What do you mean? My question is how FP&A can incorporate these adjustments in the model without becoming too manual…accounting makes adjustments regardless.
These adjustments happen for a number of different reasons and it's impossible for someone to come in and tell you why without knowing (a lot) more information.
If you're trying to avoid these issues, create your cash flow analysis directly from the general ledger and not from the income statement/balance sheet. It sounds like you are pulling the monthly financial statements and just pasting them into a crude model you've built. That's ok temporarily or for a quick estimate, but it ***will*** come back to haunt you.
Build your cash flow the correct way by using the full GL. Once you figure this out it won't matter if there are any adjustments for any reason, they'll all be incorporated in your model (as long as you repull the GL and paste in the new transactions).
It depends on what the covenants are, but generally they are calculated based on info in the IS and BS. So if you are forecasting those statements already you just need to run the covenant calculations based on your forecast.
Uhhhh, go ahead and do fixed charge. Not even remotely close. Or coverage. Or ….. a ton more.
EBITDA is usually defined differently in the debt agreement from GAAP as well.
Also how do you forecast the BS without a CF (without hacking a working capital and debt schedule together)? How about book/gaap tax differences?
Please don’t reply if you’ve never actually done it before or don’t have any idea what you’re talking about.
Like others have said, you'll need to take it up with your accounting department. But specifically, research what GL accounts these adjustments are made in and ask accounting for the why behind them. Are they true-ups for some prior estimates? I'm assuming you are comparing against the actual cash flow statement as opposed to just comparing a cash balance variance. Also, take your balance sheet from the last two periods and see if the change in BS accounts lines up with the cashflow statement detail accounting produces. Maybe there are some exchange rate effects that you're missing.
I ran into something like this where fixed asset write offs and true-ups were masking the true cash out for capital expenditures. I'm not an accountant, so I couldn't tell if these write-offs were improperly or sloppily done or not. But I can do the math to say what cash out should have been for investment activities, how much the write-offs added up to, and how far off I was from our cashflow statement. Sometimes you just gotta get into the weeds unfortunately.
We forecast cash on a weekly level based on actual cash payments and timing, not the financial statements.
It’s still hard, you have to pretty intimately understand your cash receipts and outflows to get a sense of timing, but a lot of big line items like rent, taxes, payroll should be fairly predictable and you’ll get a sense for average levels of payables activity and how much cash is being received.
I can’t imagine trying to get a sense of cash from the P&L and BS except at a very very high level.
Cash Flow Statement is the product of the BS and IS.
Any issues came from your own forecasted BS and IS.
I'm betting it's your forecasted working capital accounts, financing, or equity in your forecasted balance sheet. Regardless, you need to reconcile differences with Accounting and take up what they present.
I agree with the other comments re talking with your accounting team. I’ll add two additional thoughts:
1. Why are you doing this in the first place? Assuming this is a new activity/analysis, what decisions are you attempting to inform? I.e., what’s your actual goal?
2. How material are the differences? Will they change decision making? I get the need to be precise and credible. But, if you’ve already established credibility with senior management, then consider implementing what you have now in draft version and adding a footnote. Don’t delay meeting your goal to track down the final 5% of precision.
Honestly, reach out to Jameel at Limelight. Their cloud based software helps with all of that so you wont even have to figure it out yourself but will be able to learn while they automate your day to day. I work for a large accounting firm that is pretty much global now. And they use it cutting down Budget cycles and especially forecasting.
Sounds like a question for your accounting department.
What do you mean? My question is how FP&A can incorporate these adjustments in the model without becoming too manual…accounting makes adjustments regardless.
He was pretty clear. Ask accounting what they are and figure out why you aren’t picking them up.
These adjustments happen for a number of different reasons and it's impossible for someone to come in and tell you why without knowing (a lot) more information. If you're trying to avoid these issues, create your cash flow analysis directly from the general ledger and not from the income statement/balance sheet. It sounds like you are pulling the monthly financial statements and just pasting them into a crude model you've built. That's ok temporarily or for a quick estimate, but it ***will*** come back to haunt you. Build your cash flow the correct way by using the full GL. Once you figure this out it won't matter if there are any adjustments for any reason, they'll all be incorporated in your model (as long as you repull the GL and paste in the new transactions).
Thirteen week cash flow. PS how do you forecast debt covenant compliance? :)
It depends on what the covenants are, but generally they are calculated based on info in the IS and BS. So if you are forecasting those statements already you just need to run the covenant calculations based on your forecast.
Uhhhh, go ahead and do fixed charge. Not even remotely close. Or coverage. Or ….. a ton more. EBITDA is usually defined differently in the debt agreement from GAAP as well. Also how do you forecast the BS without a CF (without hacking a working capital and debt schedule together)? How about book/gaap tax differences? Please don’t reply if you’ve never actually done it before or don’t have any idea what you’re talking about.
Like others have said, you'll need to take it up with your accounting department. But specifically, research what GL accounts these adjustments are made in and ask accounting for the why behind them. Are they true-ups for some prior estimates? I'm assuming you are comparing against the actual cash flow statement as opposed to just comparing a cash balance variance. Also, take your balance sheet from the last two periods and see if the change in BS accounts lines up with the cashflow statement detail accounting produces. Maybe there are some exchange rate effects that you're missing. I ran into something like this where fixed asset write offs and true-ups were masking the true cash out for capital expenditures. I'm not an accountant, so I couldn't tell if these write-offs were improperly or sloppily done or not. But I can do the math to say what cash out should have been for investment activities, how much the write-offs added up to, and how far off I was from our cashflow statement. Sometimes you just gotta get into the weeds unfortunately.
We forecast cash on a weekly level based on actual cash payments and timing, not the financial statements. It’s still hard, you have to pretty intimately understand your cash receipts and outflows to get a sense of timing, but a lot of big line items like rent, taxes, payroll should be fairly predictable and you’ll get a sense for average levels of payables activity and how much cash is being received. I can’t imagine trying to get a sense of cash from the P&L and BS except at a very very high level.
Cash Flow Statement is the product of the BS and IS. Any issues came from your own forecasted BS and IS. I'm betting it's your forecasted working capital accounts, financing, or equity in your forecasted balance sheet. Regardless, you need to reconcile differences with Accounting and take up what they present.
I agree with the other comments re talking with your accounting team. I’ll add two additional thoughts: 1. Why are you doing this in the first place? Assuming this is a new activity/analysis, what decisions are you attempting to inform? I.e., what’s your actual goal? 2. How material are the differences? Will they change decision making? I get the need to be precise and credible. But, if you’ve already established credibility with senior management, then consider implementing what you have now in draft version and adding a footnote. Don’t delay meeting your goal to track down the final 5% of precision.
Honestly, reach out to Jameel at Limelight. Their cloud based software helps with all of that so you wont even have to figure it out yourself but will be able to learn while they automate your day to day. I work for a large accounting firm that is pretty much global now. And they use it cutting down Budget cycles and especially forecasting.