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.
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Planning for 2017: What Gets Measured Gets Managed
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. 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”
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. 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
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asic
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aterials
02
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apitalG
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03
-
C
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erates
04
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C
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C
yclical
05
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C
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N
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yclical
06
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E
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erg
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H
ealth
C
are
09
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S
ervices10
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T
ech
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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. 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. 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
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. 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. 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. 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
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. 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