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Assessing Financial Statements

Travis Remick
Bond Manager
Contract Surety
(206) 473-3638
Travis.Remick@LibertyMutual.com
Three C’s of Surety

Capital

Capacity

Character
“Capital” – Analyzing Financial
Statements
Liquidity
Cash Flow
Where is cash parked? Marketable Securities?
Receivables
Quality of Underbillings

Debt
Quantity
Structure
How Much Capacity?
Which Bank(s)?
“Capital” – Analyzing Financial
Statements
Equity Analysis
Static or Decreasing?
Equity Components
Impact of Related Party Transactions
Distributions

Profitability Analysis
Profit Margins
Overhead
Equipment Utilization
“Capital” – Analyzing Financial
Statements
Trend Analysis

WIP Analysis
Track jobs (margin) over time. Profit Fade.
Underbillings
How much profit in the pipeline?
Future WIP Cash Flow

Footnotes
Contingent Liabilities
Related Party transactions
Equipment Utilization
Taxes (Current and Deferred)
“Capacity” - Financial
Bank LOC/Covenants

Personal Indemnity
Assets and Liabilities

Accounting Software

Timeliness of Reporting

Professional Partnerships
“Capacity” – Other Factors
Experience
Appetite
Ownership/Continuity
Management Team
Sophistication of Organization
Market/Work Availability
Subcontractors
Contract Verbiage
Questions?
Surety Losses and Profitability

Surety Loss Ratio Percentages Over the Last 14 Years

100%
83%
80% 70%
60%
60% 46% 49%
40%
40% 24%
25%
16%18%13%20% 18%19%
20%

0%
'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 10 11 12
Calendar Years

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