Cash flow in hfm – simplified

Cash Flow in HFM
Simplified

Chris Barbieri

Copyright ©2013 by Chris Barbieri, Edgewater Ranzal

Agenda
What is cash flow and why do we
need it?
What are the primary issues that
need to be considered with the
design?
What is a straight forward method
for creating cash flow in HFM?
How can I offend serious
accountants through
oversimplification?

Thanks!

To Jim Heflin aka “Jim The Rules Guy”
For making this possible

What is Cash Flow?
The movement of cash into or out of a
business, project, or financial product.
The (total) net cash flow of a company over a
period (typically a quarter or a full year) is equal
to the change in cash balance over this period
● Positive if the cash balance increases (more cash
becomes available)
● Negative if the cash balance decreases.

More Specifically
Year to date cash flow is generally seen as the
difference between the beginning balance of a
balance sheet account (last year ending) and the
current balance of the account.
Increase in an asset account is a use of cash
● Subtracted from total cash flow.
● You buy inventory – so you spend cash

Increase in a liability account is a source of cash
● Added to total cash flow.
● You borrow money – which increases cash on hand

Cash Flow Statement


Operational cash flows
Cash received or expended as a result of
the company's internal business
activities.
Includes cash earnings plus changes to
working capital.
Over the medium term this must be net
positive if the company is to remain
solvent.


Investment cash flows
Cash received from the sale of long-life
assets, or spent on capital expenditure
● Investments
● Acquisitions
● Long-life assets


Financing cash flows

Cash received
● From the issuance of debt and equity

Cash paid out
● Dividends
● Share repurchases
● Debt repayments.


Why should you care?
Cash Flow Statement is one of the three primary
financial statements that all businesses utilize
Automation of the Cash Flow Statement can be
done in HFM
Unlike the Income Statement and Balance Sheet,
the Cash Flow Statement is primarily driven by
HFM rules
The complexity varies a lot based on the design


Broad Design Objectives
Create the cash flow in a way that lends itself to
external report presentation.
The design must also allow for easy analysis
internally.
The design should automate data movement to
minimize user input.
Maintenance should be simple and a function of
metadata instead of rules where possible.


Specific Design Considerations
Currency translation must be addressed.
Re-classes between financial statement line items
need to be facilitated
Intercompany eliminations need to be accurately
reflected.
Populate beginning and ending cash accounts
Source of the beginning balances may not be in
the same scenario where the calculations occur


Cash Flow Account Design
This will be a major account section
like the P&L or Balance Sheet.
The cash flow accounts are prefixed
with “CF” or “CF_”
The name of the cash flow account
is the same as the balance sheet
account it will source for data.


Cash Flow Account Design (cont’d)
This structure will directly
support reporting.
The cash flow account
descriptions are the cash
flow report lines.
The primary maintenance
point is in the metadata
instead of the rules.


Cash Flow Account Attributes
The account type is Revenue
● This will allow us to display
Periodic, QTD, or YTD on a
report.
● This will also cause the flow to
translate at the average rate.
● This will assist better / (worse)
type reporting.

Custom dimension attached
facilitates the data by source

Cash Flow Custom Dimension
Attached to each cash flow
account
Facilitates:
● Ease of analysis
● Clarity of cash flow line re-classes
● Natural Reporting


Walking Through the Process
HFM rules cycle through cash
flow accounts.
● HS.Account.IsBase(“CF”,sAccount)

Prefix “CF_” is removed to
reveal the source account
● Def_Tax

Cash flow account = change in
source account


Cash Flow Process (cont’d)
Custom destination is the
CF_Calc member.
Stores the Balance Sheet
change
● …or the P&L amount

Run at the Value dimensions:
● Entity Currency – base level
entities
● Any Adjustments
● Elimination

Where These Cash Flow Rules Run
Change in the balance sheet do not
run in
● <Entity Currency> in parent entities
● <Parent Currency>

Reason is:
● Actual cash flow must translate at the P&L
rate
● Average Rate
● And Periodic method

Running in the above locations would
overwrite the flows translating at the
Average rate.

Cash Flow Re-classes
A simple change in the Balance
Sheet may accommodate 90%
of the volume
● Re-classes will be required.

How the adjustments are
displayed varies greatly
between businesses. There is
no single pattern.
What do you need to report?

Cash Flow Re-classes - Sources
The adjustments populate for
several places.
Roll forwards and Stat accounts
are typical sources.
Some re-classes will require
data / manual input or journals.


Effect of Exchange Rate Cash Changes
Several simple ways to accomplish this
First is to determine CTA on the cash account itself
● Determined from the Cash account by recording the
change in cash similar to any other balance sheet account.
The flow will translate at the Average rate.
● Then calculate the difference in the cash account after
translations.
●

Difference between these two numbers is CTA on the cash account
(and cash flow).


Effect of Exchange Rate Cash Changes 2
A second method is the “Top of House” plug back
The calculated cash flow itself was translated at the
Average rate
Determine the change in the Cash account
The difference is the FX on cash.
● This method has risk, as any cash flow problems will end
up in the FX account


Beginning and Ending Cash Accounts
For ease of reporting, create:
● Beginning
● and ending cash accounts

Avoids needing different custom dimensions in the
rows of the cash flow report
A simple method is to
● Pull the prior year ending cash balance into one account
● and current cash balance into the ending account

Most cash flow is calculated on a YTD basis

Beginning Cash - Dynamic
Nicer to use Dynamic accounts
● Easy to see Periodic and Quarter to Date cash flow

Non-Dynamic holding accounts are populated with
the cash balance from the prior month or prior year
ending. Based on the view setting one of those
accounts is used to populate the dynamic beginning
cash account.
HS.Dynamic “A#CF_Beginning.W#Periodic
= A#CF_Cash_Beg_Prior_Month


Cash Flow Validation
Check the result of the cash flow calculations!
● Populate a validation account that compares change in
cash account(s) with calculated cash flow

If you populated beginning and ending accounts you
can use them to determine the change.
● Not dynamic

This is one of the final steps once the cash flow is
working
Note: If you plugged the FX with the difference this
is not possible.

Cash Flow Validation - Dynamic
The cash flow validation can also be dynamic.
If you have populated beginning and ending
accounts this really becomes simple. You only need
one statement similar to this per view.
HS.Dynamic “A#CF_Validation.W#Periodic
= A#CF_Cash_Flow_From_Calculations
-(A#CF_Cash_End – A#CF_Cash_Beg_Prior_Month)”


Other Considerations - Source Scenarios
Beginning balance may not always reside in the
same scenario as where the cash flow is being
calculated.
This is common in Budget and Forecast scenarios
A simple way to address this is to populated a
beginning scenario variable.
When the beginning balance is prior year ending,
this variable specifies the scenario from which to pull
the data.

Chris Barbieri
cbarbieri@ranzal.com
Needham, MA
USA
+1.617.480.6173
www.ranzal.com

Cash flow in hfm – simplified

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