Financial Analysis Checklist

Lock the analysis window — month-end, quarter-end, or trailing twelve months — and confirm the GL is closed for the period. Running ratios against an unlocked period means partner review notes will not tie when the client posts late entries.

Export the working trial balance from QBO, Xero, or Intacct along with the prior month, prior quarter, and prior year for variance work. Tie the TB to the locked balance sheet and P&L before any ratios are computed — a TB that does not foot makes every downstream ratio wrong.

Market-value ratios (EPS, P/E, dividend yield) only apply when the entity has publicly traded equity or is benchmarking against listed comps. For private SMB clients, skip the market-value section and stop after efficiency analysis.

Current assets divided by current liabilities. Strip out any restricted cash and related-party receivables before computing — those are not available to settle trade payables. Flag clients trending below 1.0 for a working-capital conversation.

(Cash + marketable securities + net A/R) divided by current liabilities. Inventory and prepaids are excluded. For inventory-heavy clients (distribution, manufacturing) the gap between current and quick ratio is the conversation — slow inventory is hiding in the current ratio.

Net credit sales divided by average net A/R. Cross-check against the A/R aging — turnover that looks healthy on the average can hide a concentration of 90+ balances. Flag any single customer over 10% of A/R for the management letter.

Common gotcha: bookkeepers leave fully-collected invoices open in QBO, inflating gross A/R and depressing turnover.

Two to four sentences for the management commentary: direction vs. prior period, drivers, anything that needs client action. If quick ratio is under 1.0 or trending down for two consecutive periods, escalate to partner review before delivery.

Total interest-bearing debt divided by total equity. Operating leases capitalized under ASC 842 belong in the debt figure for SMB lending covenant purposes; confirm with the lender's definition before comparing to covenant thresholds.

EBIT divided by interest expense. Pull interest from the GL detail rather than the P&L line — capitalized interest, fees amortized into interest, and intercompany interest sometimes get netted. Most bank covenants require a minimum of 1.25x or 1.5x.

Operating cash flow divided by total debt. Use the indirect-method cash flow from the period reporting package. A trailing-twelve-month view is more meaningful than a single month for seasonal businesses.

Lay the computed ratios against the loan agreement's defined ratios — note that lender definitions of EBITDA, debt, and equity often differ from GAAP. A covenant breach detected in analysis must be communicated to the client and partner before the reporting package goes out.

A confirmed breach changes the engagement — going-concern considerations, subsequent-event disclosures, and lender communication all enter scope. Loop in the engagement partner same-day; do not deliver the package until partner has signed off on language.

Gross profit / revenue and net income / revenue. Compare against prior period and prior year same-month. A margin shift of more than 200bps deserves a drill-down — usually mix shift, COGS reclass, or a one-time item that should be normalized in the commentary.

Net income divided by average total assets. For period analysis, annualize net income before dividing by the period-average asset balance. ROA is most useful trended over four to eight quarters rather than read at a single point.

Net income divided by average shareholder equity. For S-corps and partnerships, normalize for owner compensation and distributions before drawing conclusions — owner draws inflate ROE artificially when treated as equity reductions rather than compensation.

ROE = net margin × asset turnover × equity multiplier. The decomposition tells you whether ROE moved because of profitability, efficiency, or leverage — that distinction drives the management conversation. A rising ROE driven entirely by leverage is a different story than one driven by margin expansion.

COGS divided by average inventory; convert to days on hand. Slow-moving SKUs distort the average — request an inventory aging from the client if turnover has dropped two periods in a row. For non-inventory service businesses, skip this step.

Revenue divided by average total assets. For asset-heavy clients (manufacturing, real estate), benchmark against industry medians from RMA Annual Statement Studies or BizMiner rather than against the client's own history alone.

(A/R / revenue) × days in period. Compare to the client's stated payment terms — DSO running 15+ days past terms is a collections issue, not a measurement issue. Tie the conclusion back to the A/R aging review from the liquidity section.

(A/P / COGS) × days in period. Combined with DSO and inventory days, this gives the cash conversion cycle. A widening DPO can signal either negotiated terms wins or vendor-payment stress — the GL detail tells you which.

Compute basic and diluted EPS per ASC 260. For diluted, include the if-converted treatment of options, RSUs, and convertible debt; the treasury-stock method applies to in-the-money options. Confirm the share-count source is the transfer agent or cap table, not the prior-period filing.

Pull the trailing-twelve-month and forward P/E and benchmark against three to five public comps in the same SIC code. Flag a P/E more than one standard deviation off the comp set — usually that's a one-time earnings event distorting the denominator.

Annualized dividend per share divided by current price; payout ratio = dividends / net income. A payout above 100% is unsustainable absent a special-dividend explanation. Note any planned changes to the dividend policy disclosed in board minutes.

Every numerator and denominator should reference a tickmark on the locked TB. If the TB has been updated since the analysis started (late client AJEs are common), refresh and recompute — do not paper over the variance.

One page maximum: top three drivers, two concerns, one recommended action. Tie observations to specific ratios and prior-period movements rather than generic statements. The commentary is what the client actually reads.

The engagement partner reviews the workpaper, the commentary, and any flagged covenant or going-concern items before the package is released to the client. Sign-off is recorded here for the engagement file.