Manage financial statements

The financial statements captured for the borrowers are based on the configured financial statement template. Earlier, the template details were non-editable. For example, while capturing a financial statement for a business entity, no adjustments could be made to that particular statement.

Now, the adjustments can be made to a specific financial statement of an account or a business entity. This is achieved by adding the required new statement template detail or a new line item. The inline item is an additional row added with a name and the financial details captured against it on the application. For example, you can add an additional line item for rental fees on an income statement or exclude the debt from the overall balance sheet. The changes made are specific to only that account or borrower, and they are not part of the configured template. 

Edit Financial Statement

Prerequisites

Before editing a financial statement, ensure that the following prerequisites are met:

1. A financial statement template is configured.

2. An application is created using the configured template.

3. A financial statement is generated for the application.

Steps

To edit a financial statement:

1. Log in to your Salesforce account.

2. Go to  (App Launcher) > Applications.

3. On the Applications tab, and from the list of applications, select the required application.

4. On the application details page, go to More> Financial Spreads.
   

   The Financial Statement Analysis page is displayed.
   

   Note:

   The fields to be shown in the statement header can be customized. The implementation team can hide the fields that a customer does not want to show in the statement header.

   For example, you can display only the financial statement Name (FS14) and statement date (01/01/2014) in the header.

   

5. Select the (Edit the statement) icon for the financial statement to edit it. You can edit the value of all the fields.

6. To add an inline template detail (if Additional Schedule is not configured for the selected template), select + (Add new detail),  and then provide the following details as highlighted in the following images:
   

   
   

7. Select Save.
   

   The added line item is displayed.

   
   

8. To edit or add the values to the added line item, select the line item row and specify the value. You can use the tab key to input values in the line item.
   

   Note:

   Whether the decimal value is allowed as an input depends on the configuration defined in the Financial Spread Configuration > Decimal Scale. To know about this configuration in detail, see Q2 Origination Administration Guide > Financial Spread Configuration.

9. Select (Save the statements).
   

   A message stating, Statement updated successfully is displayed.

Annualize Values

While adding a financial statement, if Statement Type is selected as Interim, the Annualize Values checkbox is displayed in the header of the Income statement. Prior to the Platinum release, ratios and cashflow statements were calculated on the annualized values irrespective of whether the checkbox was selected. But now, with the Platinum release, Q2 Origination is enhanced to calculate the annualized value of ratios, cash flow, and global cash flow if the Annualize Values checkbox is selected. And if this checkbox is not selected, then ratios, cash flow, and global cash flow are calculated based on the Months Covered specified while adding a financial statement.

Analyze Financial Statement

Financial statement analysis for a commercial loan can be challenging. Figuring out how a business is doing or if the core of the business is providing for the other pieces can be difficult. It can further make it difficult for a financial institution to analyze the business or structure the loan. There are many tools to evaluate the financial health of a business, such as trend analysis, stress testing /sensitivity analysis, financial ratios analysis, and so on. These analyses can be done on any of the financial statements.

This section describes how to analyze different financial statements in Q2 Origination.

Common Size Analysis 

The common size, or vertical analysis, is a method of evaluating the financial information of each line item in a financial statement as a percentage of a base amount for the same period/year. Common sizing is applicable to the Balance Sheet and Income statement. All line items in a Balance Sheet are usually represented as a percentage of Total Assets or Total Liabilities + Equity, and all line items in the Income statement are represented as a percentage of Net Sales.

The common size analysis helps to understand the impact of each item in the financial statement and its contribution to the resulting figure. For example, if the value of long-term debts in relation to the value of the total assets is too high, it shows that the company’s debt levels are too high. Similarly, looking at the retained earnings in relation to the total assets as the base value can reveal how much of the annual profits are retained on the Balance Sheet.

Prerequisites to perform common size analysis:

• The Base Value for the Common Sizing checkbox is selected as True for the template detail/line item.
  For example, to perform common sizing on Total Assets in the balance sheet, the Base Value for the Common Sizing checkbox should be selected for the Total Assets template detail for the Balance Sheet.
  

To perform common size analysis:

1. Log in to your Salesforce account.

2. Go to  (App Launcher) > Applications.

3. On the Applications tab, and from the list of applications, select the required application.
   

4. Go to More> Financial Spreads> the subtabs (Balance Sheet, Income) and then select the Common Size button.
   

   The values in the Balance Sheet and Income statement are represented as a “percentage of the common base figure for that period”. This percentage is displayed alongside each Balance Sheet and Income statement value.
   

   For example, in the following image, the TOTAL CURRENT ASSETS is 103,000. Based on this value, other line items are calculated and represented in a percentage value. Cash & Equivalents = (100,000/103,000)*100 = 97%
   
   
   

Trend Analysis

Trend analysis is a financial statement analysis technique that shows changes in the amounts of corresponding line items over a period of time. This technique uses statements of two or more periods (years).

Trend analysis does not fully disclose the weaknesses or strengths of a company. The following are the main purposes of trend analysis:

• To see the trend of various income statements and balance sheet figures of a company.

• To evaluate whether the management is achieving its objectives or not.

• To investigate unexpected increases or decreases in financial statement items.

To perform trend analysis:

1. Log in to your Salesforce account.

2. Go to  (App Launcher) > Applications.

3. On the Applications tab, and fromthe list of applications, select the required application.
   

4. Go to More> Financial Spreads> the subtabs (Balance Sheet, Income) and then select the Trend Analysis button.
   

   For example, as shown in the following image, the Net Sales in the year 2019 has been decreased by 20% from the year 2018:

   
   

5. Select the View in Amount button if you want to see the difference of the line item across the years in value and not in percentage.

   For example, the value of Net Sales for the year 2019 will be 100,000, and for the year 2020 will be 100,000.
   

Stress Testing/Sensitivity Analysis

Stress testing determines how the projected financial statement gets impacted due to a change in the value of a financial parameter. Stress testing is a "what-if" tool that examines the effect of an increase or decrease in the forecasted sales levels on a company's Net Income (bottom line).

The statement generated after this stress test is a sensitized statement that is used for further analysis.

With Q2 Origination, you can apply the sensitivity factors to different parameters of the borrower’s balance sheet and income statement and view the impact of the changes on the financial statement. This helps the loan officer to generate sensitized statements on a borrower’s financial statements and make an informed decision.

Prerequisites

None

Steps

To perform sensitivity analysis:

1. Log in to your Salesforce account.

2. Go to  (App Launcher) > Applications.

3. On the Applications tab, and from the list of applications, select the required application.

4. Go to More> Financial Spreads> Sensitivity Analysis.
   

   The  Sensitivity Analysis Details page appears.

5. Select Sensitivity Analysis and then select the values for the following fields:
   

   
   

   • Statement Type: the type of financial statement on which you want to do the sensitivity analysis. For example, a balance sheet.

   • Financial Statements: the financial statement on which the sensitivity analysis is to be done.

     For example, FS14.
     

6. Select the factors on which you want to test the would-be performance of the selected statement type ( balance sheet in this example),  and then select change in the percentage of these selected. 
   

   The following example explains how the factors and their percentages can impact a sensitivity analysis:
   

   Factor 1 = Cash, Case 1 = -2, Case 2 = 2, Case 3 = -1
   Factor 2 = Existing Loans, Case 1 = -5, Case 2 = 2, Case 3 = 1

   Then, the sensitivity analysis shows how the balance sheet for 2017 is expected to perform in the first case when the total sales is down by 2%, and the other expense is down by 5%, and in the second case, when the total sales is up by 2% and the other expense is up by 2%, and in the third case when the total sales is down by 1% and the other expense is up by 1%.
   

7. Select  Perform Sensitivity Analysis.
   

   The following image displays an example of sensitivity analysis of the factors described above:

   

Addition of Schedules

In small business/commercial loan applications, business owners submit their tax statements (e.g.,1040 tax statements) as proof of individual income sources. Most of these tax statements have additional schedules to support additional sources of income. With the Titanium release, users can now add these additional schedules as part of the income statement capture.

For example, Marisol Testcase owns a business AB Pet Grooming Company, and two other small firms, such as AB Pet Supplies Store and AB Veterinary Center. Hence, to add the income generated from the AB Pet Supplies Store in the Income statement, the user adds AB Pet Supplies Store in the Sole Proprietorship line item.

After adding the income from the AB Pet Supplies Store, the relevant rows are added with the suffix AB Pet Supplies Store, in the income statement, as highlighted in the following image:

Here, the user can capture the values from the additional schedule provided by the user and arrive at the Net Cashflow, which can then roll up to the main income stream.

Prerequisites

Before you proceed to capture additional schedule for an income statement, ensure that the following prerequisites are met:

1. Additional schedules template is configured in the Origination Configuration.
   

   For information on how to configure the template for additional schedules, see Financial Statement Template Configuration.

2. The configured additional schedules is mapped to the Income statement via “Template Group”.

3. An application is created using the above template.

Steps

To capture additional schedules for an income statement:

1. Log in to your Salesforce account.

2. Go to  (App Launcher) >  Applications.

3. On the  Applications tab, and from the list of applications, select the required application.

4. Go to More> Financial Spreads > the subtabs (For example, for balance sheet, go to Financial Spreads > Balance Sheet.)
   

   The Financial Statement Analysis page is displayed.

5. Select the edit icon next to the account name.

6. Select Accountin the Type list.

7. Select an account in the Accountslist for which you want to view the statement.

8. Select Ok.
   

   All the captured statements for the selected account or collateral are displayed.

9. On the Income page, select the + icon next to a line item to capture an additional schedule.

10. In the Add New Detail window, specify the name of the additional source of income, and then select Save.

    
    Additional rows are added as highlighted in the following image:

    
    

11. Enter values for the added rows.
    

    For example, based on the entered values, Net Cash Flow is calculated.