Cash Forecasting: Keeping it Simple and Accurate

December 15th, 2016

Bob Stark|Vice President, Strategy Greg Person|Vice President, Global Presales

Cash Forecasting: Keeping It Simple and Accurate

2© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 2

Webinar Logistics

• Listen only mode during the webinar

• Questions – submit questions at any time via the webinar console. We will do our best to address all of the questions at the end of the session

For any technical issues before the webinar (difficulty joining, audio connection, etc.) – please contact GoToWebinar support team at 1-888-259-8414. If already in session, please chat any technical issues via text.

CTP and FP&A accreditation – approval letters will be emailed within 3-5 business days to full session attendees

Recorded webinar & slides – will be emailed and posted under http://www.kyriba.com/resources/webinars

http://www.kyriba.com/resources/webinars


Greg Person, CTPKyriba Corporation

[email protected]

Bob Stark

Kyriba Corporation

[email protected]

@treasurybob

Today’s speakers

mailto:[email protected]


© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 4

Today’s discussions

Why Forecast – Value of forecasting

Opportunities to improve forecasting

Cash Forecasting Tips and Tricks

Questions and Answers

Agenda

Why Forecast?


Productivity

Financial controls

Global visibility

Effective financial decisions

Excess cash and liquidity• Investing longer • Debt repayment• Idle balance optimization

Cash mobility• Minimized Global Payments• Cash Pooling• Cash Repatriation

Risk Management• FX hedging• Liquidity planning

Strategic• Free cash flow guidance• Supplier financing programs

Treasury as a strategic partner

Why Forecast?


Increased Investment

By improving forecast accuracy, CFOs are able to reduce idle or underinvested cash balances and increase returns on cash

For every $10M of idle cash freed for strategic investment, bottom line impact can be > $100,000/year

Centralizing cash through In-House Banking / Cash Pooling will uncover more idle cash (and increase mobility back to subsidiary entities)

Why Forecast – Increasing Investment Income


Reduced Borrowing

Many organizations maintain idle balances but also have short term and/or long term debt outstanding

Without a reliable cash forecast, Treasurers hesitant to commit to debt repayment (save for a rainy day)

Typically revolver is first to paid down (more flexibility) but lately some treasurers don’t want to lose availability so will pay down outstanding bonds instead

Also focus on subsidiary lending and optimize with In-House Banking

Why Forecast – Debt Repayment/Reduction


Hedge Effectiveness

A better forecast means a better hedge program

For a $1B distributor with 50% global revenues, a 1%↑ in USD means $500M of global revenue becomes $495M

Increasing hedge coverage from 50% to 75% protects $1.25M for every 1% ↑ in USD

Why Forecast – Improving FX Hedging Effectiveness


Why Forecast – Excess Cash Balances

Shareholders want value from free cash flow & excess cash balances

Shareholders have visibility into your balance sheet and cash flow statement

Shareholders demanding return on cash –or return of cash

Complete visibility => confidence to make future decisions regarding excess cash (regardless of location or currency)


Why Forecast – Excess Cash Balances

Repatriating cash from overseas

Repatriation of cash: need to prepare for cash balances allocated to corporate actions (dividends, repurchase, acquisitions)

A good forecast will confirm where/when cash is needed in overseas markets

Forecasting will reduce cost of unnecessary borrowing, last minutes wires, and extra FX transaction costs


Working Capital Improvement

Improved visibility into cash flow needs and supplier payment terms identifies value of extending DPO

Determines ROI of a supply chain finance program

Sample scenario: – $1B annual supplier spend– Term extension of 30 days– Annual free cash flow gain of $83M– Income of $50,000

Why Forecast – Working Capital Improvement


Free cash flow analysis is performed by two teams using two strategies

1) Indirect method: FP&A

2) Direct method: Treasury

Free cash flow is increasingly part of guidance to investor community

FCF targets increasingly tied to executive compensation

Need confidence in forecasting to ensure alignment with FP&A

Why Forecast – Free Cash Flow Guidance


Why Forecast – Management Insight

Become a strategic partner

CFOs (and CEOs) generally ask for cash projections

Keys to success: Proactive and confident. Getting ahead of this will raise treasury’s profile

If management isn’t asking => Opportunity to impress!

Cash Forecasting: 3 Key Questions


Be efficient with your valuable resources

Cash flow forecasting involves significant input, time and effort from across the organization

Clearly determine the decisions the cash flow forecast information will facilitate and benefits this will bring to the company

1. What am I solving for?


Repeated mistakes lead to poor information and flawed business decisions

One certainty with any forecast is it will not be 100% accurate

Cash flow forecasting is an iterative process variance analysis and understanding the root causes responsible for forecast error is critical

2. Am I making the same forecasting mistakes?


Lack of insight to corporate strategy will increase probability of material variances

Corporate Treasury should not operate in corporate silo

New product lines, M&A strategies and expanding internationally will greatly impact the future cash flow needs and performance of the organization

3. Do I understand my business?

Opportunities to improve your forecast


Perfecting the Cash Forecast

Path to Success

a) Collaboration – involving the right people

b) Consolidation – incorporating the right data streams

c) Measurement – feedback loop to measure and report on forecast accuracy


Building the Forecast

Bank Reporting

CashForecast

Business Units

Spreadsheet Models

ERP

Investments and Debt

Historical Data

Internal TeamsDerivative Positions Payments

Forecasting success is about choosing the right sources

and models for the different

forecasting line items

© 2016 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL.

Importing Cash Flows

Importing cash flows doesn’t need to be an IT exerciseoSystem should take any format, any ‘structure’, and allow

configuration in the system by the useroWant to import detailed numbers or import sum totals

and spread across days


Recurring Cash Flows

Repetitive cash flows can be modeled for any frequency, with variability by day, week, montho Best used to create a placeholder - which is later replaced with

more updated forecast data from other sources


*Visibility*

Goal: Model and extrapolate forward historical cash flows

Steps:

1) Decide action and adjustments (e.g. average or trending of historic flows)

2) Select historic cash flows to extrapolate forward

3) Determine date/periods to project forward

Historical Data


*Visibility*Steps:1) Decide action and adjustments

(e.g. average or trending of historic flows)2) Select historic cash flows to extrapolate

forward3) Determine date/periods to project

forward

Cash Forecast Generation


Perfecting the Cash Forecast

Path to Success

a) Collaboration – involving the right people

b) Consolidation – incorporating the right data streams

c) Measurement – feedback loop to measure and report on forecast accuracy


Require detailed variance analysis to find the discrepancies Only way to improve forecasting is to uncover imperfections

Forecast Accuracy – analyzing forecast variances


Cash forecasting – final thoughts

Creating the cash forecast. Understand the objectives and benefits before rolling out cash

flow forecast exercise. Flexibility to align your data, the accuracy of the inputs will determine

the best methods to build your forecast effectively

Many reasons to forecast: Meeting the objectives of management and shareholders is

critical. Cash Forecasting is important if you are “cash rich”. Multinationals with significant

foreign revenues must forecast better in order to hedge effectively.

Measuring the forecast is the most important part of forecasting. Without measuring forecast

accuracy, it is impossible to know if you are good at forecasting.

ROI of cash forecasting is very high. Can be measured by investing longer with higher

returns on cash, repaying debt, earning yield from early supplier payments, and the value of

foreign cash protected through effective hedging

Questions?

Bob [email protected]

Greg Person

[email protected]




Additional Resources

eBook: Perfecting the Cash Forecast: Adding Business Value to the Organization

Get PDF at: http://kyri.ba/PerfectCashForecast

eBook: Six questions every treasurer should ask about their cash forecasting process

Get PDF at: http://kyri.ba/6CashForecastingQuestions

http://kyri.ba/PerfectCashForecast

http://kyri.ba/6CashForecastingQuestions


Thanks for attending

facebook.com/kyribacorp

twitter.com/kyribacorp

linkedin.com/company/kyriba-corporation

youtube.com/kyribacorp

slideshare.com/kyriba

kyriba.com/blog

Date post:	09-Jan-2017
Category:	Software
Upload:	kyriba-corporation
View:	140 times
Download:	4 times

Cash Forecasting: Keeping it Simple and Accurate

Software