Medro Updates

Beyond Historical Earnings: Test One Operating Cost Assumption at a Time

By Don McClain

By Don McClain | Founder & Principal, Medro Advisors

The July financial-statement review argues that historical results are only part of a financing assessment. Add a simple sensitivity page for a material operating cost: current unit cost, proposed assumption, supporting quote and the resulting change in operating cash. Hold other assumptions constant so the cause of the change remains clear.

If management expects higher selling prices to offset the cost, show the evidence and timing separately rather than assuming an immediate pass-through. Ask the accountant to reconcile the test to the forecast. The result is a planning comparison, not a lender decision.