CFC’s Financial Webinar SeriesThe CFC KRTA:

Putting it to Work for Your Co-op!

Financial Webinar Series

How to Submit Your Question

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Financial Webinar Series

CFC’s Financial Webinar SeriesThe CFC KRTA:

Putting it to Work for Your Co-op!

Financial Webinar Series

Today’s speakers include:

Terry Mallard, CFC

Burns Mercer, Meade County REC

Bettina Kimmel, CFC

Financial Webinar Series

CPE Guidelines…

� Attend the webinar for the full session.

� Submit at least one question during the

webinar’s Q&A section.

� Complete the evaluation at the end of the

session.

Financial Webinar Series

• List the features of the KRTA.

• Describe how these features can be used at an electric cooperative.

• Describe how to access their personal KRTA

• List sources where they can gain additional information about using the KRTA.

Learning objectives for the CFC KRTA Webinar:

As a result of this session you will be able to:

Financial Webinar Series

What was the total number of service interruption minutes attributed to major storms in 2010?

A. 1,850 minutes

B. 75,000 minutes

C. 188,000 minutes

D. 248,000 minutes

E. 425,000 minutes

Polling Question

Financial Webinar Series

Terry Mallard,

Regional Vice President,

CFC

Financial Webinar Series

Today’s Goals

• Introduce the Key Ratio Trend Analysis (KRTA)

• How Is It structured?

• How to Interpret the Results

• Uses of the Analysis

• Other Tools

Financial Webinar SeriesXYZ Rural Electric Cooperative (XXX)

Financial Webinar Series

Key Ratio Trend Analysis: An

Introduction

• Produced Annually• Created From Year End Financial Statements Submitted by Cooperatives (815 in 2010)

• Generally Available in July

Financial Webinar Series

Key Ratio Trend Analysis: An

Introduction

• Mailed To Cooperative’s CEO

• On CFC’s Extranet website• CFC Independent Borrowers Report Also Available

Financial Webinar SeriesXYZ Rural Electric Cooperative (XXX)

The KRTA Format

145 Ratios

5 Year History

Includes Ranking By Comparison Group

Financial Webinar Series

Power of the KRTA

Peer Groups 1. Nation

2. State

3. Similar Size

4. Same G&T

5. Similar growth

Categories1. Base Group2. Financial Ratios 3. Revenue & Margins Ratios 4. Sales Ratios5. Controllable Expense Ratios 6. Fixed Expense Ratios7. Total Expense Ratios8. Employee Ratios9. Growth Ratios10. Plant Ratios

145 in total

Financial Webinar SeriesXYZ Rural Electric Cooperative (XXX)

How The KRTA Works

Compares System Value to Medians of Five

Comparison Groups by Year

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KRTA Shows Data Using Medians

• Median Example

–1–8–43–76–8,000

• Median = 43

• Average Example

– 1– 8– 43– 76– 8,000

• Average = 1,626

Total/5

Financial Webinar SeriesXYZ Rural Electric Cooperative (XXX)

Comparisons

Financial Webinar SeriesXYZ Rural Electric Cooperative (XXX)

Ranking

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Ranking

Ratios are calculated and ranked from high

to low

TIER Rank

Coop A 1.25 4

Coop B 1.75 3

Coop C 1.00 5

Coop D 2.25 2

Coop E 2.50 1

Financial Webinar SeriesXYZ Rural Electric Cooperative (XXX)

Trends

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What The KRTA DOES

• Assists in Analyzing System Operations

• Highlight Areas of Strengths and Weaknesses

• Indicator of Future Performance

• Provides Positive and Negative Trending

Financial Webinar Series

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

Financial Webinar Series

What The KRTA DOES

In Short . . . It Provides a Good Place to Begin Asking Questions

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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

Financial Webinar Series

The KRTA DOES NOT

• View Ratios in Context of the Year’s Unusual Events

• Paint an Entire Picture

Financial Webinar Series

The KRTA DOES NOT

In Short . . . Provide Enough Data to Draw Conclusions Without Interpretation

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How Do I Use It?

• The “Right” Ratios Should be Determined by Your Cooperative’s Goals

• Each Ratio Should be Viewed as a Piece of the Overall “Business Puzzle”

Financial Webinar Series

How to Interpret the Analysis

• Look for the Unexpected• Look for Trends Over Several Years• Look for Ratios with Large Variances• A Large Variance on the Low Side of an Expense Item May be as Bad as Being on

the High Side

• Variances Should Evoke Questions

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Cautions

Differences exist in:

―System characteristics

• Density

• Terrain

• Member mix

• Sales mix

―Accounting practices

• RUS vs. independent borrowers

• Differing opinions

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Cautions

Differences exist in:

―Weather

―Strategic initiatives

―Reporting errors

In short – how are you different from the

“average” cooperative

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Example

• Your cooperative’s Investment per Mile of

Line (Ratio 124) is higher than “peer” group

• Before assuming inefficient operations, ask

questions and investigate

―Are line extension policies similar?

― Is there a difference in terrain (rocky vs. sandy)?

―Has the coop made recent plant investments due to member growth?

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Example (continued)

• Additional questions:

―Was your cooperative behind on replacing old plant and have strategically increased ordinary

replacements?

• If the variance cannot be explained then one has to ask:

―Is the coop investing more than they should and corrective actions needed?

Financial Webinar Series

Burns Mercer,

Meade County REC

Financial Webinar Series

Uses of Report

• Overview of System Operations

• Strategic Planning

• Integral part of the environmental scan

• Incentive Compensation Plans

• Balanced Scorecard

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Other Tools

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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

Financial Webinar Series

Now…let’s turn it over to our audience!

Financial Webinar Series

How to Submit Your Question

Step 2: Click on the Send button.

Step 1: Type in your question here.

Financial Webinar Series

Please take a minute to complete

the NRECA survey.

If you are requesting CPE credits, this is If you are requesting CPE credits, this is

a requirement.a requirement.

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WWW.NRUCFC.COOP

Events &

Training Tab

Look for the

replay of this

program early

next week

Financial Webinar Series

Have an idea for a Web conference?

Send it to:

Bill.Clayton@NRUCFC.coop

Financial Webinar Series

Mark Your Calendar For Our Next Event:August 10, 1 p.m. Eastern Time

The Topic isThe Topic is……

FEMA: Working with an Important Government FEMA: Working with an Important Government Agency!Agency!

Financial Webinar Series

CFC BudgetPro™ Series

July 18 through July 22 at 1 p.m. Eastern

Register at:http://www.surveymonkey.com/s/BPJuly

Financial Webinar Series