FPA HAnd Book

1. FPA HAND BOOK SESSION 1 - TOPICS SESSION 2 - TOPICS ASSIGNMENT REVIEW FORECAST FORECAST INPUTS ROLLING FORECAST DATA ANALYSIS DATA HANDLING DATA WRANGLING DATA REVIEW MANAGEMENT REPORTS COMMON EXCEL FUNCTIONS ASSIGNMENT FP&A BASICS FP&A ACTIVITIES FP&A TERMINOLOGIES TRANSACTION CYCLE FP&A TIMELINE BUDGETING BUDGETING TECHNIQUES BUDGETING APPROACHES BUDGETING PROCESS FORECAST VS BUDGET ASSIGNMENT SESSION 3 - TOPICS ASSIGNMENT REVIEW FINANCIAL ANALYSIS FACTORS TO CONSIDER COMMENTARY PRESENTATION FINANCIAL MODELING DASHBOARD PREPARATION EXCEL FUNCTIONS FOR DASHBOARD PRESENTATION w w w . f i n x l . i n 01

2. FPA HAND BOOK WHAT IS FP&A Finance Business Partner Planning and Strategy implementation FP&A is that department of Corporate Finance that helps in organization growth through effective strategic planning, forecasting and assessing the target achievement by performing financial analysis. It aims to support company's business decision and overall financial health. FP&A Activities Primary Budgeting Forecasting Management Reporting Strategic Planning Financial Modeling Secondary Pricing Month close reporting Contract Management Revenue Recognition Risk Management w w w . f i n x l . i n 02

3. FPA HAND BOOK FP&A TERMINOLOGIES Budgeting: Estimating expenses and revenue over a specified future period and expressing them in numerical terms,after getting the inputs from other departments Forecasting: This involves creating, updating, and maintaining financial models and detailed forecasts of the company's future operations. Management Reporting: This involves preparing and analyzing internal reports for senior management to support their decision-making Rolling Forecast - forecasting over a set period of time Actuals - Current period amounts Variances - Difference of actuals with budgeted, forecasted or previous years' numbers Narratives/Commentary - Brief summary statement which explains the reasons behind the variances Dashboard - Management reporting (usually in PowerPoint) highlighting the variances along with commentary Financial Modeling/Simulation - Projecting the results basis a given w w w . f i n x l . i n 03

4. FPA HAND BOOK FP&A and other departments AR AP R2R Tax Reporting Audit Actuals - Incomes and Expenses Actuals + Forecast + Narratives ACTUALS Collect Analyze Forecast Decision Making AP/AR/R2R deals with recording the dollar spent/earned by the company. FP&A's job is to think about where the next dollarof capitals is to be deployed. FP&A Activities and Timeline Q1 Q2 Q3 Q4 Financial Analysis Ad hoc Requests Forecasting Reporting Budgeting w w w . f i n x l . i n 04

5. FPA HAND BOOK Budgeting Process FP&A AS A DECISION-MAKING PLATFORM PLAN Planning & Budgeting • Annual operating plan (AOP) • Budgets • Headcount planning • Long-range planning Financial Modeling • What-if analysis • Scenario analysis [EXECUTE & MONITOR Reporting & Analysis • Operational reporting • Financial reporting • KPIs • Dashboards • Variance analysis • Drill through/roll up/drill across [RE] ASSESS Forecasting • Rolling forecasts Trend analysis • Predictive analytics Budgeting Process Budgeting Annual Operating Plan Strategic Plan Forecasting Rolling Forecast w w w . f i n x l . i n 05

6. FPA HAND BOOK Budgeting Process • Finalize approach and technique • Contact department heads • Gather business information Define Goals • Gather inputs • Remove Outliers • Review and Sanitize data • Make revision • Adjust budget if necessary • Get it approved by CEO, CFO Modify Budget as per Requirements Gather Data Analyze Variance & Create Budget Reconcile Goals and Data • Remove Outliers • Prepare Budget Compare final budget with inputs • Analyze Data • Compare it with Plan • Check feasibility of plan FP&A -Budgeting Techniques Incremental Budgeting The budget is made by changing the previous year's budget while considering the inflation factor, quick and easy method of Budgeting Zero-Based Budgeting The current year's budget is prepared from scratch without the input of the previous year Activity-Based Budgeting The budget is prepared after considering items that drive costs; in-depth analysis of activities and costs Value Proposition Budgeting Review costs to determine whether it brings value to the company w w w . f i n x l . i n 06

7. FPA HAND BOOK Top down vs Bottoms up approach of Budgeting Top Down Budgeting • Prepared by Senior Management • Passed on the Department Heads for Implementation • No Inputs from Lower Level Management • Saves Time Bottoms Up Budgeting • Prepared by Lower Management • Consolidated at higher level • Vital role of department heads • Time consuming but more closure to reality Budget Files Budget Journal Budget Activity Tracker Budget Template w w w . f i n x l . i n 07

8. FPA HAND BOOK FP&A Terminologies YTD - stands for Year To Date and covers period from starting of the year to the current period MTD -stands for Month To Date and covers period from starting of the month to the current period YTG - Means Year to Go (not to beconfused with YTD). It covers period immediately starting after the current period to the end of the current year. It is also referred as ROY (Rest of the Year) in some companies Full Year - combination of YTD and YTG will give you the full year number w w w . f i n x l . i n 08

9. FPA HAND BOOK Forecast What is Forecast - Adjustment to budgets/plan basis the actuals What should be forecast frequency - Depending on the actuals and management requirement - can be quarterly, monthly or even weekly What is the difference between budgeting and forecasting - • Budgeting is done annually, forecasting can be quarterly, monthly or weekly • Budget numbers do not change, forecast number do change frequently • Budgeting is the initial plan, forecasting is adjustments made to that plan to assess the final picture based on actuals What are essentials of effective forecast • Does not change the full year numbers to a large extent except due to unavoidable reasons • Made only after careful and comprehensive study of actuals • Made after considering inputs from all the stakeholders w w w . f i n x l . i n 09

10. FPA HAND BOOK Forecast Actuals Variance Management Department Forecast Inputs Inputs Rolling Forecast Always 12 months for forecasting Rolling Forecast - 12 months ACT ACT ACT FOR FOR FOR FOR FOR FOR FOR FOR FOR FOR FOR FOR 202101 202102 202103 202104 202105 202106 202107 202108 202109 202110 202111 202112 202201 202202 20220 Revenue 78,456 75,318 88,875 80,883 81,692 83,817 82,130 82,546 82,831 82,503 82,627 82,653 82,594 82,625 82,620 Direct Costs 39,679 37,695 42,972 40,115 40,261 41,116 40,498 40,625 40,746 40,623 40,665 40,678 40,655 40,666 40,661 SG&A 26,311 29,468 27,627 28,547 28,087 28,317 28,202 28,260 28,231 28,245 28,238 28,242 28,240 28,241 28,241 Net Income 12,466 8,154 18,276 12,220 13,344 14,383 13,431 13,662 13,854 13,634 13,724 13,734 13,699 13,718 13,710 Forecast only to end of current year Static Forecast ACT ACT ACT FOR FOR FOR FOR FOR FOR FOR FOR FOR 202101 202102 202103 202104 202105 202106 202107 202108 202109 202110 202111 202112 Revenue 78,456 75,318 88,875 80,883 81,692 83,817 82,130 82,546 82,831 82,503 82,627 82,653 Direct Costs 39,679 37,695 42,972 40,115 40,261 41,116 40,498 40,625 40,746 40,623 40,665 40,678 SG&A 26,311 29,468 27,627 28,547 28,087 28,317 28,202 28,260 28,231 28,245 28,238 28,242 Net Income 12,466 8,154 18,276 12,220 13,344 14,383 13,431 13,662 13,854 13,634 13,724 13,734 w w w . f i n x l . i n 10

11. FPA HAND BOOK Data Handling Asking Questions - • Checking the sanctity of data • Verifying the credibility of data provider • Assessing the validity of the data Data Wrangling • Bringing the data in the desired format • Identifying outliers and removing them • Consolidating and compiling the data in case of multiple sources Data Review • Ensuring data consistency • Ensuring the right tool (SQL/PeopleSoft/MS Excel) • Ensuring that data makes 'Sense' Data Analysis • Exploring the data • Uncovering patterns and trends • Gaining insights keeping in the mind the goal of Data Analysis • Drawing conclusions • Drafting recommendations Financial Modeling A fnancial model, in simple terms, is a computerized representation of a company's fnancial performance. It's like a digital crystal ball that allows you to predict and analyze how a company's fnances will change under diferent circumstances. A tool built in spreadsheets (like Excel) or specialized software, containing formulas and equations that replicate the fnancial relationships within a company. It considers factors like revenue, expenses, assets, liabilities, and cash fow. Can be used for various purposes, like: • Forecasting future fnancial performance: Predicting revenue, expenses, and profts under diferent scenarios, like launching a new product or entering a new market. • Valuation: Estimating the fair market value of a company or an asset. • Budgeting: Setting fnancial targets and tracking progress towards them. • Mergers and acquisitions: Analyzing the fnancial impact of potential deals w w w . f i n x l . i n 11

12. FPA HAND BOOK Common FP&A Reports 1) Budget Vs Actual Report • to report variance of actuals with budgets and/or forecasts • to track how close or far a business is in terms of achieving fnancial goals 2) Cash Flow Forecasting • to predict the fnancial future liquidity • to drive cash collection w w w . f i n x l . i n 12

13. FPA HAND BOOK Common FP&A Reports 3) Consolidated Financial Report • includes information from all the branches/departments • gives bird's eye view of overall fnancial performance 4) Flash Report • to report liquidity, proftability and efciency • to highlight outliers and exceptions 81091 30909 w w w . f i n x l . i n Finxl.corporatefinance Office No-301, 310, 311, Magnolia Business Center,Baner-Pashan Link Road, Baner, Pune 411021