--- name: dealership-ratio-analysis-snapshot description: "Calculates and interprets the core financial ratios used in dealer floorplan credit analysis — liquidity, leverage, asset conversion cycle, and cash flow coverage — from dealership financial statement inputs, with benchmark context and a flag-level summary. Use when reviewing a dealership's financials for a credit decision, annual review, covenant check, or risk-rating refresh." argument-hint: "[balance-sheet] [income-statement]" allowed-tools: ["Read"] --- # Dealership Ratio Analysis Snapshot ## Purpose Convert a dealership's balance sheet and income statement into the four ratio families that drive floorplan and dealer-finance credit decisions — liquidity, leverage, asset conversion cycle, and cash flow coverage — each with a calculated value, dealer-industry benchmark, and a one-line interpretation. Eliminates manual spreadsheet recalculation and produces a consistent, review-ready snapshot for credit memos and annual reviews. ## When to Use Invoke this skill when the user asks to: - Run a ratio analysis on a dealership's financial statements - Assess a dealer's liquidity, leverage, or cash flow coverage for a credit decision - Prepare ratio exhibits for a credit memo, annual review, or risk-rating refresh - Check whether a dealership is tripping or approaching a financial covenant - Compare a dealer's working capital cycle against floorplan financing terms - Spot-check a dealership's financial health before extending or renewing a line ## Inputs Required Before starting, collect: - **Balance sheet**: Current assets, inventory (vehicle and parts), accounts receivable, total assets, current liabilities, floorplan payable, total liabilities, net worth/equity - **Income statement**: Total revenue, cost of goods sold, gross profit, operating expenses, EBIT, interest/floorplan expense, net income - **Dealer type**: Franchise (new), independent (used), or both — sets benchmark expectations - **Annual or interim**: Whether figures are full-year or a partial period (affects turnover annualization) - **Floorplan terms**: Curtailment schedule and average days financed per unit, if available - **Adjustments**: Any known add-backs (owner compensation, rent, one-time items) or LIFO/FIFO inventory basis - **Covenants**: Any contractual ratio thresholds the dealer must maintain, if applicable If dealer type is unspecified, default to franchise benchmarks and note the assumption. If interim figures are provided without a period length, annualize turnover ratios and flag the estimate. ## Instructions ### Step 1: Validate and Normalize Inputs Before calculating, confirm the statements tie and adjust as needed: - Verify total assets = total liabilities + net worth; if it doesn't balance, flag the discrepancy and proceed with the figures as given - Note inventory basis (LIFO vs. FIFO) — LIFO reserves understate inventory and can distort current ratio and turnover - Apply any provided add-backs to derive adjusted EBIT and adjusted net worth - Annualize income statement figures if the period is interim (e.g., multiply a 6-month figure by 2 for turnover denominators) ### Step 2: Liquidity Ratios Calculate and interpret each: - **Current Ratio** = Current Assets ÷ Current Liabilities. Dealer benchmark: 1.2–1.5x. Below 1.0x signals working capital strain. - **Quick Ratio** = (Current Assets − Inventory) ÷ Current Liabilities. Dealer benchmark: 0.3–0.6x (low by design — inventory dominates dealer balance sheets). A very low quick ratio is normal; an unusually high one may signal slow inventory or excess receivables. - **Working Capital** = Current Assets − Current Liabilities (dollar figure). Compare to floorplan exposure — negative working capital with high floorplan dependence is a warning. Note: dealer current ratios are structurally lower than general commercial benchmarks because floorplan payable sits in current liabilities. Interpret accordingly. ### Step 3: Leverage Ratios Calculate and interpret each: - **Debt-to-Equity** = Total Liabilities ÷ Net Worth. Dealer benchmark: under 3.5–4.0x (higher than typical commercial due to floorplan). Above 5.0x warrants scrutiny. - **Floorplan-to-Equity** = Floorplan Payable ÷ Net Worth. Measures wholesale leverage specifically. Above 5.0x indicates thin equity cushion against inventory risk. - **Net Worth as % of Total Assets** = Net Worth ÷ Total Assets. Benchmark: 12–20% for franchise dealers. Below 10% signals undercapitalization. ### Step 4: Asset Conversion Cycle Calculate days for each component, then the cycle: - **Days Inventory Outstanding (DIO)** = (Inventory ÷ COGS) × 365. Franchise new-vehicle benchmark: 45–60 days; used: 30–45 days. Rising DIO is the earliest aging signal. - **Days Sales Outstanding (DSO)** = (Accounts Receivable ÷ Revenue) × 365. Dealer benchmark: 5–15 days (mostly contracts-in-transit and warranty receivables). - **Days Payable Outstanding (DPO)** = (Floorplan Payable ÷ COGS) × 365. - **Cash Conversion Cycle** = DIO + DSO − DPO. The shorter, the better; compare DIO against the floorplan curtailment schedule — if DIO exceeds the days financed before curtailment, the dealer is funding aged units from its own cash. ### Step 5: Cash Flow Coverage Calculate and interpret each: - **Interest/Floorplan Coverage** = Adjusted EBIT ÷ Total Interest Expense (including floorplan interest). Benchmark: above 1.5x; below 1.25x is a coverage concern. - **Fixed Charge Coverage** = (Adjusted EBIT + Rent) ÷ (Interest + Rent + Current Portion of Long-Term Debt). Benchmark: above 1.2x. - **Return on Net Worth** = Net Income ÷ Net Worth. Context metric for repayment capacity — declining ROE alongside rising leverage is a deteriorating-trend flag. ### Step 6: Flag Summary and Covenant Check - Assign each ratio a status: **Green** (within or better than benchmark), **Yellow** (within 15% of the warning threshold), or **Red** (breaches the warning threshold). - If covenant thresholds were provided, compare each relevant ratio against its covenant and explicitly state Pass / Watch / Breach. - Identify the single most material risk indicator and the single strongest credit positive. ## Output Format - **Structure**: One ratio table per family (Liquidity, Leverage, Asset Conversion Cycle, Cash Flow Coverage), each row showing Ratio | Calculated Value | Benchmark | Status (Green/Yellow/Red) | One-line interpretation; followed by a flag summary - **Length**: 600–900 words including tables - **Format**: Four labeled ratio tables + a closing flag summary in short prose - **Sections**: Input validation notes → Liquidity → Leverage → Asset Conversion Cycle → Cash Flow Coverage → Flag Summary & Covenant Check - **Tone**: Credit analyst — precise, benchmark-anchored, no hedging on the flag calls ## Quality Checklist Before delivering output, verify: - [ ] Every ratio shows the formula inputs used, so the calculation is auditable - [ ] Each ratio has a calculated value, a dealer-specific benchmark, and a Green/Yellow/Red status - [ ] DIO is explicitly compared against the floorplan curtailment/days-financed schedule when provided - [ ] Balance sheet balance check is performed and any discrepancy is flagged - [ ] Interim figures, if present, are annualized for turnover ratios and the estimate is noted - [ ] Flag summary names one most-material risk and one strongest positive — not a generic recap ## Notes - Dealer balance sheets are floorplan-dominated, so general commercial benchmarks (e.g., 2.0x current ratio) do not apply — always use dealer-calibrated bands - The asset conversion cycle is the most predictive early-warning section for floorplan credit; aging inventory shows up here before it shows up in coverage ratios - Always reconcile DIO against the curtailment schedule — a dealer can look profitable while quietly funding aged units, which is the classic out-of-trust precursor - If only a balance sheet or only an income statement is provided, calculate the ratios that are computable and clearly mark the omitted families as requiring the missing statement --- ## How to use this skill This file is a Claude Code skill in [Anthropic's standard format](https://docs.anthropic.com/en/docs/claude-code/skills) — markdown with YAML frontmatter at the top. **Installing in Claude Code:** - `~/.claude/skills//SKILL.md` — auto-loads in every session anywhere on your machine (recommended for skills you'll use across multiple projects) - `/.claude/skills//SKILL.md` — auto-loads only when working in that project (recommended for project-specific skills) Restart Claude Code or open a new session to register. **Using in Claude.ai, ChatGPT, Gemini, or other AI tools:** 1. 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