An important part of a lender’s job is evaluating a borrower’s financial condition. But unearthing trends and early warning signals of financial distress from financial statements alone is challenging. Dashboard reports simplify the due diligence process by providing a one- or two-page summary of key performance metrics in a concise, visual format. These reports use customized ratios and graphs to tell the story behind the financial statements.

Information sharing

Similar to a car dashboard or control panel, dashboard reports provide owners and managers with timely, relevant input to make quick but informed decisions. Everything in a dashboard report can typically be found elsewhere in the company’s financial reporting systems, just in a less user-friendly format. Rather than report new information, these real-time snapshots capture the most critical data, based on the nature of the business and its goals.

Your borrowers may have used dashboard reports for internal purposes since the 1990s, when they originally gained popularity. Now these reports may be accessible to managers across an organization via the company’s internal website or weekly e-mail blasts. So, why shouldn’t borrowers periodically share this information with you, especially if you have specific concerns about the company’s viability?

For example, a senior lender agreed to renegotiate the terms of a distressed borrower’s debt only if the company sent weekly dashboard reports that shared various sales and productivity metrics. If the borrower stopped sending weekly updates, the lender reserved the right to call the loan.

Some companies are uncomfortable sharing their dashboard reports on a weekly basis or giving lenders access to internal websites. Instead, they might send lenders quarterly updates or include a dashboard report as an exhibit to their annual financial statements.

A tailored approach

Internal dashboard reports provide insight into what’s relevant in the eyes of management. But lenders may have different prerogatives that require a modified version of a borrower’s dashboard report.

When deciding which information is important to target, conduct your own risk assessment. What’s relevant varies depending on the industry, economic conditions, sources of collateral and business operations. Most dashboard reports include these ratios:

  • Gross margin [(revenues – cost of sales)],
  • Current ratio (current assets / current liabilities),
  • Total asset turnover (sales / total assets), and
  • Interest coverage ratio (earnings before interest and taxes / interest expense).

From here, lenders may select company- or industry-specific performance metrics. For example, a warehouse might report daily shipments or inventory turnover, not just total asset turnover. A retailer might provide sales graphs that highlight product mixes, sales rep performance, daily units sold and variances over the same week’s sales from the previous year. Or a professional practice might report each partner’s billings and realization rates — that is, how much is collected compared to how much could be billed.

The purpose of dashboard reporting is to quickly identify trends that require corrective actions. This transparency saves lenders time and effort in benchmarking performance.

No substitute for the real thing

Dashboard reports can be useful diagnostic tools for borrowers and lenders throughout the year. But lending due diligence has no shortcuts. Dashboard reports provide only limited information and can’t replace a comprehensive year end review of your borrower’s financial statements and footnote disclosures.