Government Finance Officers Association of Texas Fall Conference 2017 ESTABLISHING A CASH FLOW MODEL EMILY A. UPSHAW, CPA VALLEY VIEW CONSULTING, LLC
Objectives: Understand the importance of developing a cash flow model Discuss laddering of investments Learn approach to building a cash flow model for operating funds Discuss example cash flow model and various methods of analysis 2
Questions: Would you try to build a house without a plan? Would you try to drive to an address across the country without a map? Then why would you try to build an effective portfolio without a cash flow plan?? 3
Cash Flow Information is Important In most cases where portfolios imploded or caused financial duress, it was due to a failure to consider the cash flow needs of the organization. Cash flow models can set the portfolio on a firm foundation and should be the cornerstone for building the portfolio structure. 4
Cash Flow Information is Important How do Cash Flow Models Assist the Portfolio Manager? Historical Perspective to Cash Needs Identify Trends Tool for Enhancing Investment Income 5
Note: Important Distinction Operating funds Forecasting the use of historic data to determine the direction of future trends (Investopedia) Projectbased funds Draw schedule required for anticipated spending 6
Cash Flow Information is Important Use Cash Flow to Ladder the Portfolio Importance of Laddering Minimizes Impact of Changing Interest Rates Diversifies Risk Results in a More Dependable Return 7
Yield Curve Opportunities Rate Time Normal Yield Curve Offers Higher Rates for Longer Term Maturities Cash Flow Model Identifies Potential Maturities Along the Yield Curve 8
Where Do I Start? Data is All Around You Bank Statements Portfolio Reports Accounting Summary Reports How Much Time Will It Take? Set Up and First Entries might take a day Subsequent Maintenance should only take a few minutes/hours depending on the number of portfolios/accounts 9
Analysis One What is the History? Cash Flow from Cash/Investment Perspective Bank Statements Monthly Portfolio Reports Collect Statements/Reports for Last Three (or more) Years On a spreadsheet, record the monthend balances for each bank account and the portfolio ending book values 10
A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 Ending Totals = sum of each column Graph Row 15 11
Operating Fund Historical Portfolio Balances $180,000,000 $160,000,000 $140,000,000 $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $0 12
Analysis Two How Much? Portfolio Allocations Three Buckets 1. Longterm (Core) Maturity beyond 1year 2. Intermediate Maturity between 3months and 1year 3. Liquidity Maturity less than 3months 13
Operating Fund Historical Portfolio Balances $180,000,000 $160,000,000 $140,000,000 $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $0 14
A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 16 Portfolio Monthly Change 7,340,893 (1,617,976) (10,799,485) (1,299,870) (1,158,136) (858,474) (1,076,269) (2,694,480) 17 Portfolio Declines 0 1,617,976 10,799,485 1,299,870 1,158,136 858,474 1,076,269 2,694,480 18 Portfolio Increases 7,340,893 0 0 0 0 0 0 0 19 { Graph table: Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 20 1 Core base 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 21 2 Portfolio Balance 86,314 84,939 75,760 74,655 73,670 72,941 72,026 69,735 22 3 Liquidity Base @ 15% 24,055 23,813 22,193 21,998 21,824 21,695 21,534 21,130 23 24 Liquidity Base 15% Build the Graph Table to begin to allocate the portfolio into maturity buckets 1. Core 2. Intermediate 3. Liquidity 15
A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 16 Portfolio Monthly Change 7,340,893 (1,617,976) (10,799,485) (1,299,870) (1,158,136) (858,474) (1,076,269) (2,694,480) 17 Portfolio Declines 0 1,617,976 10,799,485 1,299,870 1,158,136 858,474 1,076,269 2,694,480 18 Portfolio Increases 7,340,893 0 0 0 0 0 0 0 19 Graph table: Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 20 Core base 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 21 Portfolio Balance 86,314 84,939 75,760 74,655 73,670 72,941 72,026 69,735 22 Liquidity Base @ 15% 24,055 23,813 22,193 21,998 21,824 21,695 21,534 21,130 23 24 Liquidity Base 15% 1. Core approximately 50% of the portfolio s lowest historic balance 16
Operating Fund Historical Portfolio Balances $180,000,000 $160,000,000 $140,000,000 $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $0 November 2013 was portfolio s lowest balance at $110MM 17
A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 16 Portfolio Monthly Change 7,340,893 (1,617,976) (10,799,485) (1,299,870) (1,158,136) (858,474) (1,076,269) (2,694,480) 17 Portfolio Declines 0 1,617,976 10,799,485 1,299,870 1,158,136 858,474 1,076,269 2,694,480 18 Portfolio Increases 7,340,893 0 0 0 0 0 0 0 19 Graph table: Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 20 Core base 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 21 Portfolio Balance 86,314 84,939 75,760 74,655 73,670 72,941 72,026 69,735 22 Liquidity Base @ 15% 24,055 23,813 22,193 21,998 21,824 21,695 21,534 21,130 23 24 Liquidity Base 15% Core can be constant copy value across the row Formula: = $AW$20 18
A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 16 Portfolio Monthly Change 7,340,893 (1,617,976) (10,799,485) (1,299,870) (1,158,136) (858,474) (1,076,269) (2,694,480) 17 Portfolio Declines 0 1,617,976 10,799,485 1,299,870 1,158,136 858,474 1,076,269 2,694,480 18 Portfolio Increases 7,340,893 0 0 0 0 0 0 0 19 Graph table: Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 20 Core base 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 21 Portfolio Balance 86,314 84,939 75,760 74,655 73,670 72,941 72,026 69,735 22 3 Liquidity Base @ 15% 24,055 23,813 22,193 21,998 21,824 21,695 21,534 21,130 23 24 Liquidity Base 15% 3. Liquidity target percentage of cash equivalents for the total portfolio Input target percentage in Cell AW24 19
A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 16 Portfolio Monthly Change 7,340,893 (1,617,976) (10,799,485) (1,299,870) (1,158,136) (858,474) (1,076,269) (2,694,480) 17 Portfolio Declines 0 1,617,976 10,799,485 1,299,870 1,158,136 858,474 1,076,269 2,694,480 18 Portfolio Increases 7,340,893 0 0 0 0 0 0 0 19 Graph table: Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 20 Core base 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 21 Portfolio Balance 86,314 84,939 75,760 74,655 73,670 72,941 72,026 69,735 22 Liquidity Base @ 15% 24,055 23,813 22,193 21,998 21,824 21,695 21,534 21,130 23 24 Liquidity Base 15% Formula Cell AW22: = ( AW15 * $AW$24 ) / 1000 Copy across the row 20
A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 16 Portfolio Monthly Change 7,340,893 (1,617,976) (10,799,485) (1,299,870) (1,158,136) (858,474) (1,076,269) (2,694,480) 17 Portfolio Declines 0 1,617,976 10,799,485 1,299,870 1,158,136 858,474 1,076,269 2,694,480 18 Portfolio Increases 7,340,893 0 0 0 0 0 0 0 19 Graph table: Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 20 Core base 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 21 2 Portfolio Balance 86,314 84,939 75,760 74,655 73,670 72,941 72,026 69,735 22 Liquidity Base @ 15% 24,055 23,813 22,193 21,998 21,824 21,695 21,534 21,130 23 24 Liquidity Base 15% 2. Intermediate remainder of the portfolio total Formula for AW21: = (AW15 / 1000) (AW20 + AW22) 21
A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 16 Portfolio Monthly Change 7,340,893 (1,617,976) (10,799,485) (1,299,870) (1,158,136) (858,474) (1,076,269) (2,694,480) 17 Portfolio Declines 0 1,617,976 10,799,485 1,299,870 1,158,136 858,474 1,076,269 2,694,480 18 Portfolio Increases 7,340,893 0 0 0 0 0 0 0 19 Graph table: Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 20 Core base 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 21 Portfolio Balance 86,314 84,939 75,760 74,655 73,670 72,941 72,026 69,735 22 Liquidity Base @ 15% 24,055 23,813 22,193 21,998 21,824 21,695 21,534 21,130 23 24 Liquidity Base 15% Graph the entire table Stacked Area Chart 22
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Using the Historical Balances Graph Completed Graph Shows Three Portfolio Divisions Liquidity Component the amount to deposit in Pools/MMA/MMMF to pay daytoday bills Intermediate Component the amount used to ladder to address projected obligations during the year Core Component The longerterm foundation of the portfolio 24
Analysis Three When? Targeting Maturity Needs Use a historical perspective Which Months Need Maturities and Which Do Not? 25
A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 16 Portfolio Monthly Change 7,340,893 (1,617,976) (10,799,485) (1,299,870) (1,158,136) (858,474) (1,076,269) (2,694,480) Formula Cell AX16: = AX15 AW15 Then copy formula across the row 26
A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 16 Portfolio Monthly Change 7,340,893 (1,617,976) (10,799,485) (1,299,870) (1,158,136) (858,474) (1,076,269) (2,694,480) 17 Portfolio Declines 0 1,617,976 10,799,485 1,299,870 1,158,136 858,474 1,076,269 2,694,480 18 Portfolio Increases 7,340,893 0 0 0 0 0 0 0 Formula Cell AX16: = AX15 AW15 Formula Cell AX17: = IF ( AX16>0, 0, AX16 ) Formula Cell AX18: = IF ( AX16<0, 0, AX16 ) Then copy formulas across the row 27
A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 16 Portfolio Monthly Change 7,340,893 (1,617,976) (10,799,485) (1,299,870) (1,158,136) (858,474) (1,076,269) (2,694,480) 17 Portfolio Declines 0 1,617,976 10,799,485 1,299,870 1,158,136 858,474 1,076,269 2,694,480 18 Portfolio Increases 7,340,893 0 0 0 0 0 0 0 19 Graph table: Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 20 Core base 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 21 Portfolio Balance 86,314 84,939 75,760 74,655 73,670 72,941 72,026 69,735 22 Liquidity Base @ 15% 24,055 23,813 22,193 21,998 21,824 21,695 21,534 21,130 23 24 Liquidity Base 15% Graph Row 16 28
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A AW AX AY AZ BA BB BC BD 1 Sample Client 2 Operating Fund 3 4 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 5 6 Depository Bank Ending Balance 84,502,103.00 80,804,472.00 64,080,263.00 62,030,044.00 35,395,677.00 28,511,374.00 21,835,096.00 10,561,234.00 7 Checking Fund 001 (ending) 476.88 477.05 477.11 477.17 477.23 369,177.29 487.93 492.53 8 Checking Compensating Balance (ending) 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 25,000,000.00 9 TexPool (ending) 10,003,113.94 10,007,284.31 10,011,452.92 10,015,785.97 10,020,269.29 10,024,831.81 10,028,013.75 10,031,145.02 10 TexStar (ending) 5,014,531.44 5,039,220.90 5,059,621.20 5,079,658.57 5,094,610.94 5,106,141.73 5,214,904.10 5,222,688.76 11 BankMMA (ending) 20,004,520.54 20,013,865.12 20,023,214.06 20,033,219.24 12 Securities Portfolio (ending) 35,849,620.88 37,900,416.20 43,800,570.92 44,526,549.70 49,978,824.16 55,610,515.68 61,457,920.68 70,016,376.98 13 14 15 Ending Totals: 160,369,846 158,751,870 147,952,385 146,652,515 145,494,379 144,635,906 143,559,637 140,865,157 16 Portfolio Monthly Change 7,340,893 (1,617,976) (10,799,485) (1,299,870) (1,158,136) (858,474) (1,076,269) (2,694,480) 17 Portfolio Declines 0 1,617,976 10,799,485 1,299,870 1,158,136 858,474 1,076,269 2,694,480 18 Portfolio Increases 7,340,893 0 0 0 0 0 0 0 19 Graph table: Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 20 Core base 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 21 Portfolio Balance 86,314 84,939 75,760 74,655 73,670 72,941 72,026 69,735 22 Liquidity Base @ 15% 24,055 23,813 22,193 21,998 21,824 21,695 21,534 21,130 23 24 Liquidity Base 15% Graph Row 17 30
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Operating Fund Historical Unfunded Obligations $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 Look at the trends and evaluate each month relative to the same month in other years: 1. December, January and February are typically well funded 2. April and October are typically cash strapped (except when bond proceeds broke the trend, i.e. April 2015) 32
A B C D E F G H 1 Sample Client 2 Operating Fund 3 4 Mar12 Apr12 May12 Jun12 Jul12 Aug12 Sep12 5 6 Depository Bank Ending Balance 58,018,679 42,582,870 40,871,891 39,375,873 37,367,758 36,038,641 33,600,000 7 Checking Fund 001 (ending) 20,423 20,425 20,428 343,640 440.43 440.43 8 Checking Compensating Balance (ending) 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000 9 TexPool (ending) 39,545,962.12 43,066,796.33 43,089,403.37 43,111,292.41 43,133,911.11 43,158,419.18 43,178,176.57 10 TexStar (ending) 16,948,269.48 18,457,198.43 18,466,887.16 18,476,268.17 18,485,961.91 18,496,465.36 18,504,932.82 11 BankMMA (ending) 12 Securities Portfolio (ending) 13 14 15 Ending Totals: 139,512,911 129,127,288 127,448,607 125,983,861 124,331,271 122,693,966 120,283,550 16 Portfolio Monthly Change (10,385,623) (1,678,681) (1,464,746) (1,652,590) (1,637,305) (2,410,416) 17 Portfolio Declines 10,385,623 1,678,681 1,464,746 1,652,590 1,637,305 2,410,416 18 Portfolio Increases 0 0 0 0 0 0 19 Graph table: Mar12 Apr12 May12 Jun12 Jul12 Aug12 Sep12 20 Core base 50,000 50,000 50,000 50,000 50,000 50,000 50,000 21 Portfolio Balance 68,586 59,758 58,331 57,086 55,682 54,290 52,241 22 Liquidity Base @ 15% 20,927 19,369 19,117 18,898 18,650 18,404 18,043 23 24 Liquidity Base 15% 25 26 Graph For Projections: 27 Mar Apr May Jun Jul Aug Sep 28 Average Change By Month $ (1,347,665) $ (8,862,078) $ (1,380,831) $ (1,419,521) $ (1,237,322) $ (1,550,443) $ (2,438,048) Formula Cell C28: = AVERAGE ( C16, O16, AA16, AM16, AY16 ) NOTE: These are the columns that contained April date across the years 33
Use a multiyear average to determine what is the typical monthly change. This could be used to develop a futureyear projection of maturity needs. 34
A B C D E F G H 1 Sample Client 2 Operating Fund 3 4 Mar12 Apr12 May12 Jun12 Jul12 Aug12 Sep12 5 6 Depository Bank Ending Balance 58,018,679 42,582,870 40,871,891 39,375,873 37,367,758 36,038,641 33,600,000 7 Checking Fund 001 (ending) 20,423 20,425 20,428 343,640 440.43 440.43 8 Checking Compensating Balance (ending) 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000 25,000,000 9 TexPool (ending) 39,545,962.12 43,066,796.33 43,089,403.37 43,111,292.41 43,133,911.11 43,158,419.18 43,178,176.57 10 TexStar (ending) 16,948,269.48 18,457,198.43 18,466,887.16 18,476,268.17 18,485,961.91 18,496,465.36 18,504,932.82 11 BankMMA (ending) 12 Securities Portfolio (ending) 13 14 15 Ending Totals: 139,512,911 129,127,288 127,448,607 125,983,861 124,331,271 122,693,966 120,283,550 16 Portfolio Monthly Change (10,385,623) (1,678,681) (1,464,746) (1,652,590) (1,637,305) (2,410,416) 17 Portfolio Declines 10,385,623 1,678,681 1,464,746 1,652,590 1,637,305 2,410,416 18 Portfolio Increases 0 0 0 0 0 0 19 Graph table: Mar12 Apr12 May12 Jun12 Jul12 Aug12 Sep12 20 Core base 50,000 50,000 50,000 50,000 50,000 50,000 50,000 21 Portfolio Balance 68,586 59,758 58,331 57,086 55,682 54,290 52,241 22 Liquidity Base @ 15% 20,927 19,369 19,117 18,898 18,650 18,404 18,043 23 24 Liquidity Base 15% 25 26 Graph For Projections: 27 Mar Apr May Jun Jul Aug Sep 28 Average Change By Month $ (1,347,665) $ (8,862,078) $ (1,380,831) $ (1,419,521) $ (1,237,322) $ (1,550,443) $ (2,438,048) 29 Months with Average Shortfall $ 1,347,665 $ 8,862,078 $ 1,380,831 $ 1,419,521 $ 1,237,322 $ 1,550,443 $ 2,438,048 Formula Cell C29 = IF ( C28<0, C28, 0 ) Copy across the row Graph Row 29 35
Graph of the months with averages that are negative. 36
Various Methods of Analysis Based upon the Historical Perspective: Use the worst case scenario for each month Perform an averaging for each month over the historic period Use the last year as a benchmark Add a section to your spreadsheet to calculate, based on the preferred method 37
Sample Analysis and Benefits New Client Analysis Performed At Beginning of Fiscal Year ($141 MM total balance at 9/30/16) Core = $50 MM Intermediate = $70 MM Liquidity = $21 MM Used Historical Averages as the Monthly Targets (based on 4years of data) Overlay Current Portfolio Maturities Develop Proposed Maturities 38
39
Graph of the months with averages that are negative. 40
Analyze All Graphs to Project Future Liabilities Unfunded Current Proposed Obligations Cash Equivalent Investments Maturities Oct16 $ 10,101,734.44 Nov16 $ 1,323,662.85 Dec16 $ Jan17 $ Feb17 $ Mar17 $ 1,347,665.11 Apr17 $ 8,862,078.49 May17 $ 1,380,831.02 Jun17 $ 1,419,520.60 Jul17 $ 1,237,321.61 Aug17 $ 1,550,442.89 Sep17 $ 2,438,048.29 Oct17 $ 10,101,734.44 Nov17 $ 1,323,662.85 Dec17 $ Jan18 $ Feb18 $ Mar18 $ 1,347,665.11 Apr18 $ 8,862,078.49 May18 $ 1,380,831.02 Jun18 $ 1,419,520.60 Jul18 $ 1,237,321.61 Aug18 $ 1,550,442.89 Sep18 $ 2,438,048.29 Oct18 $ 10,101,734.44 Nov18 $ 1,323,662.85 Dec18 $ Maximum=2years 41
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Unfunded Current Proposed Obligations Cash Equivalent Investments Maturities Oct16 $ 10,101,734.44 $ 70,848,779.55 Nov16 $ 1,323,662.85 $ 5,016,376.98 Dec16 $ Jan17 $ Feb17 $ Mar17 $ 1,347,665.11 Apr17 $ 8,862,078.49 $ 10,000,000.00 May17 $ 1,380,831.02 Jun17 $ 1,419,520.60 Jul17 $ 1,237,321.61 Aug17 $ 1,550,442.89 Sep17 $ 2,438,048.29 $ 10,000,000.00 Oct17 $ 10,101,734.44 $ 15,000,000.00 Nov17 $ 1,323,662.85 Dec17 $ Jan18 $ Feb18 $ Mar18 $ 1,347,665.11 Apr18 $ 8,862,078.49 May18 $ 1,380,831.02 Jun18 $ 1,419,520.60 Jul18 $ 1,237,321.61 Aug18 $ 1,550,442.89 Sep18 $ 2,438,048.29 Oct18 $ 10,101,734.44 Nov18 $ 1,323,662.85 Dec18 $ Maximum=2years 43
Actual Cash Balance = $71 MM 44
Unfunded Current Proposed Obligations Cash Equivalent Investments Maturities Oct16 $ 10,101,734.44 $ 25,848,779.55 Nov16 $ 1,323,662.85 $ 5,016,376.98 Dec16 $ Jan17 $ Feb17 $ Mar17 $ 1,347,665.11 Apr17 $ 8,862,078.49 $ 10,000,000.00 May17 $ 1,380,831.02 Jun17 $ 1,419,520.60 Jul17 $ 1,237,321.61 Aug17 $ 1,550,442.89 Sep17 $ 2,438,048.29 $ 10,000,000.00 Oct17 $ 10,101,734.44 $ 15,000,000.00 Nov17 $ 1,323,662.85 Dec17 $ Jan18 $ Feb18 $ Mar18 $ 1,347,665.11 Apr18 $ 8,862,078.49 $ 10,000,000.00 May18 $ 1,380,831.02 Jun18 $ 1,419,520.60 Jul18 $ 1,237,321.61 Aug18 $ 1,550,442.89 Sep18 $ 2,438,048.29 $ 10,000,000.00 Oct18 $ 10,101,734.44 Nov18 $ 1,323,662.85 Dec18 $ Maximum=2years 45
Cash Balance After New Investment = $26 MM 46
Unfunded Current Proposed Obligations Cash Equivalent Investments Maturities Oct16 $ 10,101,734.44 $ 25,848,779.55 Nov16 $ 1,323,662.85 $ 5,016,376.98 Dec16 $ Jan17 $ Feb17 $ Mar17 $ 1,347,665.11 Apr17 $ 8,862,078.49 $ 10,000,000.00 May17 $ 1,380,831.02 Jun17 $ 1,419,520.60 Jul17 $ 1,237,321.61 Aug17 $ 1,550,442.89 Sep17 $ 2,438,048.29 $ 10,000,000.00 Oct17 $ 10,101,734.44 $ 15,000,000.00 Nov17 $ 1,323,662.85 Dec17 $ Jan18 $ Feb18 $ Mar18 $ 1,347,665.11 Apr18 $ 8,862,078.49 $ 10,000,000.00 May18 $ 1,380,831.02 Jun18 $ 1,419,520.60 Jul18 $ 1,237,321.61 Aug18 $ 1,550,442.89 Sep18 $ 2,438,048.29 $ 10,000,000.00 Oct18 $ 10,101,734.44 Nov18 $ 1,323,662.85 Dec18 $ Orange Shaded Area Represents the Core Position = $50 MM Maximum=2years 47
Results of Sample Analysis Initially, Portfolio was excessively liquid and yield was only slightly higher than Pools New Portfolio addresses all maturity needs for at least a year and builds in a Core Component Portfolio remains significantly liquid to address any unanticipated needs As Portfolio matures, the Ladder will continue to roll 48
How Will Cash Flow Analysis Enhance Your Management? You will better understand your organization s cash flows You will be able to improve yields by not being too liquid You will be more comfortable with the investment strategy knowing that cash flow needs are covered for a longer period of time 49
Questions? Emily A. Upshaw, CPA (512) 6334093 Office eaupshaw@valleyviewconsultingllc.com Susan K. Anderson (830) 6377755 Office skanderson@valleyviewconsultingllc.com 50