Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Upcoming SlideShare
Optimizing Your Cash Forecast
Next
Download to read offline and view in fullscreen.

0

Share

Planning for 2017: What Gets Measured Gets Managed

Download to read offline

According to several AFP surveys, almost 50% of Treasures have no metrics; yet, 2017 may prove to be one of the most challenging times when it comes to understanding how much liquidity is “enough” or how much risk is “too much”. If your organization is using “too many” spreadsheets, inundated by frequent reconciliations and consumption of scarce staff resources - this webinar will offer you timely ideas.

Related Books

Free with a 30 day trial from Scribd

See all

Related Audiobooks

Free with a 30 day trial from Scribd

See all
  • Be the first to like this

Planning for 2017: What Gets Measured Gets Managed

  1. 1. Planning for 2017: What Gets Measured Gets Managed By Bruce C. Lynn, CTP, The FECG LLC Gregory Person, CTP, Kyriba October 11, 2016
  2. 2. 10/11/16 Agenda  Where are we today?  Outlook Next 12 months  What gets measured gets managed  Too much processing, not enough planning?  Building a business case for change in 2017  A metrics “starter set”
  3. 3. 10/11/16 Current Economic Trends
  4. 4. 10/11/16 Current Economic Trends (2) Source: BEA, Factset, JP Morgan Asset Management Slow is the new normal ?
  5. 5. 10/11/16 Current Economic Trends (3) Source: BEA, Factset, JP Morgan Asset Management best uses of cash?
  6. 6. 10/11/16 S & P Non Financial Companies (428 companies) Quarterly Trends as of 6/30/16 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Q8 Q7 Q6 Q5 Q4 Q3 Q2 6/30/2016 $inBillions 0 20 40 60 80 100 120 140 FreeCashFlow($inBillions) Cash & S/T Equiv. Total Debt Free Cash Flow How much cash is “enough”? Cash trend flat; free cash flow trend volatile. How much cash is enough? Debt Cash Current Economic Trends (4)
  7. 7. 10/11/16 Snapshot - S& P 500 Non Financial Companies (428 co.) (Selected Results - 12 months ending 6/30/16) 41 61 1 64 153 71 222 142 592 34 15 193 211 4 284 437 331 502 1,050 506 134 532 11 19 0 2 41 -49 76 101 144 13 -31 -100 100 300 500 700 900 1,100 1,300 01 - B asic M aterials 02 - C apitalG o o ds 03 - C o ng lom erates 04 - C o nsu m er C yclical 05 - C o nsu m er N o n-C yclical 06 - E n erg y08 - H ealth C are 09 - S ervices10 - T ech no log y 11 - T ransp ortation 12 - U tilities $inMillions Cash + S/T Inv Q1 Total Debt S/T + L/T Q1 Free Cash Flow 12Months Current Economic Trends (5) How much risk (debt / free cash flow) is “too much”? “enough” varies by Industry: Tech = OK. Services? Utilities?
  8. 8. 10/11/16 Outlook – Next 12 Months Top Concerns for U.S. Businesses – Jun 2016 1 Economic uncertainty (Investments) 2 Attracting and retaining qualified employees (Staffing) 3 Regulatory requirements (Compliance) 4 Cost of benefits (Costs) 5 Weak demand for product/services (Volume) 6 Government policy (Compliance) 7 Data security (Operations - Risk) 8 Employee productivity (Costs) 9 Access to capital (Financing) 10 Rising wages and salaries (Costs) Source: Duke's Fuqua School of Business / CFO Magazine Business Outlook, Jun 2016; 626 firms
  9. 9. 10/11/16 Outlook – Next 12 Months Duke Fuqua / CFO Magazine Survey June 2016 Expected Growth - Next 12 months (626 companies) -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% Jun 2016Mar 2016Dec 2015Sept 2015Jun 2015 Dividends* Share Repurchases* Cash on balance sheet* Duke Fuqua / CFO Magazine Survey June 2016 Expected Growth - Next 12 months (626 companies) -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% Jun 2016Mar 2016Dec 2015Sept 2015Jun 2015 Dividends* Share Repurchases* Cash on balance sheet* Cash Balances to decline
  10. 10. 10/11/16 © The Financial Executives Consulting Group LLC 10 A Framework for the Future If You Do Not Know Where You are Going… Any Road Will Take You There Mr. Cheshire Cat What Gets Measured Gets Managed… Mr. Peter Drucker Who To Trust?
  11. 11. 10/11/16 © The Financial Executives Consulting Group LLC 11 Risk Mgt (Mkt, Credit, Ops) Cash Accounting (focus on creating, posting, reconciling transactions) DebtInvestment Cash Management (focus on balances) DebtInvestment Cash Management (focus on balances) Treasury Performance - Today • Current focus on internal processing • Resources devoted to repetitive tasks Cash Tomorrow Today
  12. 12. 10/11/16 © The Financial Executives Consulting Group LLC 12 Treasury Performance – Few Metrics Measurement & Communication of Results to Executive Management & Board: Treasury Contribution to Company Performance All Revenues < 1BN Revenues > 1Bn No Measures / No Communication 51% 43% Has Measures & Communicates 55% 49% 57% Totals 100% 100% 100% Source: AFP 2014 Strategic Role of Treasury Survey (243 responses) 45%
  13. 13. 10/11/16 Treasury Performance – Daily Work Source: Kyriba / ACT June 2016 Survey (332 responses), Figure 3, Daily Responsibilities 2016 survey results consistent with 2014 AFP results
  14. 14. 10/11/16 What Gets Measured Gets Managed  Measuring success • External – depends on industry and competition • Internal - assumptions need, but how to capture? • Must integrate multiple perspectives  Profitability: Unit volume, prices, costs; fixed vs. variable drivers (e.g. time vs. volume)  Liquidity: Investments (uses) & Financing (sources) - must match sources and uses over time (balance sheet & future cash flow)  Risk: exposure to factors with little ability to control them (FX rates, Interest rates, Counterparty risk). Example: Stronger USD / Weaker GBP means GPB sales are worth less  Rewarding success (Hint: it is not all about the P & L)
  15. 15. 10/11/16 What are we solving for? Entity Act Plan F (U) Acme CA 0.9 0.5 (0.40) Acme UK 1.6 1.0 (0.60) Acme JP 0.8 1.0 0.20 Acme DE 0.5 0.5 - Acme AU 1.1 1.0 (0.10) Mar 15 USD Equiv Liquidity Scorecard Set Objectives Measure Manage  Clear reporting expectations for global regions  Senior management buy-in and incentives  Set metrics and KPIs: e.g. target bank balances, forecast accuracy, hedge ratios, benchmark rates  Transparent and proactive reporting  Treasury scorecards, incentives, multibank technology communication channels  Take action – working capital strategies (e.g. SCF) to improve cash flow  Proactive restructuring of liquidity and KPIs as business evolves  Adjust hedge layers  Actively compete trades
  16. 16. 10/11/16  Complete position; current day actuals and forecast items  Zero-balance and target balance account cash consolidation  Transparency into variances  Reduce interest expense  Achieve and manage ‘goldilocks’ balance Daily Target Balancing
  17. 17. 10/11/16  Monitor intercompany loans balances and credit ratings  Apply arm’s length interest treatment  Loan position hygiene  Credit worthiness?  Balances repaid?  Credit spreads applied?  Manage compliance (reg 385) and tax regulations Intercompany Management
  18. 18. 10/11/16  Exposure variance analysis  Budget rate vs. hedge rate  FX hedge coverage ratios  Hedge effectiveness  Reduce P&L volatility Currency Management
  19. 19. 10/11/16  Ability to quickly solve for working capital needs  Benchmark to peers  Actively manage to compete trades / issuances  Real P&L benefit  Reduce interest expense  Improve interest income Benchmark Interest Income / Expense
  20. 20. 10/11/16  Real-time insight forecast upside / risk  Transparency into variances  Align FP&A cash flow targets with Treasury direct forecast  Execute capital allocation strategies with confidence  Manage cash flow expectations Cash Flow Forecasting
  21. 21. 10/11/16 © The Financial Executives Consulting Group LLC 21 The Year Ahead – One Scenario  A near term scenario • Uncertain actions by competitors. Impact on growth? • Higher interest rates in 2017 • Stronger USD: Exports more expensive; Fgn income worth less; lower Fgn investment costs • Investors want cash payout “now” • Enough liquidity?  If more payouts = less cash remains for operations, debt repay, future investments  Banks remain reluctant lenders (Basel LCR? RAROC)  Reg 385 – restrict intercompany cash movement • Debt capacity maxed out? • Rely on organic growth or use cash for M&A?  Is treasury equipped for this scenario?  If so, what is a “successful” outcome?
  22. 22. 10/11/16 © The Financial Executives Consulting Group LLC 22 The Business Case for Change  Striking the “right” balance? • Requires integrating P, L, R goals for the future • Need to measure actual results vs. tactical and strategic goals  Focus on liquidity & leverage metrics • 9AM: Where in the world is my cash? • 11AM: Do I invest or do I borrow? • End of day: forecasting the “right” decision for tomorrow?  Balance sources with uses • Internal: Cash on hand + Cash flows forecasted  If long cash: repay & borrow less / lower mkt exposure?  If short: “Buy” in the market. Fixed or variable rate? • External sources:  Invest sooner to become more competitive?  Investors dividends = better stock price?  Problem: need resources now (e.g. systems, staff, etc) to forecast future benefits
  23. 23. 10/11/16 © The Financial Executives Consulting Group LLC 23 The Business Case for Change (2)  To start: • Treasury should own the cash flow statement • Market prizes operational cash flows  Comply or die – Do NOT become MF Global  Pay for performance and use two perspectives: • Top down – link uses with sources by SBU • Bottom up – link sources and uses at transactional level  Think outside the silo - involve your “friends”: • Operating units – they control operating cash flow • Financial units – FP&A, Tax, Audit helps fin. cash flows • Even your banks ….  Forecast the future with measurable metrics • Interest Expense - less borrowing or lower cost? • Bank fees – services are not free • Staff costs - in & out of treasury? • Lower exposures – to FX losses, overdraft, fraud • Increases in debt capacity and / or decrease in utilization • Access to more 3rd parties for debt or equity
  24. 24. 10/11/16 © The Financial Executives Consulting Group LLC 24 1. Cash on hand (by curr., entity, bank, etc) 2. Free Cash Flow ($FCF) = op cash flow – CAPEX – Dvds (compared to uses?) 3. Cash Conversion Cycle (days) = DSO + DIO – AP Days to pay 4. Burn rate ($ / day) = Avg. current liabilities / cash on hand. 5. Debt headroom (% or $) = debt used vs credit limits 6. Leverage = debt / FCF; debt / equity 7. Ops cost = Treasury + bank + back office + FX losses Which of these do you measure? Treasury Metrics – “Starter Set”
  25. 25. Q & A  Bruce C. Lynn, CTP • FECG LLC, Managing Partner • 203-655-4806 • blynn@thefecg.com  Greg Person, CTP • Kyriba, VP Presales • 508-359-4968 • gperson@kyriba.com 10/11/16

According to several AFP surveys, almost 50% of Treasures have no metrics; yet, 2017 may prove to be one of the most challenging times when it comes to understanding how much liquidity is “enough” or how much risk is “too much”. If your organization is using “too many” spreadsheets, inundated by frequent reconciliations and consumption of scarce staff resources - this webinar will offer you timely ideas.

Views

Total views

161

On Slideshare

0

From embeds

0

Number of embeds

65

Actions

Downloads

9

Shares

0

Comments

0

Likes

0

×