Lease Accounting FAS 13 Intro Course for CFO

Corporate Real Estate & IAS 17Corporate Real Estate & IAS 17

An analysis of the impact of corporate real estate on An analysis of the impact of corporate real estate on the corporate financial statements under IAS 17the corporate financial statements under IAS 17

© 2011 Cambridge Consulting Group Inc.

Course IntroductionCourse Introduction

Outline of the course materialsOutline of the course materials

Methodology of instructionMethodology of instruction

Instructor introduction:Instructor introduction:

David Worrell, MCRS.h, CASDavid Worrell, MCRS.h, CAS

Managing DManaging Director, Cambridge Consulting Groupirector, Cambridge Consulting Group

Administrative issuesAdministrative issues

© 2011 Cambridge Consulting Group Inc.22

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Table of ContentsTable of Contents

Introduction to IAS 17Introduction to IAS 17

Review of Managerial FinanceReview of Managerial Finance

The Financial StatementsThe Financial Statements

The Financial RatiosThe Financial Ratios

Lease Accounting: Operating and CapitalizedLease Accounting: Operating and Capitalized

The Effects of IAS 17The Effects of IAS 17

Communicating with Senior ManagementCommunicating with Senior Management

SummarySummary


Course ObjectivesCourse Objectives

Define corporate financial structure and goalsDefine corporate financial structure and goals

Define the purpose of the corporate financial statementsDefine the purpose of the corporate financial statements

Define the three principal financial statementsDefine the three principal financial statements

Define basic financial ratios and describe their usesDefine basic financial ratios and describe their uses

Define the differences in operating and capital leasesDefine the differences in operating and capital leases

Define how leases will be accounted for in the futureDefine how leases will be accounted for in the future

Describe a format for communicating the financial impacts of a real Describe a format for communicating the financial impacts of a real estate strategyestate strategy

44© 2011 Cambridge Consulting Group Inc.

Introduction to FinanceIntroduction to Finance

Finance covers financial analysis and planning, investment decisions, Finance covers financial analysis and planning, investment decisions, financing and capital structure decisions, and management of financing and capital structure decisions, and management of financial resourcesfinancial resources

The goals of managerial finance are:The goals of managerial finance are:

Stockholder wealth maximizationStockholder wealth maximization

Profit maximizationProfit maximization

Managerial reward maximizationManagerial reward maximization

Behavioral goalsBehavioral goals

Social responsibilitySocial responsibility


Managerial FinanceManagerial Finance

Primary long term goal: the maximization of stockholder wealthPrimary long term goal: the maximization of stockholder wealthPrimary short term goal: the maximization of profitsPrimary short term goal: the maximization of profitsThe primary members of the finance department are:The primary members of the finance department are:

The Chief Financial OfficerThe Chief Financial Officer

Supervises all phases of financial activity and serves as financial advisor to the board of Supervises all phases of financial activity and serves as financial advisor to the board of directorsdirectors

The TreasurerThe Treasurer

Handles external financial matters and is responsible for managing corporate assets Handles external financial matters and is responsible for managing corporate assets and liabilities, financial planning, capital budgeting and managing any investment and liabilities, financial planning, capital budgeting and managing any investment portfoliosportfolios

The ControllerThe Controller

Handles internal financial matters such as financial cost accounting, taxes, budgeting, Handles internal financial matters such as financial cost accounting, taxes, budgeting, and control functionsand control functions


Foundational Principles ReviewFoundational Principles Review

GAAP & FASBGAAP & FASB

Measurements of ResourcesMeasurements of Resources

Accounting EquationAccounting Equation

Accrual PrincipleAccrual Principle

MaterialityMateriality

Substance vs. FormSubstance vs. Form

Operating and Capitalized LeasesOperating and Capitalized Leases

DepreciationDepreciation


GAAP – FASB - IASBGAAP – FASB - IASB

GAAP is the acronym for Generally Accepted Accounting GAAP is the acronym for Generally Accepted Accounting PrinciplesPrinciples

GGAAP is a set of guidelines and procedures that constitute AAP is a set of guidelines and procedures that constitute acceptable accounting practice at a given timeacceptable accounting practice at a given time

FASB is the acronym for Financial Accounting Standards BoardFASB is the acronym for Financial Accounting Standards Board

IASB is an acronym for the International Accounting Standards IASB is an acronym for the International Accounting Standards BoardBoard

Financial accounting requirements are announced by the financial Financial accounting requirements are announced by the financial accounting standards board (FASB) which is the principal rule accounting standards board (FASB) which is the principal rule making body of the accounting professionmaking body of the accounting profession


What is IAS 17?What is IAS 17?

The IASB is the International Accounting Standards Board, the The IASB is the International Accounting Standards Board, the international equivalent of our Federal Accounting Standards international equivalent of our Federal Accounting Standards Board (FASB).Board (FASB).

The U.S. is moving towards merging all accounting standards The U.S. is moving towards merging all accounting standards to a joint international standard.to a joint international standard.

IAS 17 is an attempt by the international accounting standards IAS 17 is an attempt by the international accounting standards groups to make leasing activities more transparent to a groups to make leasing activities more transparent to a corporation and their stakeholders.corporation and their stakeholders.


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Why the Change to IAS 17?Why the Change to IAS 17?

Presently, the Presently, the public only sees public only sees what is above the what is above the waterwater

IAS 17 shows the IAS 17 shows the public what is public what is below the waterbelow the water


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Why the Change to IAS 17?Why the Change to IAS 17?

IAS 17 will make leasing (now financing) activities more transparent IAS 17 will make leasing (now financing) activities more transparent to the stakeholders of a corporation using large numbers of leasesto the stakeholders of a corporation using large numbers of leases

Most corporations prefer to lease assets and real estate rather than Most corporations prefer to lease assets and real estate rather than purchase and own thempurchase and own them

The most cited reasons are to preserve cash and maintain flexibilityThe most cited reasons are to preserve cash and maintain flexibility Maintaining flexibility is critical where location, size and market timing are fluidMaintaining flexibility is critical where location, size and market timing are fluid

Just as important, under the old FASB regulations, leases were an Just as important, under the old FASB regulations, leases were an income statement event onlyincome statement event only

There was no recordation of the obligation on the balance sheet (except as a There was no recordation of the obligation on the balance sheet (except as a footnote)footnote)


Leases: Operating and CapitalLeases: Operating and Capital

Operating Leases:Operating Leases:

An operating lease transfers certain rights to occupy a property An operating lease transfers certain rights to occupy a property while leaving the major risks and benefits of ownership with the while leaving the major risks and benefits of ownership with the OwnerOwner

The most notable characteristic of an operating lease is that your The most notable characteristic of an operating lease is that your company does not record the financial liability on its balance sheetcompany does not record the financial liability on its balance sheet

An operating lease may be triple-net or full serviceAn operating lease may be triple-net or full service

An operating lease is considered an An operating lease is considered an expenseexpense


Benefits of Operating LeasesBenefits of Operating Leases

It usually does not require a large outlay of company capital which It usually does not require a large outlay of company capital which leaves the company more leaves the company more liquid and flexibleliquid and flexible. The company can . The company can expense, and therefore write-off, the full rent paymentexpense, and therefore write-off, the full rent payment

Financial Statements impacted:Financial Statements impacted:

The Income StatementThe Income Statement The Cash Flow StatementThe Cash Flow Statement


Capitalized LeasesCapitalized Leases

A Capitalized Lease is a long-term lease which is treated, for accounting purposes A Capitalized Lease is a long-term lease which is treated, for accounting purposes as if it were as if it were a purchasea purchase

In In FormForm, a capital lease is similar to an operating lease: rental payments are made, , a capital lease is similar to an operating lease: rental payments are made, and the Owner still owns the propertyand the Owner still owns the property

In In SubstanceSubstance, it is so much like a purchase, it is treated as such in that the lease , it is so much like a purchase, it is treated as such in that the lease conveys so much of the useful life and value of the property that the Lessee rather conveys so much of the useful life and value of the property that the Lessee rather than the Lessor is receiving the benefits of ownershipthan the Lessor is receiving the benefits of ownership

Under a capital lease, rent payments are treated as mortgage payments and carried Under a capital lease, rent payments are treated as mortgage payments and carried on the on the Balance SheetBalance Sheet as an as an AssetAsset and and LiabilityLiability

Under the New IAS 17 Regulation:Under the New IAS 17 Regulation:

The Asset side of the recordation will be called a “Right to Use” assetThe Asset side of the recordation will be called a “Right to Use” asset The Liability side of the recordation will be labeled an “Obligation to Pay”The Liability side of the recordation will be labeled an “Obligation to Pay”


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What will Happen?What will Happen?

IAS 17 will require every operating lease for your company to be IAS 17 will require every operating lease for your company to be converted to a capitalized status.converted to a capitalized status.

Operating Leases are an Income Statement Event OnlyOperating Leases are an Income Statement Event Only

Capitalized Leases are Similar to Mortgages:Capitalized Leases are Similar to Mortgages:

You Record an Asset and a Corresponding Liability You Record an Asset and a Corresponding Liability

The Asset Will Be Called a “Right to Use”The Asset Will Be Called a “Right to Use”

The Liability Will Be Called an “Obligation to Pay”The Liability Will Be Called an “Obligation to Pay”


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IAS 17 and Real Estate LeasesIAS 17 and Real Estate Leases

Implications of IAS 17 - What Will It Bring?Implications of IAS 17 - What Will It Bring?

10 and 5 Year Lease Examples10 and 5 Year Lease Examples

EBITAEBITA

Incremental Borrowing RateIncremental Borrowing Rate

Surplus Properties – Subleases Under IAS 17Surplus Properties – Subleases Under IAS 17

How It Was Up Until Now – No ExceptionsHow It Was Up Until Now – No Exceptions New Implications - RequirementsNew Implications - Requirements The New “Double Whammy”The New “Double Whammy” What is “Mark to Market”What is “Mark to Market” How Do I Manage This Now?How Do I Manage This Now?


The Capital Lease TestThe Capital Lease Test

A capital lease is effectively created A capital lease is effectively created if only oneif only one of the following four of the following four criteria are met:criteria are met:

The lease The lease transfers ownershiptransfers ownership to the tenant at the to the tenant at the end of the lease end of the lease termterm

The lease contains a The lease contains a bargain purchase optionbargain purchase option

The length of the lease term is equal to or greater than The length of the lease term is equal to or greater than 75% of the 75% of the useful lifeuseful life of the property of the property

The present value of the minimum lease payments, using the The present value of the minimum lease payments, using the tenant’s incremental borrowing rate, less any tax credit, is tenant’s incremental borrowing rate, less any tax credit, is 90% of 90% of the fair marketthe fair market value of the property at the beginning of the term value of the property at the beginning of the term


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5 Year Lease Under IAS 175 Year Lease Under IAS 17

Assumptions: 5 Year Lease, 10,000 SF, $14.40/PSF Annual, 7.5% Borrowing Rate

Current Method New Method

Rent Expense Depreciation Interest Total Difference % Diff.

Year 1 144,000 120,521 40,227 160,748 16,748 12%

Year 2 144,000 120,521 32,460 152,981 8,981 6%

Year 3 144,000 120,521 24,112 144,633 633 0%

Year 4 144,000 120,521 15,139 135,660 (8,340) -6%

Year 5 144,000 120,521 5,455 125,976 (18,024) -13%

Totals 720,000 602,607 117,393 720,000


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10 Year Lease Under IAS 1710 Year Lease Under IAS 17

Assumptions: 10 Year Lease, 10,000 sf., $14.40/PSF Annual, 7.5% Borrowing Rate

Current Method New Method

Rent Expense Depreciation Interest Total Difference % Diff.

Year 1 144,000 101,726 72,477 174,203 30,203 21%

Year 2 144,000 101,726 67,033 168,759 24,759 17%

Year 3 144,000 101,726 61,174 162,900 18,900 13%

Year 4 144,000 101,726 54,869 156,595 12,595 9%

Year 5 144,000 101,726 48,085 149,811 5,811 4%

Year 6 144,000 101,726 40,783 142,509 (1,491) -1%

Year 7 144,000 101,726 32,926 134,652 (9,348) -6%

Year 8 144,000 101,726 24,471 126,197 (17,803) -12%

Year 9 144,000 101,726 15,373 117,099 (26,901) -19%

Year 10 144,000 101,726 5,553 107,279 (36,721) -26%

Totals 1,440,000 1,017,260 422,744 1,440,000


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Operating vs. Capitalized RecognitionOperating vs. Capitalized Recognition10 Year Lease10 Year Lease

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

Year1

Year2

Year3

Year4

Year5

Year6

Year7

Year8

Year9

Year10

Operating

IAS 17


Break-Even Date

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Surplus Leases Under IAS 17Surplus Leases Under IAS 17

How It Was:How It Was:

The New Implications Requirements:The New Implications Requirements:

The “Double Whammy”The “Double Whammy”

What Is “Mark To Market”?What Is “Mark To Market”?

How Do I Manage This Now?How Do I Manage This Now?


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How It Was:How It Was:

Surplus Properties = Subleased PropertiesSurplus Properties = Subleased Properties Subleased Properties = Loss ReductionSubleased Properties = Loss Reduction

No Balance Sheet ImpactNo Balance Sheet Impact

Reduced Income Statement ImpactReduced Income Statement Impact

Major Pain To AccomplishMajor Pain To Accomplish

Cost ProhibitiveCost Prohibitive

High Risk – Very Low RewardHigh Risk – Very Low Reward


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How It Will Be (The New Requirements):How It Will Be (The New Requirements):

The Loss For Subleasing Will Remain with Some Bonuses:The Loss For Subleasing Will Remain with Some Bonuses:

You Will Now Also Carry the Sublease on the Balance SheetYou Will Now Also Carry the Sublease on the Balance Sheet

Example: (From Previous Example) – Next PageExample: (From Previous Example) – Next Page


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Subleasing Under IAS 17Subleasing Under IAS 17

0

50000

100000

150000

200000

250000

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Year2

Year3

Year4

Year5

Year6

Year7

Year8

Year9

Year10

Operating

IAS 17

Sublease

New Lease Basis

A Sublease Increases the Lease Basis - An Additional Asset and Liability


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How Do I Manage Surplus Now?How Do I Manage Surplus Now?

Subleasing Surplus Space Will Become More Difficult and Subleasing Surplus Space Will Become More Difficult and Less Advantageous Considering the RiskLess Advantageous Considering the Risk

Your Options?:Your Options?:

““Go Dark” – Close the Facility. Reduces Operating Expenses Such as Go Dark” – Close the Facility. Reduces Operating Expenses Such as Utilities and Security.Utilities and Security.

Donate the Space to Charity. Landlords Normally Do Not ApproveDonate the Space to Charity. Landlords Normally Do Not Approve

Negotiate a Lease Termination – Not Easy But Far Less ExpensiveNegotiate a Lease Termination – Not Easy But Far Less Expensive

Usually Can Be Done Around at 50 Percent of Remaining Rent.Usually Can Be Done Around at 50 Percent of Remaining Rent. Selling Management on This Option May Take Some EducatingSelling Management on This Option May Take Some Educating


The Accounting EquationThe Accounting Equation

AssetsAssets: The economic resources of the business: The economic resources of the business

Assets that can be converted into cash inside one year are called Assets that can be converted into cash inside one year are called current assetscurrent assets

LiabilitiesLiabilities: The debts of the business: The debts of the business

Those payable in one year are considered current liabilitiesThose payable in one year are considered current liabilities Those payable over a period of more than one year are classified as non-Those payable over a period of more than one year are classified as non-

current liabilitiescurrent liabilities

Capital Capital (owner’s equity): The owner’s interest in the business (owner’s equity): The owner’s interest in the business

In a corporation, capital consists of two accounts: capital stock outstanding and In a corporation, capital consists of two accounts: capital stock outstanding and retained earningsretained earnings


The Accounting EquationThe Accounting Equation

The accounting equation states that The accounting equation states that assets must always equal creditor’s claims, assets must always equal creditor’s claims, liabilities and capital (owner’s equity)liabilities and capital (owner’s equity)

The accounting equation is formally stated as:The accounting equation is formally stated as:

Assets = Liabilities + Capital + Profits (revenues - expenses)Assets = Liabilities + Capital + Profits (revenues - expenses)

Double-entry accounting:Double-entry accounting:

The accounting equation is the basis for double entry accounting, which means The accounting equation is the basis for double entry accounting, which means that that every transaction has an effect on two or more accountsevery transaction has an effect on two or more accounts


Measurement of Resources and Measurement of Resources and ObligationsObligations

Resources are those things of value the business Resources are those things of value the business possesses and can use to produce a profit. The accounting possesses and can use to produce a profit. The accounting term for resources is term for resources is assetsassets

Obligations, or Obligations, or liabilitiesliabilities, are amounts owed to non-owners , are amounts owed to non-owners of the businessof the business

The difference between assets and liabilities is the owner’s The difference between assets and liabilities is the owner’s interest or interest or equityequity in the business in the business


Balancing the Books

AssetsAssetsLiabilitiesLiabilities

EquityEquity


Accrual PrincipleAccrual Principle

The accrual principle translates associated dollars of The accrual principle translates associated dollars of profit or loss to the actual activities of the periodprofit or loss to the actual activities of the period

The accrual principle provides that revenue be The accrual principle provides that revenue be recorded when the activities to sell a good or service recorded when the activities to sell a good or service are completedare completed

Costs Costs directlydirectly associated with producing revenue associated with producing revenue will be expensed in the same period that the revenue will be expensed in the same period that the revenue is recordedis recorded


MaterialityMateriality

Materiality deals with relative importanceMateriality deals with relative importance

A transaction must be accounted for within the A transaction must be accounted for within the measurement and principles of GAAP when the amounts measurement and principles of GAAP when the amounts involved are judged to be involved are judged to be materialmaterial

Materiality answers the question: Could this item make a Materiality answers the question: Could this item make a difference to the user of the financial statements?difference to the user of the financial statements?

What is a real estate example?What is a real estate example?


Substance vs. FormSubstance vs. Form

Accounting reports the economic substance of a transaction without Accounting reports the economic substance of a transaction without regard to its formregard to its form

An example would be a pledge to a charity. It is not a legally An example would be a pledge to a charity. It is not a legally binding obligation, but the substance of the transaction is that the binding obligation, but the substance of the transaction is that the corporation intends to pay the pledgecorporation intends to pay the pledge

The company has made a promiseThe company has made a promise

The company’s reputation is at stakeThe company’s reputation is at stake

What is a real estate example?What is a real estate example?


DepreciationDepreciation

Some assets are long-lived and help produce revenue over several Some assets are long-lived and help produce revenue over several periods, such as real estateperiods, such as real estate

Depreciation (rather than amortization) refers to prorating a Depreciation (rather than amortization) refers to prorating a tangible tangible asset’sasset’s cost cost

Accountants expense the cost of these types of assets over their Accountants expense the cost of these types of assets over their expected, useful lifeexpected, useful life

This is called This is called DEPRECIATIONDEPRECIATION

Some costs are expensed when they arise. These are costs that Some costs are expensed when they arise. These are costs that would not be expected to produce future sales such as utility would not be expected to produce future sales such as utility expenses in an office buildingexpenses in an office building


Depreciation TypesDepreciation Types

Straight LineStraight Line: under the straight line method of depreciation, equal periodic : under the straight line method of depreciation, equal periodic charges for depreciation are made to income until the asset is fully depreciatedcharges for depreciation are made to income until the asset is fully depreciated

Accelerated MethodsAccelerated Methods::

Declining BalanceDeclining Balance: this method is an accelerated form of depreciation, which : this method is an accelerated form of depreciation, which results in larger depreciation charges during the earlier years of an asset's liferesults in larger depreciation charges during the earlier years of an asset's life

Sum-of-the-year’s-digitsSum-of-the-year’s-digits: under this method, the years of the asset’s service : under this method, the years of the asset’s service life are added together. This sum becomes the denominator of a series of life are added together. This sum becomes the denominator of a series of fractions, which is then applied to the cost of the asset less its salvage valuefractions, which is then applied to the cost of the asset less its salvage value


Straight-Line versus Accelerated DepreciationHow Net Asset Value Declines over Time

Straight-Line Depreciation

Accelerated Depreciation

Time

Ne

t A

sse

t V

alu

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The Financial StatementsThe Financial Statements

What are the Financial Statements?What are the Financial Statements?

They are designed to satisfy the information needs of many different They are designed to satisfy the information needs of many different people:people:

Stockholders (and potential ones)Stockholders (and potential ones)

Creditors (and potential ones)Creditors (and potential ones)

AnalystsAnalysts

EconomistsEconomists

SuppliersSuppliers

CustomersCustomers


Is there enoughIs there enoughmoney to paymoney to payme on time?me on time?

OwnersOwners

Current EmployeesCurrent Employees

ManagersManagers

SuppliersSuppliers

LendersLenders

ProspectiveProspectiveEmployeesEmployees

AttorneysAttorneysandand

LitigantsLitigants

CustomersCustomers

Can they payCan they payme back?me back?

Am I getting aAm I getting areturn on myreturn on myinvestment?investment?

Will they beWill they bein businessin businesstomorrow?tomorrow?

Am I running theAm I running thecompany efficiently?company efficiently?

Is the companyIs the companyworth suing?worth suing?

Does this companyDoes this companyhave a future?have a future?

Can the companyCan the companyafford to pay meafford to pay me

more?more?

Who Uses Financial Statements and What Do They Look For?

© 2011 Cambridge Consulting Group Inc. 3737

What is an Annual Report?What is an Annual Report?

The heart of the financial statements is the annual reportThe heart of the financial statements is the annual report

It must conform to accounting and reporting standards set by the It must conform to accounting and reporting standards set by the FASB, SEC (if publicly traded) and committees of the AICPAFASB, SEC (if publicly traded) and committees of the AICPA

The part of the Annual Report controlled by Management includes:The part of the Annual Report controlled by Management includes:

Annual Report HighlightsAnnual Report Highlights

A Letter to the ShareholdersA Letter to the Shareholders

A Review of OperationsA Review of Operations


What is an Annual Report?What is an Annual Report?

The Minimum Annual Report consists of 6 parts:The Minimum Annual Report consists of 6 parts:

1.1. The Balance SheetThe Balance Sheet

2.2. The Income StatementThe Income Statement

3.3. The Statement of Cash FlowsThe Statement of Cash Flows

4.4. Accompanying NotesAccompanying Notes

5.5. The Auditor’s OpinionThe Auditor’s Opinion

6.6. Management’s DiscussionManagement’s Discussion


The Balance SheetThe Balance Sheet

The balance sheet boldly declares where a organization stands at a provided The balance sheet boldly declares where a organization stands at a provided moment in timemoment in time

The principal reason the business balance sheet is so essential to you and to any The principal reason the business balance sheet is so essential to you and to any potential traders or lenders is that it's like a photograph of the companypotential traders or lenders is that it's like a photograph of the company

It tells how the enterprise is put together, what its principal resources are and where It tells how the enterprise is put together, what its principal resources are and where any potential dangers lieany potential dangers lie

It only shows one particular moment in time, and therefore is most beneficial in It only shows one particular moment in time, and therefore is most beneficial in conjunction together with the revenue statement and by comparing a number of conjunction together with the revenue statement and by comparing a number of balance sheets over a time period. balance sheets over a time period.


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The Balance SheetThe Balance Sheet

It's called a balance sheet because the two sides balance out. This It's called a balance sheet because the two sides balance out. This makes sense: a company has to pay for all the things it has makes sense: a company has to pay for all the things it has ((assetsassets) by either borrowing money () by either borrowing money (liabilitiesliabilities) or getting it from ) or getting it from shareholders (shareholders (shareholders' equityshareholders' equity))

Each of the three segments of the balance sheet will have many Each of the three segments of the balance sheet will have many accounts within it that document the value of eachaccounts within it that document the value of each

Accounts such as Accounts such as cash, inventorycash, inventory and and propertyproperty are on the asset are on the asset side of the balance sheet, while on the liability side there are side of the balance sheet, while on the liability side there are accounts such as accounts such as accounts payableaccounts payable or or long-term debtlong-term debt. .


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Example of a Balance SheetExample of a Balance Sheet


The Income StatementThe Income Statement

The Income Statement (or Profit and Loss Statement) reports the The Income Statement (or Profit and Loss Statement) reports the results of business activities for a period of time (typically a fiscal results of business activities for a period of time (typically a fiscal year). These results are classified as year). These results are classified as RevenuesRevenues and and ExpensesExpenses

Revenues measure the Revenues measure the inflows of new assetsinflows of new assets into the business while into the business while expenses measure expenses measure outflow and the using up of assetsoutflow and the using up of assets in the same in the same processprocess

Net income represents an Net income represents an increase in assets and owner’s equityincrease in assets and owner’s equity while while a net loss represents a decrease in assets and owner’s equitya net loss represents a decrease in assets and owner’s equity


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Income Statement ExampleIncome Statement Example


The Statement of Cash FlowsThe Statement of Cash Flows

The Statement of Cash Flows is like a The Statement of Cash Flows is like a bridgebridge. It describes all . It describes all of the changes that have occurred in the balance sheet during of the changes that have occurred in the balance sheet during the fiscal year in terms of their effect on cashthe fiscal year in terms of their effect on cash

Questions answered by Statement of Cash Flows:Questions answered by Statement of Cash Flows:

Where did the earnings go?Where did the earnings go? Why was money borrowed?Why was money borrowed? How was the debt retired?How was the debt retired? What happened to the proceeds of the bond?What happened to the proceeds of the bond?


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Cash Flow Statement ExampleCash Flow Statement Example


Balance Sheet Balance Sheet

as of as of

December 31, 2010December 31, 2010

Balance Sheet Balance Sheet

as of as of

December 31, 2011December 31, 2011

Income Statement from January 2010 to December 31, 2011Income Statement from January 2010 to December 31, 2011

FULL YEAR 2011FULL YEAR 2011

Cash Flow Statement from January 2010, to December 31, 2011Cash Flow Statement from January 2010, to December 31, 2011

Relationship of Balance Sheet, Income Statement, and Cash Flow Statement


The Financial RatiosThe Financial Ratios

Ratio analysis is the basic technique used in the analysis of the Ratio analysis is the basic technique used in the analysis of the financial statementsfinancial statements

A ratio for a company can be compared to:A ratio for a company can be compared to:

the company’s industry averagethe company’s industry average another company in the same industryanother company in the same industry the same ratio for the company in prior yearsthe same ratio for the company in prior years

Some of the most common ratios are:Some of the most common ratios are:

Market Value RatiosMarket Value Ratios Profitability RatiosProfitability Ratios Liquidity RatiosLiquidity Ratios


Market Value RatiosMarket Value Ratios

Market value ratios apply to a company’s stock price relative to its Market value ratios apply to a company’s stock price relative to its earnings (or book value) per share, as well as dividend related ratiosearnings (or book value) per share, as well as dividend related ratios

Examples of these ratios are:Examples of these ratios are:

Earnings per ShareEarnings per Share

Price-Earnings RatioPrice-Earnings Ratio

Book Value per ShareBook Value per Share


Earnings Per ShareEarnings Per Share

The amount of earnings per period for each common The amount of earnings per period for each common share held:share held:

EPS = EPS = Net Income - Preferred DividendsNet Income - Preferred Dividends Number of Outstanding Shares Number of Outstanding Shares


Price-Earnings RatioPrice-Earnings Ratio

The Price-Earnings Ratio (multiple):The Price-Earnings Ratio (multiple):

Market price per share divided by earnings per share. A Market price per share divided by earnings per share. A high P/E ratio indicates investor confidence in the high P/E ratio indicates investor confidence in the company:company:

P/E Ratio = P/E Ratio = Market price per ShareMarket price per Share Earnings per Share Earnings per Share


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Book Value Per ShareBook Value Per Share

Book Value per Share is the value of each share per the books Book Value per Share is the value of each share per the books based on historical costbased on historical cost

If market price per share substantially exceeds book value per If market price per share substantially exceeds book value per share, it may indicate good stock market reception to the share, it may indicate good stock market reception to the companycompany

Stockholder’s Equity - Liquidation Value of Preferred Stockholder’s Equity - Liquidation Value of Preferred StockStock Outstanding Common Shares Outstanding Common Shares


Profitability RatiosProfitability RatiosProfitability Ratios reveals the company’s ability to earn a Profitability Ratios reveals the company’s ability to earn a satisfactory return on investment. The ratios are an indication of satisfactory return on investment. The ratios are an indication of good financial health and how effectively the company is managing good financial health and how effectively the company is managing its assets. Some examples of these ratios include:its assets. Some examples of these ratios include:

Gross Profit MarginGross Profit Margin (GPM) (GPM)

Return on AssetsReturn on Assets (ROA) (ROA)

Return on EarningsReturn on Earnings (ROE) (ROE)

Earnings Before Interest, Taxes & AmortizationEarnings Before Interest, Taxes & Amortization (EBITA) (EBITA)

Does Corporate Estate effect any of these ratios?Does Corporate Estate effect any of these ratios?


Gross Profit MarginGross Profit Margin

The The Gross Profit MarginGross Profit Margin reveals the percentage reveals the percentage of each dollar earned left over after the cost of of each dollar earned left over after the cost of sales:sales:

GPM = GPM = Gross ProfitGross Profit Net Sales Net Sales


Return on AssetsReturn on Assets

Return on Assets Return on Assets indicates the efficiency with which indicates the efficiency with which management has used its resources to obtain management has used its resources to obtain income:income:

ROA = ROA = Net IncomeNet Income Total Assets Total Assets


Return on EquityReturn on Equity

Return on EquityReturn on Equity measures the rate of return earned on measures the rate of return earned on the common stockholder’s investment:the common stockholder’s investment:

ROE = ROE = Net IncomeNet Income Stockholder’s Equity Stockholder’s Equity


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Earnings Before Interest Taxes and AmortizationEarnings Before Interest Taxes and Amortization

EBITDAEBITDA is an approximate measure of a company's operating cash flow is an approximate measure of a company's operating cash flow based on data from the company's income statement. It is calculated by based on data from the company's income statement. It is calculated by looking at looking at earnings before the deduction of interest expenses, taxes, earnings before the deduction of interest expenses, taxes, depreciation, and amortization. depreciation, and amortization.

This earnings measure is of particular interest in cases where companies This earnings measure is of particular interest in cases where companies have have large amounts of fixed assetslarge amounts of fixed assets which are subject to heavy which are subject to heavy depreciation charges and depreciation charges and subject to large amortization chargessubject to large amortization charges. It is a . It is a good way of comparing companies within and across industries. good way of comparing companies within and across industries.

This measure is also of interest to a This measure is also of interest to a company's creditorscompany's creditors, since EBITDA is , since EBITDA is essentially the income that a company has essentially the income that a company has free for interest paymentsfree for interest payments. In . In general, EBITDA is a useful measure only for large companies with general, EBITDA is a useful measure only for large companies with significant assets, and/or for companies with a significant amount of debt significant assets, and/or for companies with a significant amount of debt financing. financing.

EBITDA MarginEBITDA Margin refers to EBITDA divided by total revenue. EBITDA margin refers to EBITDA divided by total revenue. EBITDA margin measures the extent to which cash operating expenses use up revenue.measures the extent to which cash operating expenses use up revenue.


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Impact of New Lease TreatmentImpact of New Lease TreatmentEBITA on the Income StatementEBITA on the Income Statement

Assumptions: 10 Year Lease, 10,000 SF, $14.40/PSF, 7.5% Borrowing Rate

Current Measure Capitalized Measure

Year 1 Year 5 Cum. Year 10 Cum. Year 1 Year 5 Cum. Year 10 Cum.

Revenues: 5,000,000 25,000,000 50,000,000 5,000,000 25,000,000 50,000,000

Expenses: 1,000,000 5,000,000 10,000,000 1,000,000 5,000,000 10,000,000

Rent 144,000 720,000 1,440,000

Total Expenses: 1,144,000 5,720,000 11,440,000 1,000,000 5,000,000 10,000,000

EBITA: 3,856,000 19,280,000 38,560,000 4,000,000 20,000,000 40,000,000

Taxes: 25,000 125,000 250,000 25,000 125,000 250,000

Interest Debt: 250,000 1,250,000 2,500,000 250,000 1,250,000 2,500,000

Interest - Lease: 72,500 303,600 422,700

Depreciation: 101,700 508,500 1,017,000

Net Income: 3,581,000 17,905,000 35,810,000 3,550,800 17,812,900 35,810,300

Interest Coverage: 15.42% 15.42% 15.42% 8.60% 7.77% 7.31%

•EBITA Higher•Net Income Down•Interest Coverage WAY Down


Liquidity RatiosLiquidity Ratios

Analyzing liquidity is essential for short term creditors to ensure that Analyzing liquidity is essential for short term creditors to ensure that the company has adequate funds to meet current debt.the company has adequate funds to meet current debt.

A company with poor liquidity is a credit risk. Examples of liquidity A company with poor liquidity is a credit risk. Examples of liquidity ratios include:ratios include:

Current RatioCurrent Ratio

Quick RatioQuick Ratio

Interest Coverage RatioInterest Coverage Ratio


Current RatioCurrent Ratio

The current ratio is simply the relationship between The current ratio is simply the relationship between current assets and current liabilities:current assets and current liabilities:

Current Ratio = Current Ratio = Current AssetsCurrent AssetsCurrent LiabilitiesCurrent Liabilities


Quick RatioQuick Ratio

A stringent test of liquidity that looks at the most liquid A stringent test of liquidity that looks at the most liquid current assets, excluding inventories and pre-paid current assets, excluding inventories and pre-paid expenses (sometimes called the “acid-test ratio”)expenses (sometimes called the “acid-test ratio”)

Quick Ratio = Quick Ratio = Current Assets - InventoryCurrent Assets - Inventory Current Liabilities Current Liabilities


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Interest Coverage RatioInterest Coverage Ratio

What Does What Does Interest Coverage RatioInterest Coverage Ratio Mean? Mean?

A ratio used to determine how easily a company can pay interest on A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a outstanding debt. The interest coverage ratio is calculated by dividing a company's company's earningsearnings before interest and taxes (EBIT) of one period by the before interest and taxes (EBIT) of one period by the company's interest expenses of the same period:company's interest expenses of the same period: The lower the ratio, the more the company is burdened by debt expense. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy indicates the company is not generating sufficient revenues to satisfy interest expenses. interest expenses.

Interest Coverage Ratio = Interest Coverage Ratio = ___ ___ EBIT_____EBIT_____ Interest Expense Interest Expense


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Operating vs. Capitalized RecognitionOperating vs. Capitalized Recognition5 Year Lease5 Year Lease

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

Year 1 Year 2 Year 3 Year 4 Year 5

Operating

IAS 17Break-even is in 2.5 Years

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Incremental Borrowing Rate (IBR)Incremental Borrowing Rate (IBR)

The Greater the IBR – the Greater the Lease ExpenseThe Greater the IBR – the Greater the Lease Expense

The Incremental Borrowing Rate is defined as the rate that, at the The Incremental Borrowing Rate is defined as the rate that, at the inception of the lease, the lessee would have incurred to borrow the funds inception of the lease, the lessee would have incurred to borrow the funds necessary to buy the leased property on a secured loan with repayment necessary to buy the leased property on a secured loan with repayment terms similar to the payment schedule called for in the leaseterms similar to the payment schedule called for in the lease

This rate is NOT the same as the corporate discount rateThis rate is NOT the same as the corporate discount rate

Each lease may have a different rate based on the date of lease inceptionEach lease may have a different rate based on the date of lease inception

Each lease must be adjusted to any changes in the IBR at each Each lease must be adjusted to any changes in the IBR at each accounting period. (this may require a substantial investment in time from accounting period. (this may require a substantial investment in time from now on)now on)


PV of Rent @ 7.5%PV of Rent @ 7.5% $10,000,000$10,000,000

PV of Rent @ 5.0%PV of Rent @ 5.0% $7,500,000$7,500,000

Difference:Difference: $2,500,000$2,500,000

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Mark to Market (MTM)Mark to Market (MTM)

Mark to Market Asset and Liability Accounting may be Required Mark to Market Asset and Liability Accounting may be Required under IAS 17. It is presently required for regulated industries such as under IAS 17. It is presently required for regulated industries such as Banks.Banks.

Mark-to-marketMark-to-market or or fair value accountingfair value accounting refers to accounting for the refers to accounting for the valuevalue of an asset or liability based on the current of an asset or liability based on the current market pricemarket price of the asset of the asset or liability, or for similar assets and liabilities, or based on another or liability, or for similar assets and liabilities, or based on another objectively assessed "fair" value.objectively assessed "fair" value.

Real estate leases are also re-evaluated based on the market rents in an Real estate leases are also re-evaluated based on the market rents in an accounting period.accounting period.

Mark-to-market accounting can make values on the balance sheet change Mark-to-market accounting can make values on the balance sheet change frequently, as market conditions change. In contrast, book value, based on frequently, as market conditions change. In contrast, book value, based on the original cost/price of an asset or liability, is more stable but can become the original cost/price of an asset or liability, is more stable but can become outdated and inaccurate.outdated and inaccurate.


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What Will IAS 17 Bring?What Will IAS 17 Bring?

Increase in EBITAIncrease in EBITA

Increases in Balance SheetsIncreases in Balance Sheets

A Change in Lease vs. Own DecisionsA Change in Lease vs. Own Decisions

A Change in New Lease Terms:A Change in New Lease Terms: Term of LeaseTerm of Lease Renewal OptionsRenewal Options Tenant ImprovementsTenant Improvements Gross Leases (Full Service)Gross Leases (Full Service) Lease Modifiers (CPI, Percentage Rent, etc…)Lease Modifiers (CPI, Percentage Rent, etc…)

Accounting Burden IncreaseAccounting Burden Increase

Increase in Senior Management ExposureIncrease in Senior Management Exposure


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What Changes Should I Expect?What Changes Should I Expect?Changes to Lease Accounting (All Past Leases as Well)Changes to Lease Accounting (All Past Leases as Well)

Impact of These Changes (Amount of Work, Complexity)Impact of These Changes (Amount of Work, Complexity)

Changes to Future Leasing ActivitiesChanges to Future Leasing Activities

Term LengthsTerm Lengths Tenant ImprovementsTenant Improvements Carrying Costs (CAM, Taxes, Utilities, etc.)Carrying Costs (CAM, Taxes, Utilities, etc.) Renewal OptionsRenewal Options

Changes in the Disposition of Surplus PropertiesChanges in the Disposition of Surplus Properties

Changes in CRE FunctionChanges in CRE Function

CRE Migration to Asset ManagementCRE Migration to Asset Management


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What Should I What Should I ExpectExpect To Do? To Do?

Start with Re-Evaluation of Start with Re-Evaluation of EVERYEVERY Lease Lease

Re CalculateRe Calculate Every Lease to Capitalized Format Every Lease to Capitalized Format

Separate Lease Expenses into Separate Lease Expenses into NNN and ExpenseNNN and Expense Components Components

No Grandfathering – So No Grandfathering – So EveryEvery Lease You Have Lease You Have

This Re Evaluation Will Occur This Re Evaluation Will Occur Every Accounting PeriodEvery Accounting Period

Keep Up to Date Keep Up to Date Market Rent EvaluationsMarket Rent Evaluations for All Leases for All Leases

Create Create New Leasing GuidelinesNew Leasing Guidelines Based on Company Guidelines Based on Company Guidelines


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What Do I What Do I NeedNeed To Do? To Do?Be Prepared!Be Prepared!

Get Informed (this course) – your peersGet Informed (this course) – your peers Other Information – online, service providers, consultants, etc.Other Information – online, service providers, consultants, etc. Internal Help: Accounting, Treasury, The Controller, The CFOInternal Help: Accounting, Treasury, The Controller, The CFO

Gather the DataGather the Data All Lease DataAll Lease Data All Operating Expense Data and Verify StatementsAll Operating Expense Data and Verify Statements All Separate Agreements – OptionsAll Separate Agreements – Options Verify Contingent Rent ValuesVerify Contingent Rent Values

While Your At It – Check Leases For Other IssuesWhile Your At It – Check Leases For Other IssuesEnvironmental RisksEnvironmental RisksADA ComplianceADA ComplianceOSHA ComplianceOSHA Compliance

Determine If Space Will (or Should) Become Surplus – Determine If Space Will (or Should) Become Surplus – Important!Important!


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What Do I What Do I NeedNeed To Do - Two To Do - Two

Covert The Leases To Capitalized FormatCovert The Leases To Capitalized Format

1.1. Separate All Operating Expenses From Each LeaseSeparate All Operating Expenses From Each Lease

2.2. Determine All Contingent Rent Embedded in Each LeaseDetermine All Contingent Rent Embedded in Each Lease

3.3. Determine All Expenses Used in Developing LocationDetermine All Expenses Used in Developing Location

4.4. Determine All Renewal, Cancellation, Contraction and Expansion OptionsDetermine All Renewal, Cancellation, Contraction and Expansion Options

5.5. Verify The “Likelihood” of Any Options Being ExercisedVerify The “Likelihood” of Any Options Being Exercised

6.6. Then Determine The Present Value of Each Lease Based on the Approved Then Determine The Present Value of Each Lease Based on the Approved Incremental Borrowing Rate From TreasuryIncremental Borrowing Rate From Treasury

7.7. Covert Each Lease to Capitalized Format:Covert Each Lease to Capitalized Format: Asset: “Right To Use” – Straight Line AmortizationAsset: “Right To Use” – Straight Line Amortization

Liability: “Obligation To Pay” – IBR Calculation AmortizationLiability: “Obligation To Pay” – IBR Calculation Amortization


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What Do I Need To What Do I Need To HaveHave??

A Sharp Pencil, Lots of Paper, Lots of Time, Lots of A Sharp Pencil, Lots of Paper, Lots of Time, Lots of Hot CoffeeHot Coffee

Senior Management:Senior Management:

Your Intentions Through Recommendation to ManagementYour Intentions Through Recommendation to Management All Lease Data and All Associated Billing and Legal DocsAll Lease Data and All Associated Billing and Legal Docs A Preliminary IBR For Use with the Leases From TreasuryA Preliminary IBR For Use with the Leases From Treasury Surplus Property Methodology – How They Account For ItSurplus Property Methodology – How They Account For It Determine Their ExpectationsDetermine Their Expectations Set Up A Reporting MechanismSet Up A Reporting Mechanism Show Management Your InitiativeShow Management Your Initiative


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What Will I Have To Do?What Will I Have To Do?

Intense Catch-up AccountingIntense Catch-up Accounting

Basic Paradigm ChangeBasic Paradigm Change

New CRE ActivitiesNew CRE Activities Accounting EffortsAccounting Efforts More Property ManagementMore Property Management Increased Management Access for InputIncreased Management Access for Input

The OpportunityThe Opportunity Increased Exposure = Increased Exposure = Increased ValueIncreased Value


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Communicating with Senior Communicating with Senior ManagementManagement

Executive Summary:Executive Summary:

Strategic ContextStrategic Context The RecommendationThe Recommendation Corporate ImpactsCorporate Impacts Real Estate ImpactsReal Estate Impacts Performance ImpactsPerformance Impacts Critical AssumptionsCritical Assumptions ImplementationImplementation Support DocumentationSupport Documentation


Communicating Real Estate ImpactCommunicating Real Estate Impact

Adopt a presentation format which condenses detail and responds to those items Adopt a presentation format which condenses detail and responds to those items

that senior management wants to addressthat senior management wants to address

The Executive SummaryThe Executive Summary::

An Executive Summary is a transaction report that expresses both your An Executive Summary is a transaction report that expresses both your recommendation and defense of your transaction strategy.recommendation and defense of your transaction strategy.

A good Executive Summary will include the following issues:A good Executive Summary will include the following issues:

The transaction’s The transaction’s strategic contextstrategic context

The recommended The recommended course of actioncourse of action

Arguments Arguments to support the transaction or strategyto support the transaction or strategy

The The effectseffects of the transaction on the operating unit of the transaction on the operating unit

The transaction’s The transaction’s expected performanceexpected performance in relation to goals. in relation to goals.


Executive Summary:Executive Summary:Strategic ContextStrategic Context

This part of the report brings the reader into the necessary frame of This part of the report brings the reader into the necessary frame of reference. It is an introduction that:reference. It is an introduction that:

Identifies the Identifies the contextcontext of the summary of the summary Who Who asked for the reportasked for the report WhatWhat operating unit is affected operating unit is affected What the What the transactiontransaction includes includes WhoWho is involved is involved Brief chronologyBrief chronology of the events leading to the report of the events leading to the report SummarySummary of the type of analysis used of the type of analysis used


Executive Summary:Executive Summary:The RecommendationThe Recommendation

The bottom-line position.The bottom-line position.

State your recommendation State your recommendation clearly, succinctly, and up frontclearly, succinctly, and up front.. For every “what” of the recommendation - be sure to have a “why”For every “what” of the recommendation - be sure to have a “why”

Depending on the circumstances, senior management may want you to Depending on the circumstances, senior management may want you to recommend a recommend a second or third optionsecond or third option to reflect degrees of sensitivity in the to reflect degrees of sensitivity in the analysisanalysis

Second and third positions should be set up as tiers:Second and third positions should be set up as tiers:

Best caseBest case Probable caseProbable case Worst caseWorst case


Executive Summary:Executive Summary:Corporate ImpactsCorporate Impacts

There are four areas of financial impact to explain:There are four areas of financial impact to explain:

Real estateReal estate specific impacts specific impacts

Overall companyOverall company and business unit impacts and business unit impacts

Accounting and financialAccounting and financial impacts impacts

Financial ratioFinancial ratio impacts impacts


Executive Summary: Executive Summary: Real Estate ImpactsReal Estate Impacts

Key real estate indices to highlightKey real estate indices to highlight::

Change in total occupancy cost as a percent of salesChange in total occupancy cost as a percent of sales

Change in real estate as a percent of assetsChange in real estate as a percent of assets

Net real estate asset change (asset change-liability change)Net real estate asset change (asset change-liability change)

Change in occupancy cost per square footChange in occupancy cost per square foot


Executive Summary: Executive Summary: Real Estate ImpactsReal Estate Impacts

The degree to show real estate impacts is the degree management wants to see The degree to show real estate impacts is the degree management wants to see them and will readily comprehend.them and will readily comprehend.

In presenting real estate impacts, include line items affected in the financial In presenting real estate impacts, include line items affected in the financial statements:statements:

Income Statement:Income Statement:

RentRentOther occupancy costOther occupancy costDepreciationDepreciationInterest expense (including capital lease interest)Interest expense (including capital lease interest)Discontinued operations (write-downs, buy-outs)Discontinued operations (write-downs, buy-outs)


Executive Summary: Executive Summary: Real Estate Impacts Real Estate Impacts

Balance SheetBalance Sheet:: Property, plant, and equipment assets (PP&E)Property, plant, and equipment assets (PP&E) Mortgages payable, with or without principal pay-downMortgages payable, with or without principal pay-down

Cash Flow StatementCash Flow Statement:: DepreciationDepreciation AcquisitionsAcquisitions Capital ImprovementsCapital Improvements Discontinued OperationsDiscontinued Operations Mortgages and principal pay-downsMortgages and principal pay-downs Changes in cash resulting from a transactionChanges in cash resulting from a transaction


Executive Summary:Executive Summary:Performance ImpactsPerformance Impacts

Transactions will impact indices drawn directly from financial statement line Transactions will impact indices drawn directly from financial statement line items, financial ratios, and in retail businesses, market-related ratiositems, financial ratios, and in retail businesses, market-related ratios

The primary financial statement impacts are:The primary financial statement impacts are:

Revenue changeRevenue change Overhead changeOverhead change Net income changeNet income change Total assets changeTotal assets change Total liabilities changeTotal liabilities change Equity changeEquity change Cash flow changeCash flow change


Executive Summary: Executive Summary: Performance ImpactsPerformance Impacts

The primary financial ratio impacts are:The primary financial ratio impacts are:

Profitability, or profit margin changeProfitability, or profit margin change

Return on equity changeReturn on equity change

Return on assets changeReturn on assets change

Earnings per share changeEarnings per share change

Book value per share changeBook value per share change

Quick or current ratio changeQuick or current ratio change


Executive Summary: Executive Summary: Critical AssumptionsCritical Assumptions

A strategy is only as good as its underlying assumptionsA strategy is only as good as its underlying assumptions

Critical assumptions are those that have impact on the recommendation and Critical assumptions are those that have impact on the recommendation and financial conclusions as a wholefinancial conclusions as a whole

Heading the list of assumptions to include are:Heading the list of assumptions to include are:

Assumed impact of the transaction on salesAssumed impact of the transaction on sales Assumed impact of the transaction on other overheadAssumed impact of the transaction on other overhead Discount ratesDiscount rates Capitalization ratesCapitalization rates Time requirements to achieve objectivesTime requirements to achieve objectives Cost of capital; interest borrowing ratesCost of capital; interest borrowing rates Excluded cost items (legal, commissions, staff time)Excluded cost items (legal, commissions, staff time) Tax ratesTax rates


Executive Summary:Executive Summary:ImplementationImplementation

The executive summary should state what happens if the The executive summary should state what happens if the recommendation is approvedrecommendation is approved

This can be:This can be:

A list of A list of priority actionspriority actions

A condensed A condensed scheduleschedule of activities of activities

Any Any immediateimmediate corporate impacts corporate impacts


Executive Summary: Executive Summary: Support DocumentationSupport Documentation

It often happens that a senior officer will want to see some item of documentation It often happens that a senior officer will want to see some item of documentation supporting a financial or operational conclusionsupporting a financial or operational conclusion

The executive summary should anticipate this need by including a list of the The executive summary should anticipate this need by including a list of the support documents usedsupport documents used

Example documents include:Example documents include:

A A general narrativegeneral narrative of circumstances surrounding the proposed transaction of circumstances surrounding the proposed transaction A complete list of A complete list of assumptionsassumptions A A pro formapro forma income statement income statement A pro forma balance sheetA pro forma balance sheet A pro forma cash flow statementA pro forma cash flow statement


Learning the Language of FinanceLearning the Language of Finance

Understand the dual agenda now confronting the Corporate Real Understand the dual agenda now confronting the Corporate Real Estate FunctionEstate Function

Administration of Real EstateAdministration of Real Estate Asset ManagementAsset Management

Divide work into Logistical and Strategic componentsDivide work into Logistical and Strategic components

Determine where your time is best spent:Determine where your time is best spent:

Strategically FocusedStrategically Focused Management Advisor on Real EstateManagement Advisor on Real Estate


Communicating Departmental ValueCommunicating Departmental Value

Identify Identify Key StakeholdersKey Stakeholders

Identify Identify Indicators and MeasuresIndicators and Measures

Develop a Develop a Communications VehicleCommunications Vehicle

Develop a Develop a Feedback MechanismFeedback Mechanism


Becoming a Financial AdvisorBecoming a Financial Advisor

Create a “Linkage” to the Corporate StrategyCreate a “Linkage” to the Corporate Strategy

CRE Strategy Directly Related to Corporate StrategyCRE Strategy Directly Related to Corporate Strategy

CRE Tactical PlanCRE Tactical Plan

Metrics: Financial and OperationalMetrics: Financial and Operational

CommunicationCommunication


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Course SummaryCourse Summary

The Basic PrinciplesThe Basic Principles

Any Questions?Any Questions? Staying in TouchStaying in Touch

Our Course BlogOur Course Blog

On-line File AreaOn-line File Area

Cambridge Consulting Group – Free SupportCambridge Consulting Group – Free Support


Lease Accounting FAS 13 Intro Course for CFO

Real Estate

Transcript of Lease Accounting FAS 13 Intro Course for CFO