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Cash Flow Series, Part 2: How to make HFM do the dirty work

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Cash Flow in HFM by itself is complicated - and adding in the topics of CTA and non-cash items can begin to make even the most seasoned HFM veterans' heads spin. Join us for part 2 of our 2-part cash flow series to see some different approaches to tackling these complex issues and find out how to make HFM do the dirty work for you.

In this session you will learn:

How to identify some of the most overlooked items when designing an automated cash flow solution in HFM
What Cumulative Translation Adjustment (CTA) is, how CTA, works and how this affects your cash flow solution
What non-cash items you will need to consider when designing your cash flow solution
Examples of how CTA and non-cash items can be addressed and solved, including explanations of the metadata and rules setup


Presenter: Matt Spencer
Date: 08/24/2018

Publicada em: Tecnologia
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Cash Flow Series, Part 2: How to make HFM do the dirty work

  1. 1. Advanced Topics in Cash Flow How to Make HFM do the Dirty Work August 24, 2018 Matt Spencer
  2. 2. OUR HISTORY A brief history of our partnerships Oracle Gold Partner Finit • Founded in 2002 • 90+ employees in 20+ states • Mostly CPAs, MBAs • 300+ Clients – all CPM / EPM Focused • 1,000+ CPM / EPM projects • 20+ Fortune 100, 60+ Fortune 500, 100+ Fortune 1000 OneStream Platinum Partner • 150+ HFM Projects • Managed largest roll-out of HFM in North America • 175+ FDM Projects • World leader in FDM implementations and custom solutions • 100+ Planning / Essbase projects • 40+ OneStream Clients (Market Leader) • #1 Implementer of OneStream • Platinum Partner • First OneStream MarketPlace App • RequestIT
  3. 3. The Finit Model Fully aligned with our clients, not just bottom line $ No debt or external ownership Work with Finit employees, no subcontractors Compensation based on CLIENT SATISFACTION PRIVATELY OWNED CLIENT SATISFACTION NO SUBCONTRACTORS DEBT FREE
  4. 4. Our values, culture, and approach to becoming a trusted advisor to our customers has led to 100% CUSTOMER SUCCESS for every project since our inception in 2002 300+ Clients 1,000+ Projects
  5. 5. Some Finit Clients
  6. 6. Questions
  7. 7. About the Presenter Slide 7 Matt Spencer (mspencer@finit.com) Experience 10 years with Hyperion suite 7 years in financial reporting for public and privately held companies Certification/Education BS – Accounting, Finance, University of Kansas (Rock Chalk!) Licensed CPA Certified Management Accountant HFM Certified Client Testimonial Finit has a remarkable reputation and no matter who you meet from the company, you can understand where the comments come from. Each of them is knowledgeable in so many aspects and takes the time to make sure the client fully understands the topic. They exceed the bar of professionalism while maintaining an enjoyable atmosphere.
  8. 8. Agenda Slide 8 • Overview / Today’s Goals • Main Topics • CTA in the Cash Flow • Overview of CTA • HFM Approaches / Examples • Overrides - Discussion • Non-Cash Items • Overview of Non-Cash • HFM Approaches / Examples
  9. 9. Overview Slide 9 • More advanced cash flow topics – CTA and Non-Cash Items • HFM Solutions for both of these • General cash flow presentation can be sent on request • Today’s Key Takeaways: • General Understanding • WHY do we need to account for these items in the Cash Flow • HOW can we design an application to meet those needs? • Not all inclusive – but a good start to get you thinking
  10. 10. Cumulative Translation Adjustment - CTA Slide 10
  11. 11. CTA Overview Slide 11 • Review of Cumulative Translation Adjustment (CTA): • Currency impact on change in Net Assets • Due to rate changes over time • Holding Place on the Balance Sheet • Will eventually come through the P&L • Why can’t we just translate the Balance Sheet? 1. P&L translated at AVERAGE rate and rolls to Retained Earnings 2. Everything else on the BS translates at EOM rates 3. Except for accounts that have historical currency overrides (Investment in Sub / Shareholder Contributions)
  12. 12. CTA Overview - Example Slide 12 CAD USD USD USD Local Currency Exchange Rate Translated Currency Override Amount Post-Override Income Statement: Sales 100.00$ 0.85 85.00$ -$ 85.00$ Cost of Sales 75.00$ 0.85 63.75$ -$ 63.75$ Net Income 25.00$ 21.25$ -$ 21.25$ Balance Sheet: Cash 1,100.00$ 0.90 990.00$ 990.00$ Accounts Receivable 100.00$ 0.90 90.00$ 90.00$ Assets 1,200.00$ 1,080.00$ -$ 1,080.00$ Debt 575.00$ 0.90 517.50$ 517.50$ Liabilities 575.00$ 517.50$ -$ 517.50$ Net Income 25.00$ 0.85 21.25$ -$ 21.25$ Parent Investment 600.00$ 0.90 540.00$ 750.00$ 750.00$ CTA -$ 1.25$ (208.75)$ Equity 625.00$ 562.50$ 750.00$ 562.50$ Balance -$ -$ -$ Here, we can see that our CTA is made up of our Income Statement amount of $1.25, and the difference between our translated Parent Investment and the Override of $(210). Balance Sheet / Income Statement Rate Portion (Net Income * difference in Avg/EOM Rates): $25*(.9-.85)
  13. 13. CTA Overview • We need to calculate CTA for the cash flow because… • Noncash item that impacts the balance of cash in translated currencies • Not captured in the Operating section, since it does not come through the Income Statement • Without it, we can’t reconcile beginning cash to ending cash with the Operating/Investing/Financing alone
  14. 14. CTA Overview **DISCLAIMER** When we talk about “CTA”, true CTA is the impact of the currency translation items on the ENTIRE balance sheet. For the purposes of our presentation, we are really just talking about the impact of changes in exchange rates on the CASH ACCOUNT
  15. 15. CTA Approach 1: Traditional GAAP Reporting Slide 15
  16. 16. CTA Approach: Default GAAP Format Slide 16 • “2D” approach – no breakout for each Balance Sheet category • Trying to calculate single line item to be reported on Cash Flow statement • Calculation of translation impact on the cash account (the amount that the cash account contributes to CTA on the Balance Sheet)
  17. 17. CTA Approach: Default GAAP Format Slide 17 • Simple metadata setup: 1. Create account in CF statement 2. Include a spot for CF data type in a custom *Disclaimer* The cash flow data type isn’t absolutely necessary, but it is a good practice to 1. Isolate your cash flow activity from other trial balance activity for the purpose of rule writing, and 2. Have the ability to distinguish cash flow activity that is input by users vs. calculated by the application
  18. 18. CTA Approach: Default GAAP Format Slide 18 • Straightforward “CTA” calculation in this approach. • The impact of currency translation in our cash flow is essentially the difference between activity translated at end of month rates, and activity translated at average rates: Two ways to validate this amount Ending 135,000 Activity (42,500) Beginning (90,000) Net 2,500 “Plug” the translated difference: Calculate difference of the activity translated at End of Month and Average Rates: Activity @ EOM: 50,000 * .9 = 45,000 Activity @ AVG: 50,000 * .85 = 42,500 Net 2,500 Cash Beginning Activity Cash Ending Currency Impact Local Currency 100,000 50000 150,000 - Translation Rates 0.9 0.85 0.9 Translated Amounts 90,000 42,500 135,000 2,500
  19. 19. CTA Approach: Default GAAP Format • Here’s how we could see this approach written in the rules: We only need this run on translated currencies. For the local currencies, Ending – Activity – Beginning should always be zero, so we don’t need the rule to run there Only specifically calling out the Custom4 member. So rule will run for all members in Custom1, 2, and 3. For your own application, think about what you want this rule to apply to Set Beginning and Ending Cash, pull these straight from the BS
  20. 20. CTA Approach: Default GAAP Format – Finished Product Cash Beginning Activity Cash Ending Currency Impact Local Currency 100,000 50000 150,000 - Translated Amounts 90,000 42,500 135,000 2,500
  21. 21. CTA Approach 2: Balance Sheet Breakout Slide 21
  22. 22. CTA Approach: Balance Sheet Breakout Slide 22 • Intended for applications where cash flow statement is broken out for balance sheet categories: • The primary difference: FX on cash is a net of the other balance sheet categories • NOT directly calculated Cash AR Inventory Other Assets PPE AP Other Liabilities Long-Term Debt Retained Earnings Common Stock Beginning Balance 81,000 90,000 45,000 67,500 130,500 13,500 18,000 67,500 225,000 90,000 Net Income 85,000 85,000 Adjustments to Reconcile Net Income to Cash Depreciation 4,250 (4,250) Amortization 1,700 (1,700) Changes in Current Assets and Liabilities Net Change in AR (12,750) 12,750 Net Change in Inventories (10,200) 10,200 Net Change in AP (2,550) (2,550) Net Change in Other Assets (4,250) 4,250 Net Change in Other Liabilities (5,100) (5,100) Net Cash from Operating Activities 56,100 12,750 10,200 2,550 (4,250) (2,550) (5,100) - 85,000 - Purchases of PPE (8,500) 8,500 Sales of PPE 2,550 (2,550) Net Cash from Investing Activities (5,950) - - - 5,950 - - - - - Issuances of Long-term Debt 42,500 42,500 Payments on Long-term Debt (25,500) (25,500) Issuances of Common Stock 17,000 17,000 Net Cash from Financing Activities 34,000 - - - - - - 17,000 - 17,000 Exchange Rate Impact (CTA) 4,950 750 600 150 100 (150) (300) 1,000 5,000 1,000 Net Increase (Decrease) 89,100 13,500 10,800 2,700 1,800 (2,700) (5,400) 18,000 90,000 18,000 Ending Balance 170,100 103,500 55,800 70,200 132,300 10,800 12,600 85,500 315,000 108,000
  23. 23. CTA Approach: Balance Sheet Breakout Slide 23 • Slightly different metadata approach • Use of additional custom dimension for BS groups • Cash activity is derived from this activity, not calculated • CF_NETCASH parent aggregates/nets activity for all other BS groups The activity in these members will aggregate/net to the parent “CF_NETCASH”
  24. 24. CTA Approach: Balance Sheet Breakout Slide 24 • Calculations not remarkably different • Instead of calculating the CTA/FX impact for the cash account, activity is calculated for all other balance sheet categories, • That activity is netted to find cash activity Beginning Activity Ending Beginning Activity Ending CTA AR 100,000 15,000 115,000 90,000 12,750 103,500 750 Inventory 50,000 12,000 62,000 45,000 10,200 55,800 600 Other Assets 75,000 3,000 78,000 67,500 2,550 70,200 150 PPE 145,000 2,000 147,000 130,500 1,700 132,300 100 AP 15,000 (3,000) 12,000 13,500 (2,550) 10,800 (150) Other Liabilities 20,000 (6,000) 14,000 18,000 (5,100) 12,600 (300) Long-Term Debt 75,000 20,000 95,000 67,500 17,000 85,500 1,000 Retained Earnings 250,000 100,000 350,000 225,000 85,000 315,000 5,000 Common Stock 100,000 20,000 120,000 90,000 17,000 108,000 1,000 Net 90,000 99,000 189,000 81,000 84,150 170,100 4,950 Local Currency Translated Currency This line represents what we would expect to see in our “cash” column AVG Rate 0.85 Used for Activity EOMRate 0.90 Used for Beginning and Ending Balances
  25. 25. CTA Approach: Balance Sheet Breakout Beginning Activity Ending Beginning Activity Ending CTA AR 100,000 15,000 115,000 90,000 12,750 103,500 750 Inventory 50,000 12,000 62,000 45,000 10,200 55,800 600 Other Assets 75,000 3,000 78,000 67,500 2,550 70,200 150 PPE 145,000 2,000 147,000 130,500 1,700 132,300 100 AP 15,000 (3,000) 12,000 13,500 (2,550) 10,800 (150) Other Liabilities 20,000 (6,000) 14,000 18,000 (5,100) 12,600 (300) Long-Term Debt 75,000 20,000 95,000 67,500 17,000 85,500 1,000 Retained Earnings 250,000 100,000 350,000 225,000 85,000 315,000 5,000 Common Stock 100,000 20,000 120,000 90,000 17,000 108,000 1,000 Net 90,000 99,000 189,000 81,000 84,150 170,100 4,950 Local Currency Translated Currency
  26. 26. CTA Approach: Balance Sheet Breakout • Rules are similar to approach calculating just the cash account • Couple extra steps to get each balance sheet group • Loop through each Custom2 member that is part of “cash flow category” rollup Note that C2 members have been named identical to balance sheet account, only prefixed with “CF_”. This allows a more flexible rule, So we don’t need to write a specific rule for each category.
  27. 27. CTA Approach: Balance Sheet Breakout – Finished Product Beginning/ending balances populated in the rules Since it is a parent, the Cash activity is the net, or the aggregate of all of the other balance sheet categories Cash AR Inventory Oth Assets PPE AP Oth Liab LT Debt Ret Earnings Common Stock Beginning Balance 81,000 90,000 45,000 67,500 130,500 13,500 18,000 67,500 225,000 90,000 Net Income 85,000 85,000 Adjustments to Reconcile Net Income to Cash Depreciation 4,250 (4,250) Amortization 1,700 (1,700) Changes in Current Assets and Liabilities Net Change in AR (12,750) 12,750 Net Change in Inventories (10,200) 10,200 Net Change in AP (2,550) (2,550) Net Change in Other Assets (4,250) 4,250 Net Change in Other Liabilities (5,100) (5,100) Net Cash from Operating Activities 56,100 12,750 10,200 2,550 (4,250) (2,550) (5,100) - 85,000 - Purchases of PPE (8,500) 8,500 Sales of PPE 2,550 (2,550) Net Cash from Investing Activities (5,950) - - - 5,950 - - - - - Issuances of Long-term Debt 42,500 42,500 Payments on Long-term Debt (25,500) (25,500) Issuances of Common Stock 17,000 17,000 Net Cash from Financing Activities 34,000 - - - - - - 17,000 - 17,000 Exchange Rate Impact (CTA) 4,950 750 600 150 100 (150) (300) 1,000 5,000 1,000 Net Increase (Decrease) 89,100 13,500 10,800 2,700 1,800 (2,700) (5,400) 18,000 90,000 18,000 Ending Balance 170,100 103,500 55,800 70,200 132,300 10,800 12,600 85,500 315,000 108,000
  28. 28. Non-Cash Activity Slide 28
  29. 29. Non-Cash Activity: Introduction • What are these – why would you want to segregate them from other cash flow activity? • You already capture some non-cash activity through the pickup of P&L lines in the operating section • But what about activity that doesn’t come through the P&L?
  30. 30. Non-Cash Activity: Introduction • What are some examples of non-cash activity? • Moving AR to “Other Receivables” • Moving AP to “Other Payables” • Moving PPE to “Other Assets” • Any type of reclassification from one balance sheet group to another • If we don’t separate these items out as “non-cash”, then the activity could be reported in the incorrect line in the cash flow. • For example, something reclassified out of AR would show up in the cash flow line in the Operating section
  31. 31. Non-Cash Activity: Introduction • If we don’t these items out as “non-cash”, then the activity could be reported in the incorrect line in the cash flow. • What if this was a reclass between PPE and Other Assets? Or Debt and Other Liabilties? Without Non- Cash Separated Non-Cash Transfer With Non-Cash Separated Net Income 85,000 85,000 Adjustments to Reconcile Net Income to Cash Depreciation 4,250 4,250 Amortization 1,700 1,700 Changes in Current Assets and Liabilities Net Change in AR (12,750) 3,000 (9,750) Net Change in Inventories (10,200) (10,200) Net Change in AP (2,550) (2,550) Net Change in Other Assets (4,250) (3,000) (7,250) Net Change in Other Liabilities (5,100) (5,100) Net Cash from Operating Activities 56,100 56,100
  32. 32. Non-Cash Activity: Introduction •Similar to the other cash flow examples, there are a couple of different ways to handle this activity in HFM: • Data type approach (Single-Column GAAP) • Roll forward approach (Balance Sheet Groups) • For full explanation items (PPE) • For balance change items (AR)
  33. 33. Non-Cash Activity: Data Type Slide 33
  34. 34. Non-Cash Activity: Data Type Approach • Cash flow setups using traditional GAAP-style reporting • No balance sheet group detail • Non-Cash activity handled through a “Data Type” • Layers non-cash activity on top of original cash flow line items • Custom dimension utilized
  35. 35. Non-Cash Activity: Data Type Approach • Metadata: When combined with the CF_INPUT or CF_CALC members, the total will be an “Adjusted” CF amount
  36. 36. Non-Cash Activity: Data Type Approach • Rules…None, really • Think through the following items: • Member lists? • NoInput Rules? • Top Customs? • Data Forms? • Eliminations?
  37. 37. Non-Cash Activity: Data Type Approach Original Activity Adjustment Post-Adjusted CF_INPUT / CF_CALC CF_NONCASH CF_DATATYPE Net Income 85,000 85,000 Adjustments to Reconcile Net Income to Cash Depreciation 4,250 4,250 Amortization 1,700 1,700 Changes in Current Assets and Liabilities Net Change in AR (12,750) 3,000 (9,750) Net Change in Inventories (10,200) (10,200) Net Change in AP (2,550) (2,550) Net Change in Other Assets (4,250) (3,000) (7,250) Net Change in Other Liabilities (5,100) (5,100) Net Cash from Operating Activities 56,100 56,100
  38. 38. Non-Cash Activity: Roll Forward Slide 38
  39. 39. Non-Cash Activity: Roll Forward Approach • Best used for Cash Flows that break out all BS groupings • Non-Cash roll forward member outside of the cash-flow • Need to back out of “Net Change” calculations (AR, AP, etc.)
  40. 40. Cash AR Inventory Oth Assets PPE AP Oth Liab LT Debt Ret Earnings Common Stock Beginning Balance 81,000 90,000 45,000 67,500 130,500 13,500 18,000 67,500 225,000 90,000 Net Income 85,000 85,000 Adjustments to Reconcile Net Income to Cash Depreciation 4,250 (4,250) Changes in Current Assets and Liabilities Net Change in AR (12,750) 12,750 Net Change in Inventories (10,200) 10,200 Net Change in AP (2,550) (2,550) Net Change in Other Assets (4,250) 4,250 Net Change in Other Liabilities (5,100) (5,100) Net Cash from Operating Activities 54,400 12,750 10,200 6,750 (4,250) (2,550) (5,100) - 85,000 - Purchases of PPE (8,500) 8,500 Sales of PPE 2,550 (2,550) Net Cash from Investing Activities (5,950) - - - 5,950 - - - - - Issuances of Long-term Debt 42,500 42,500 Payments on Long-term Debt (25,500) (25,500) Issuances of Common Stock 17,000 17,000 Net Cash from Financing Activities 34,000 - - - - - - 17,000 - 17,000 Net Increase (Decrease) 82,450 12,750 10,200 4,250 1,700 (2,550) (5,100) 17,000 85,000 17,000 Ending Balance 163,450 102,750 55,200 71,750 132,200 10,950 12,900 84,500 310,000 107,000 Non-Cash Activity: Roll Forward Approach • Example: $2,500 Non-Cash Transfer from Other Assets to PPE • Not pictured in the amounts below
  41. 41. Non-Cash Activity: Roll Forward Approach • Metadata – Just adding a new account • SIBLING to Op/Inv/Fin • Still using our Balance Sheet groups • Data Type is optional – redundant w/account
  42. 42. Non-Cash Activity: Roll Forward Approach • Amounts should ALWAYS net between Custom2 members! • The impact to CF_NETCASH should be 0!
  43. 43. Non-Cash Activity: Roll Forward Approach • For members where users explain activity (PPE, Debt, etc.), it’s just another category of activity: • No calculation changes required Cash PPE Oth Assets Beginning Balance 81,000 130,500 67,500 Net Income 85,000 Adjustments to Reconcile Net Income to Cash Depreciation 4,250 (4,250) Changes in Current Assets and Liabilities Net Change in AR (12,750) Net Change in Inventories (10,200) Net Change in AP (2,550) Net Change in Other Assets (4,250) 4,250 Net Change in Other Liabilities (5,100) Net Cash from Operating Activities 54,400 (4,250) 4,250 Purchases of PPE (8,500) 8,500 Sales of PPE 2,550 (2,550) Net Cash from Investing Activities (5,950) 5,950 - Issuances of Long-term Debt 42,500 Payments on Long-term Debt (25,500) Issuances of Common Stock 17,000 Net Cash from Financing Activities 34,000 - - Net Increase (Decrease) 82,450 1,700 4,250 Non-Cash Activity - 2,500 (2,500) Ending Balance 163,450 134,700 74,250 - - (2,500)
  44. 44. Non-Cash Activity: Roll Forward Approach • But what about when the net change is calculated? • We need to update our rules Cash PPE Oth Assets Beginning Balance 81,000 130,500 67,500 Net Income 85,000 Adjustments to Reconcile Net Income to Cash Depreciation 4,250 (4,250) Changes in Current Assets and Liabilities Net Change in AR (12,750) Net Change in Inventories (10,200) Net Change in AP (2,550) Net Change in Other Assets (4,250) 4,250 Net Change in Other Liabilities (5,100) Net Cash from Operating Activities 54,400 (4,250) 4,250 Purchases of PPE (8,500) 8,500 Sales of PPE 2,550 (2,550) Net Cash from Investing Activities (5,950) 5,950 - Issuances of Long-term Debt 42,500 Payments on Long-term Debt (25,500) Issuances of Common Stock 17,000 Net Cash from Financing Activities 34,000 - - Net Increase (Decrease) 82,450 1,700 4,250 Non-Cash Activity - 2,500 (2,500) Ending Balance 163,450 134,700 74,250 - - (2,500)
  45. 45. Non-Cash Activity: Roll Forward Approach • Need to make sure our Non-Cash items are being backed out of the “Net Change” calculations Ending Balance - Beginning Balance - Non-Cash Activity Net Change in Account BEFORE AFTER Oth Assets Oth Assets Beginning Balance 67,500 67,500 Net Income Adjustments to Reconcile Net Income to Cash Depreciation Changes in Current Assets and Liabilities Net Change in AR Net Change in Inventories Net Change in AP Net Change in Other Assets 4,250 6,750 Net Change in Other Liabilities Net Cash from Operating Activities 4,250 6,750 Purchases of PPE Sales of PPE Net Cash from Investing Activities - - Issuances of Long-term Debt Payments on Long-term Debt Issuances of Common Stock Net Cash from Financing Activities - - Net Increase (Decrease) 4,250 6,750 Non-Cash Activity (2,500) (2,500) Ending Balance 74,250 74,250 (2,500) - 71,750 71,750
  46. 46. Non-Cash Activity: Roll Forward Approach – Final Product Cash AR Inventory Oth Assets PPE AP Oth Liab LT Debt Ret Earnings Common Stock Beginning Balance 81,000 90,000 45,000 67,500 130,500 13,500 18,000 67,500 225,000 90,000 Net Income 85,000 85,000 Adjustments to Reconcile Net Income to Cash Depreciation 4,250 (4,250) Changes in Current Assets and Liabilities Net Change in AR (12,750) 12,750 Net Change in Inventories (10,200) 10,200 Net Change in AP (2,550) (2,550) Net Change in Other Assets (4,250) 6,750 Net Change in Other Liabilities (5,100) (5,100) Net Cash from Operating Activities 54,400 12,750 10,200 6,750 (4,250) (2,550) (5,100) - 85,000 - Purchases of PPE (8,500) 8,500 Sales of PPE 2,550 (2,550) Net Cash from Investing Activities (5,950) - - - 5,950 - - - - - Issuances of Long-term Debt 42,500 42,500 Payments on Long-term Debt (25,500) (25,500) Issuances of Common Stock 17,000 17,000 Net Cash from Financing Activities 34,000 - - - - - - 17,000 - 17,000 Net Increase (Decrease) 82,450 12,750 10,200 6,750 1,700 (2,550) (5,100) 17,000 85,000 17,000 Non-Cash Activity - (2,500) 2,500 Ending Balance 163,450 102,750 55,200 74,250 134,700 10,950 12,900 84,500 310,000 107,000 Should ALWAYS Be $0 71,750
  47. 47. Q & A
  48. 48. Thank you for Attending! Today’s Presenter: Matt Spencer mspencer@finit.com Greg Barrett gbarrett@finit.com Copy of the slides or Recording: Email us for a copy of the slides or a link to the recording insights@finit.com Past webinars: www.finit.com/webinars Follow us on Twitter for updates: @Finit_Solutions

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