CBO’s Dashboard Report Card

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CBO is introducing a Dashboard Report Card ( DRC ) as the latest value-adding Initiative Report to all its VIP accounting clients in 2021!

The DRC is a Traffic-Light Report Card which is self-explanatory to the business owners using the 3 lights indicators – “Green”, “Yellow” and “Red” – to indicate the key financial health of a Company after each financial period is closed by CBO.

The DRC will give clear indicators of the Profitability, Liquidity, Gearing and Solvency of a company.

“Green” signifies “All Clear” and “Healthy”.

“Yellow” signifies an “Alert” and “Take steps to Rectify before Financial health worsens”.

“Red” signifies “Immediate Attention needed to remedy the situation before “sudden death” occurs”.

Let us elaborate a bit here :

(A) Breakeven

Conducting a breakeven analysis is important to determine precisely when you can expect your business to cover all expenses and start generating a profit. This is a pivotal milestone in the early days of any startup business.

Breakeven Sales is the level of sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakeven.

(B) Profitability

Profitability is one of 4 building blocks for analyzing financial statements and company performance as a whole. The other 3 are liquidity, solvency, and marketability.

Investors, creditors, and managers use these key concepts to analyze how well a company is doing and the future potential it could have if operations were managed properly.

Profitability is ability of a company to use its resources to generate revenues in excess of its expenses. In other words, this is a company’s capability of generating profits from its operations.

The two key aspects of profitability are revenues and expenses. Revenues are the business income. This is the amount of money earned from customers by selling products or providing services.

Generating income isn’t free, however. Businesses must use their resources in order to produce these products and provide these services.

Resources, like cash, are used to pay for expenses like employee payroll, rent, utilities, and other necessities in the production process.

Profitability looks at the relationship between the revenues and expenses to see how well a company is performing and the future potential growth a company might have.

(C) Liquidity

Liquidity refers to the ease with which an asset, can be converted into ready cash.

In other words, liquidity describes the degree to which an asset can be quickly bought or sold in the market at a price reflecting its intrinsic value. Cash is universally considered the most liquor asset because it can most quickly and easily be converted into other assets.

Accounting liquidity measures the ease with which an individual or company can meet their financial obligations with the liquid assets available to them—the ability to pay off debts as they come due.

In investment terms, assessing accounting liquidity means comparing liquid assets to current liabilities, or financial obligations that come due within one year.

(D) Gearing

Gearing refers to the relationship, or ratio, of a company’s debt-to-equity (D/E).

Gearing shows the extent to which a firm’s operations are funded by lenders versus shareholders—in other words, it measures a company’s financial leverage.

When the proportion of debt-to-equity is great, then a business may be thought of as being highly geared, or highly leveraged.

* Gearing can be thought of as leverage, where it’s measured by various leverage ratios, such as the debt-to-equity (D/E) ratio.

* If a company has high leverage ratios, it can be thought of as being highly geared.

* The appropriate level of gearing for a company depends on its sector

For example, a gearing ratio of 70% shows that a company’s debt levels are 70% of its equity. A gearing ratio of 70% might be very manageable for a utility company—as the business functions as a monopoly with support from local government channels—but it may be excessive for a technology company, with intense competition in a rapidly changing marketplace.

Gearing, or leverage, helps to determine a company’s creditworthiness. Lenders may consider a business’s gearing ratio when deciding whether to extend it credit; to which a lender might add factors like whether the loan would be supported with collateral, and if the lender would qualify as a “senior” lender.

With this information, senior lenders might choose to remove short-term debt obligations when calculating the gearing ratio, as senior lenders receive priority in the event of a business’s bankruptcy.

There are also other ratios that can help to more deeply analyze a company’s solvency. The interest coverage ratio divides operating income by interest expense to show a company’s ability to pay the interest on its debt. A higher interest coverage ratio indicates greater solvency.

The Debt Ratio divides a company’s debt by the value of its assets to provide indications of capital structure and solvency health.

In general, a company with excessive leverage, demonstrated by its high gearing ratio, could be more vulnerable to economic downturn than a company that’s not as leveraged, because a highly leveraged firm must make interest payments and service its debt via cash flows, which could decline during a downturn.

On the other hand, the risk of being highly leveraged works well during good economic times, as all of the excess cash flows accrue to shareholders once the debt has been paid down.

(E) Solvency

Solvency is the ability of a company to meet its long-term debts and financial obligations.

Solvency can be an important measure of financial health, since its one way of demonstrating a company’s ability to manage its operations into the foreseeable future.

The quickest way to assess a company’s solvency is by checking its Shareholders’ Equity on the balance sheet, which is the sum of a company’s assets minus liabilities.

Assets minus liabilities is the another quickest way to assess a company’s solvency.

Solvency portrays the ability of a business (or individual) to pay off its financial obligations. For this reason, the quickest assessment of a company’s solvency is its assets minus liabilities, which equal its shareholders’ equity.

Many companies have negative shareholders’ equity, which is a sign of insolvency.

Negative shareholders’ equity insinuates that a company has no book value, and this could even lead to personal losses for small business owners if not protected by limited liability terms if a company must close.

In essence, if a company was required to immediately close down, it would need to liquidate all of its assets and pay off all of its liabilities, leaving only the shareholders’ equity as a remaining value.


* Solvency is the ability of a company to meet its long-term debts and other financial obligations.

* Solvency is one measure of a company’s financial health, since it demonstrates a company’s ability to manage operations into the foreseeable future.

* Investors can use ratios to analyze a company’s solvency.

* When analyzing solvency, it is typically prudent to conjunctively assess liquidity measures as well, particularly since a company can be insolvent but still can generate steady levels of liquidity

CBO’s Dashboard Report Card or DRC is the latest Value-added contribution to its recurring accounting clients.

CBO is looking forward to using this DRC to help drive the business performances of its clients in 2021 to the next higher level!

If you need help, feel free to contact us at :

(M) +65 90880669

(E) [email protected]

Written by Kelvin Loh