4,000,000
6,000,000
2006 2005 2004 2003 2002
Maruba SCA
Pre-tax Profit Net Change in WC
Enough Cash to pay suppliers?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 75 50 20
Accounts Receivable 20 45 75
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 80 50 30
Short-term Portion of Long-term
Debt 15 45 65
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Working Capital -20 0 20
Problems in the medium term?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 60 60 60
Accounts Receivable 45 45 45
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 35 35 35
Short-term Portion of Long-term
Debt 60 60 60
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Long-term Debt 375.00 250.00 125.00
Equity 250.00 250.00 250.00
Long-term Debt to Equity 1.50 1.00 0.50
US$ 2009 2008 2007 2006 2005
Turnover 848,068 4,886,841 4,150,274 3,859,266 3,901,974
Operating Profit (174,378) (133,511) 54,130 (236,248) 159,078
Pre-tax Profit (272,671) (11,991) 153,983 (78,073) 166,792
Net Profit (265,634) (39,203) 116,276 (58,241) 132,303
EBITDA (255,694) 67,966 231,288 (9,589) 231,671
Net change in WC 285,313 263,525 22,386 36,258 (30,567)
Operating Cash Flow (18,099) (192,087) 61,458 (162,359) 226,844
US$ 2008 2007 2006 2005
Change in Turnover 17.75% 7.54% -1.09% 45.28%
Change in Net Profits -133.72% -299.65% -144.02% -36.12%
Change in Operating Profits -346.65% -122.91% -248.51% 9.44%
Change in EBITDA -70.61% -2512.01% -104.14% -21.88%
Change in Operating CF -413% -138% -172% 0%
Change in FCF -15% -166% -164% -434%
US$ 3/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005
Current Assets 650,894 806,341 1,155,637 1,124,262 1,132,964
Fixed Assets, net 630,846 614,613 323,807 279,970 272,086
Other Assets 430,048 441,389 462,013 332,237 373,221
Total Assets 1,711,788 1,862,343 1,941,457 1,736,469 1,778,271
Current Liabilities 719,706 589,840 675,611 621,850 594,294
Long-term Debt 410,442 429,111 372,682 353,686 360,653
Other Liabilities - - - - (32,007)
Minority Interests 16,941 19,087 13,323 12,720 28,317
Equity 564,699 824,305 879,841 748,213 827,014
US$ 3/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005
Interest and debt expense 6,747 42,525 38,024 33,591 35,223
Interest coverage ratio -38.3707 0.0781 4.0580 -0.7338 4.7562
Depreciation 9,250 33,556 35,364 31,149 26,053
Amortization 980 3,876 3,917 3,744 3,603
PP&E - LTD 220,404 185,502 (48,875) (73,716) (88,567)
Cash + Cash Equivalents 177,948 179,529 522,403 616,144 637,162
Change in Cash -0.88% -65.63% -15.21% -3.30% 27.35%
Working Capital $ (68,812) $ 216,501 $ 480,026 $ 502,412 $ 538,670
Current Ratio 0.9044 1.3671 1.7105 1.8079 1.9064
Long-term Debt to Equity 0.7268 0.5206 0.4236 0.4727 0.4361
Fixed assets to Long-term Debt 1.5370 1.4323 0.8689 0.7916 0.7544
Total Debt to Assets 0.6602 0.5471 0.5400 0.5618 0.5190

19. -
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2006 2005 2004 2003 2002
Maruba SCA
Current Ratio
(6,000,000)
(4,000,000)
(2,000,000)
-
2,000,000
4,000,000
6,000,000
2006 2005 2004 2003 2002
Maruba SCA
Pre-tax Profit Net Change in WC
Enough Cash to pay suppliers?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 75 50 20
Accounts Receivable 20 45 75
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 80 50 30
Short-term Portion of Long-term
Debt 15 45 65
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Working Capital -20 0 20
Problems in the medium term?
Company A Company B Company C
Current Assets 100 100 100
Cash & Cash Equivalents 60 60 60
Accounts Receivable 45 45 45
Pre-paid accounts 5 5 5
Current Liabilities 120 100 80
Accounts Payable 35 35 35
Short-term Portion of Long-term
Debt 60 60 60
Other 5 5 5
Current Ratio 0.83 1.00 1.25
Long-term Debt 375.00 250.00 125.00
Equity 250.00 250.00 250.00
Long-term Debt to Equity 1.50 1.00 0.50
US$ 2009 2008 2007 2006 2005
Turnover 848,068 4,886,841 4,150,274 3,859,266 3,901,974
Operating Profit (174,378) (133,511) 54,130 (236,248) 159,078
Pre-tax Profit (272,671) (11,991) 153,983 (78,073) 166,792
Net Profit (265,634) (39,203) 116,276 (58,241) 132,303
EBITDA (255,694) 67,966 231,288 (9,589) 231,671
Net change in WC 285,313 263,525 22,386 36,258 (30,567)
Operating Cash Flow (18,099) (192,087) 61,458 (162,359) 226,844
US$ 2008 2007 2006 2005
Change in Turnover 17.75% 7.54% -1.09% 45.28%
Change in Net Profits -133.72% -299.65% -144.02% -36.12%
Change in Operating Profits -346.65% -122.91% -248.51% 9.44%
Change in EBITDA -70.61% -2512.01% -104.14% -21.88%
Change in Operating CF -413% -138% -172% 0%
Change in FCF -15% -166% -164% -434%
US$ 3/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005
Current Assets 650,894 806,341 1,155,637 1,124,262 1,132,964
Fixed Assets, net 630,846 614,613 323,807 279,970 272,086
Other Assets 430,048 441,389 462,013 332,237 373,221
Total Assets 1,711,788 1,862,343 1,941,457 1,736,469 1,778,271
Current Liabilities 719,706 589,840 675,611 621,850 594,294
Long-term Debt 410,442 429,111 372,682 353,686 360,653
Other Liabilities - - - - (32,007)
Minority Interests 16,941 19,087 13,323 12,720 28,317
Equity 564,699 824,305 879,841 748,213 827,014
US$ 3/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005
Interest and debt expense 6,747 42,525 38,024 33,591 35,223
Interest coverage ratio -38.3707 0.0781 4.0580 -0.7338 4.7562
Depreciation 9,250 33,556 35,364 31,149 26,053
Amortization 980 3,876 3,917 3,744 3,603
PP&E - LTD 220,404 185,502 (48,875) (73,716) (88,567)
Cash + Cash Equivalents 177,948 179,529 522,403 616,144 637,162
Change in Cash -0.88% -65.63% -15.21% -3.30% 27.35%
Working Capital $ (68,812) $ 216,501 $ 480,026 $ 502,412 $ 538,670
Current Ratio 0.9044 1.3671 1.7105 1.8079 1.9064
Long-term Debt to Equity 0.7268 0.5206 0.4236 0.4727 0.4361
Fixed assets to Long-term Debt 1.5370 1.4323 0.8689 0.7916 0.7544
Total Debt to Assets 0.6602 0.5471 0.5400 0.5618 0.5190
US$ 3/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005
Change in Current Assets -19.28% -30.23% 2.79% -0.77% 10.64%
Change in Current Liabilities 22.02% -12.70% 8.65% 4.64% 15.20%
Change in Working Capital -131.78% -54.90% -4.46% -6.73% 6.02%
Change in Total Assets -8.08% -4.07% 11.80% -2.35% 10.53%
Change in Fixed Assets 2.64% 89.81% 15.66% 2.90% 10.94%
Change in Long-term Debt -4.35% 15.14% 5.37% -1.93% 10.59%
Change in equity -31.49% -6.31% 17.59% -9.53% 10.80%

20. Red Flags
• Industry doing well, but company ABC’s revenue and profits
are declining.
Overleveraged
Lost big contract
Charterer vs. owner
State-owned
• Accounting profits improving, cash flow declining, paying late.
Are they cooking the books?

21. Other Topics
• Off-balance sheet issues
Minority stakes in highly leveraged
assets/companies.
• Lease/charter vs. purchase/ship mortgage.
• Privately held vs. publicly quoted.
• Change in ownership
• Founders, key personnel leave

22. Thank you!
Felix Yamasato
felix@infospectrum.net
+1 203 667 1082

23. Disclaimer
This presentation is not intended to form the basis of a decision to purchase of products and services, or securities, or any other investment
decision and does not constitute an offer, invitation or recommendation for the sale or purchase of products and services, or securities, or
any investment decision. Neither the information contained in this presentation nor any further information made available in connection
with the subject matter contained herein will form the basis of any contract. This presentation does not purport to be comprehensive or to
contain all the information that a prospective delegate, business partner, lender or investor may need. The information contained herein is
based on currently available information and sources, which we believe to be reliable, but we do not represent it is accurate or complete. The
recipients of this presentation must make their own investigation and assessment of the ideas and concepts presented herein. No
representation, warranty or undertaking, express or implied, is or will be made or given and no responsibility or liability is or will be accepted
by Infospectrum or by any of its affiliates, directors, officers, employees in relation to the accuracy or completeness of this presentation or
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recipient with access to any additional information, or to update, or to correct any inaccuracies which may become apparent in, this
presentation or any other information made available in connection with the ideas and concepts presented herein.