Financial statement spreading
Financial statement spreading is the process of transferring information from a borrower’s financial statements and feeding it to the bank’s or financial institution's financial analysis spreadsheet. This helps the credit analyst analyzes the trends over the years and understands the borrower’s financial condition. In other words, financial statement spreading is about analyzing data from existing financial statements to predict future financial statements.
Why is it useful?
Financial statement spreading helps banks/financial institutions in assessing the risk of sanctioning the loan and how much the borrower can liquidate if they can’t pay on time. In other words, financial statement spreading helps reduce risk.
Financial statement spreading aims to present highly granular financial information to banks in a bid to aid them in making strategic business decisions and support investment advisory, credit appraisals, and rating analysis.
Financial statements are written records that convey the business activities and the financial performance of a company. These are captured and evaluated to understand the financial position and health of a business or an individual and assess the risk of extending credit.
Q2 Origination supports the following types of financial statements:
Balance Sheet
Income Statement
Cashflow
UCA Cash Flow Statement
Ratio
Global DSC
Sensitivity (Modeling tool)
The order of the Financial Statements tabs can be changed as required except for Sensitivity analysis. For more information, see Q2 Origination Administration Guide > Financial Spread Details Configuration.
The mentioned financial statements tabs are available only if they are marked true for 'Active' in the Financial Spread Details Configuration. For more information, see Q2 Origination Administration Guide > Financial Spread Details Configuration.
The Account filters option is available in the Financial Statements tabs that allows you to select the party for which financial statement can be added. For more information, see Q2 Origination Administration Guide > Financial Spread Configuration.
While adding financial statements to the parties, the financial spread tab only shows the parties that match the eligible party types in the configuration. If the party types on the application are different from the eligible ones, an error message stating the following is displayed: Parties added to the application are not eligible to have financial statements. Please either change the party type or add new party to the application is displayed.
When the Account value is null, the Template drop-down is not displayed.
Balance Sheet
The balance sheet provides an overview of assets, liabilities, capital of a business or other organization, and stockholders' equity as a snapshot in time, detailing the balance of income and expenditure over the preceding period. Q2 Origination supports the following balance sheet groupings, fields, and calculations:
The date at the top of the balance sheet tells you when the snapshot was taken, which is generally the end of the fiscal year.
| Balance Sheet Group | Group Items (put an image of balance sheet here) |
|---|---|
| Balance Sheet Header | Statement Date Months Covered Audit Method Statement Type |
| Current Assets | Cash Accounts Receivable Finished Goods Supplies Total Inventory Prepaid/Deferred Total Current Assets = Cash + Accounts Receivable + Finished Goods + Supplies + Total Inventory + Prepaid/Deferred |
| Noncurrent Assets | Land Buildings & Improvements Machinery & Equipment Furniture & Fixtures Gross Fixed Assets = Land + Buildings & Improvements + Machinery & Equipment + Furniture & Fixtures Accumulated Depreciation Total Net Fixed Assets = Gross Fixed Assets - Accumulated Depreciation Operating Noncurrent Assets Intangibles - Goodwill Intangibles - Other Gross Intangibles = Intangibles Goodwill + Intangibles Other Accumulated Amortization Total Net Intangibles = Gross Intangibles - Accumulated Amortization Total Noncurrent Assets = Total Net Fixed Assets + Operating Noncurrent Assets + Total Net Intangibles Total Assets = Total Current Assets + Total Noncurrent Assets |
| Current Liabilities | Accounts Payable - Bank Accounts Payable - Other Capitalized Long-Term Debt (CPLTD) Other Accruals Other Taxes Payable Total Accrued Liabilities = Other Accruals + Other Taxes Payable Total Current Liabilities = Accounts Payable + CPLTD + Total Accrued Assets + Total Accrued Liabilities |
Noncurrent Liabilities | Long-Term Debt Total Noncurrent Liabilities = Long-Term Debt Total Liabilities = Total Current Liabilities + Total Noncurrent Liabilities |
| Net Worth | Retained Earnings Total Net Worth Total Liabilities & Net Worth = Total Liabilities + Net Worth Working Capital Tangible Net Worth |
Validate Assets and Liabilities
When the Balance Sheet tab is selected on the Financial spread page, a button to validate assets and liabilities appears on the UI. Selecting this button compares the configured total assets and total liabilities amount across all the financial spreads.
If the assets and liabilities values match, a success message is displayed stating, Assets and Liabilities are matching across all financial years.
In case of mismatch for a single Financial Year, an error message is displayed stating, Total assets and total liabilities do not match for Financial Statement Name. Please check and correct them before application submission.
In case of mismatch for more than one Financial Year, an error message is displayed stating Total assets and total liabilities do not match for Financial Statement Name1, Financial Statement Name2 and Financial Statement Name3. Please check and correct them before application submission.
In the above error messages, the actual name of the financial statements are replaced with the word Financial Statement Name only for the illustration purposes.
If the configuration for the total assets and total liabilities is not present an error message is displayed stating Please check Total Asset and Total Liabilities configuration details.
Income Statement
The income statement reports a company's financial performance over a specific accounting period. Financial performance is assessed by summarizing how the business incurs its revenues and expenses through both operating and non-operating activities. Once expenses are subtracted from revenues, the statement produces a company's profit figure called net income. Out of the box, Q2 Origination supports the following groupings, fields, and calculations:
| Income Statement Group | Group Items (put an image of balance sheet here) |
|---|---|
| Income Statement Header | Statement Date Months Covered Audit Method Statement Type |
| Gross Profit | Sales/Revenue Cost of Sales/Revenue Cost of Sales Depreciation Total Cost of Sales/Revenue = Cost of Sales/Revenue + Cost of Sales Depreciation Gross Profit = Sales/Revenue - Total Cost of Sales/Revenue |
| Net Operating Profit | Selling Expense General & Admin Expense Amortization Total Operating Expense = Selling Expense + General & Admin Expense + Amortization Net Operating Profit = Gross Profit - Total Operating Expense |
| Net Profit | Other Income Total Other Income/Expense Net Profit = Net Operating Profit - Total Other Income/Expense |
| Earnings | Earnings Before Interest & Taxes (EBIT) Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Earnings Before Interest, Depreciation, and Amortization (EBIDA) Withdrawals Capital Contributions |
Cash Flow Statement
The cash flow statement (CFS) measures how well a company generates cash to pay its debt obligations, fund its operating expenses, and fund investments. This statement shows how changes in balance sheet accounts and income affect cash and cash equivalents and breaks the analysis down to operating, investing, and financing activities. Out of the box, Q2 Origination supports the following groupings, fields, and calculations:
| Cash Flow Group | Group Item (put an image of balance sheet here) |
|---|---|
| Cash Flow Statement Header | Statement Date Months Covered Audit Method Statement Type |
| Cash After Operations | Sales/Revenue Change in Accounts Receivable = Accounts Receivable [Current Year] - Accounts Receivable [Prior Year] Cash Collected From Sales = Sales/Revenue - Change in Accounts Receivable Cost of Sales/Revenue Change in Finished Goods = Finished Goods [Current Year] - Finished Goods [Prior Year] Change in Accounts Payable = Accounts Payable [Current Year] - Accounts Payable [Prior Year] Cash Paid to Suppliers Cash From Trading Activities Selling Expense General & Admin Expense Change in Other Accruals = Other Accruals [Current Year] - Other Accruals [Prior Year] Change in Other Taxes Payable = Other Taxes Payable [Current Year] - Other Taxes Payable [Prior Year] Cash Paid for Operating Costs Cash After Operations = Cash Collected From Sales - Cost of Sales/Revenues - Change in Finished Goods - Change in Accounts Payable - Cash Paid To Suppliers Other Income Other Income & Taxes Paid Net Cash After Operations = Cash After Operations + Other Income +Other Income & Taxes Paid |
| Ending Cash & Equivalents | Interest Expense Withdrawals Cash Paid for Dividends & Interest = Interest Expense + Withdrawals Net Cash Income = Net Cash After Operations - Cash Paid for Dividends & Interest Capitalized Long-Term Debt Current Portion Long-Term Debt Cash After Debt Amortization = Net Cash Income - CPLTD Change in Buildings & Improvements = Buildings & Improvements [Current Year] - Buildings & Improvements [Prior Year] Change in Machinery & Equipment = Machinery & Equipment [Current Year] - Machinery & Equipment [Prior Year] Change in Furniture & Fixtures = Furniture & Fixtures [Current Year] - Furniture & Fixtures [Prior Year] Change in Accumulated Depreciation = Accumulated Depreciation [Current Year] - Accumulated Depreciation [Prior Year] Cost of Sales/Depreciation Change in Net Fixed Assets = Net Fixed Assets [Current Year] - Net Fixed Assets [Prior Year] Change in Accumulated Amortization = Accumulated Amortization [Current Year] - Accumulated Amortization [Prior Year] Change in Net Intangibles = Net Intangibles [Current Year] - Net Intangibles [Prior Year] Cash Paid for Investments Financing Surplus Change in Short-Term Loans Payable Change in Long-Term Debt = Long-Term Debt [Current Year] - Long-Term Debt [Prior Year] Total External Financing Cash Ending Cash & Equivalents |
Financial Statements Analysis
Financial statement analysis is the process of evaluating a company’s performance or value through a company’s balance sheet, income statement, or statement of cash flows. By using a number of techniques such as horizontal, vertical, or ratio analysis, creditors may develop a clearer picture of a company’s financial profile.
Financial Ratios
Computing financial ratios is a proportional analysis of a financial statement, where each line item on a financial statement is listed as a percentage of another item within the same year. With Q2 Origination, you can compute and analyze financial ratios.
Industry Ratios
Industry ratios are a type of financial ratio. Every business or industry can be mapped to an industry classification code in geography. Industry ratios are the mean or median of the financial ratios of an industry in geography. The regulatory agencies of the geography publish these ratios for a year against industry classification codes. For information on the common industry ratios, see the Industry Ratios Description table.
The computed ratios for a company that is being analyzed should be compared to the industry average to form a basis for comparison. This projects if the company is performing better or worse than the industry average.
With Q2 Origination, you can do the following:
Seed the industry classification codes into Q2 Origination.
NAICS code for the United States is available as seed data in a separate install package.
Maintain the industry ratios in the back end against the industry classification codes.
Industry Ratios Description
The following table describes the common industry ratios:
| Ratio Category | Ratio Name and Description |
|---|---|
Activity Ratios The activity ratios measure the rate at which the company is turning over its assets or liabilities. In other words, they present how many times per year inventory is replenished, or receivables are collected. | Inventory Turnover Inventory turnover is calculated by dividing the cost of goods sold by average inventory. A higher turnover than the industry average means that inventory is sold at a faster rate, signaling inventory management effectiveness. Receivables Turnover The receivables turnover ratio is calculated by dividing net revenue by average receivables. This ratio is a measure of how quickly and efficiently a company collects on its outstanding bills. The receivables turnover indicates how many times per period the company collects and turns into cash its customers’ accounts receivable. Payables Turnover Payables turnover measures how quickly a company pays off the money owed to suppliers. The ratio is calculated by dividing purchases (on credit) by average payables. Asset Turnover Asset turnover measures how efficiently a company uses its total assets to generate revenues. The formula to calculate this ratio is simply net revenues divided by average total assets. |
Liquidity Ratios Liquidity ratios are one of the most widely used ratios. They are vital to creditors. These ratios measure a firm’s ability to meet its short-term obligations. | Current Ratio The current ratio measures a company’s current assets against its current liabilities. The current ratio indicates if the company can pay off its short-term liabilities in an emergency by liquidating its current assets. Quick Ratio The quick ratio is a liquidity ratio that is more stringent than the current ratio. This ratio compares the cash, short-term marketable securities, and accounts receivable to current liabilities. |
UCA Cashflow Analysis
Financial statements 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 make it difficult for creditors to understand how to analyze the business or structure the loan. To identify where the cash is being used in the business, Q2 Origination has included the UCA (Uniform Credit Analysis) Cashflow report. You can use the UCA Cash Flow report to analyze loan requests based on how the cash is generated and used in a business.
Ablility to hide the types of financial statements
Now, you can hide the tabs that represent the types of Financial Statements.
To be able to hide the tabs on a Visualforce page, you need to perform the following steps:
Go to
(App Launcher).
In the Search apps and items... box, enter Skuid and then select it.
From the list of Skuid pages, search for the page named ApplicationView_Q2Originate, and then select it.
On the Edit Page, in the Skuid Page - ApplicationView_Q2Originate section, scroll down to look for Template related to Financial Statement, and then select it.
In the Template Properties section, in the Template text area, update the source URL by adding the following parameter with the required values:
&hiddenTabs= RATIO,UCACASHFLOW,GLOBALCASHFLOW
Note:This hides the following tabs: Ratio, UCA Cashflow, and Global DSC. The values of the &hiddenTabs parameter can be any of the following: Balancesheet, Cashflow, Global DSC, Income, Ratio, UCA Cashflow, Sensitivity Analysis.
This helps in hiding the corresponding tabs that are highlighted in the following image:
Select Save.