CFC s Financial Webinar Series The CFC KRTA: Five Key Ratios for Directors. How to Submit Your Question. Financial Webinar Series

Transcription

1 CFC s The CFC KRTA: Five Key Ratios for Directors How to Submit Your Question Step 1: Type in your question here. Step 2: Click on the Send button.

2 CFC s The CFC KRTA: Five Key Ratios for Directors Today s speakers include: Terri Wilson, CFC Jim Doerstler, Whitewater Valley REMC Polling Question What was the total number of service interruption minutes attributed to major storms in 2010?

3 Terri Wilson, Regional Vice President, CFC Today s Goals Introduce the Key Ratio Trend Analysis (KRTA) How Is It structured? 5 Key Ratios for Directors XYZ Rural Electric Cooperative (XXX)

4 Power of the KRTA Peer Groups 1. Nation 2. State 3. Similar Size 4. Same G&T 5. Similar growth Categories 1. Base Group 2. Financial Ratios 3. Revenue & Margins Ratios 4. Sales Ratios 5. Controllable Expense Ratios 6. Fixed Expense Ratios 7. Total Expense Ratios 8. Employee Ratios 9. Growth Ratios 10. Plant Ratios 145 in total XYZ Rural Electric Cooperative (XXX) How The KRTA Works Compares System Value to Medians of Five Comparison Groups by Year KRTA Shows Data Using Medians Average Example ,000 Total/5 Median Example ,000 Average = 1,626 Median = 43

5 What The KRTA DOES Assists in Analyzing System Operations Highlight Areas of Strengths and Weaknesses Indicator of Future Performance Provides Positive and Negative Trending What The KRTA DOES A High Level Look at Comparisons to Peers Must be Looked at as a Whole Requires Interpretation by Knowledgeable Staff Viewed in Context of the Year s Unusual Events What The KRTA DOES In Short... It Provides a Good Place to Begin Asking Questions

6 The KRTA DOES NOT Answer Why a Cooperative is High or Low in a Specific Ratio or Ratios Provide Interpretation of Financial goals Geographic, socioeconomic & demographic trends Peculiar operating characteristics The KRTA DOES NOT View Ratios in Context of the Year s Unusual Events Paint an Entire Business Picture The KRTA DOES NOT In Short... Provide Enough Data to Draw Conclusions Without Interpretation

7 Cautions: Differences exist in System characteristics Density Terrain Member mix Sales mix Accounting practices RUS vs. independent borrowers Differing opinions Cautions: Differences exist in Weather Strategic initiatives Reporting errors In short how are you different from the median cooperative Five Key Ratios Directors Should Monitor Equity Ratio 16 Equity as a % of Assets MDSC/TIER Ratio 6 TIER Ratio 10 - MDSC Revenue Ratio 33 Total Operating Revenue per KWH (mills)

8 Five Key Ratios Directors Should Monitor Power Cost Ratio 89 Power Cost per KWH Sold (mills) TUP (Total Utility Plant) Ratio 122 TUP investment per KWH sold (cents) Summary The KRTA is a Tool Designed to Help Begin Asking Questions Look for Both Positive & Negative Trends Each Ratio Must be Analyzed Relative to Other Ratios and the Unique Characteristics of the System The KRTA Should be Reviewed Annually by Management and the Board of Directors Jim Doerstler, Whitewater Valley REMC

9 Four General Areas for Board Member Analysis Financial Operations Growth Other Financial # 6: TIER Times Interest Earned Ratio # 11: MDSC Modified Debt Service Coverage # 16: Equity as a % of Assets # 19: Long-term Debt as a % of Total Assets # 36: Revenues per KWH Sold Operations # 77: O&M Expense per KWH Sold # 84: A&G Expenses as a % of Revenues # 95: Depreciation Expense as a % of TUP # 103: Total Operations Cost per KWH Sold

10 Growth # 114: Growth in KWH Sold # 115: Growth in Number of Customers Other # 113: Average Number of Customers/Employees # 139: Line Loss % # 144: System Average Interruption Duration Index Here s a guideline every board member should follow: If you see 2 or more ratios that are concerning, LOOK DEEPER AND ASK QUESTIONS!

11 Now let s turn it over to our audience! How to Submit Your Question Step 1: Type in your question here. Step 2: Click on the Send button. Please take a minute to complete the NRECA survey. If you are requesting CPE credits, this is a requirement.

12 Events & Training Tab Look for the replay of this program early next week Have an idea for a Web conference? Send it to: Bill.Clayton@NRUCFC.coop Mark Your Calendar For Our Next Event: January 19, 3 p.m. Eastern Time The Topic is Internet Security: What every co-op op director needs to know!

13