FINANCIAL GENOME CONSULTANT TUTORIAL

Transcription

1 FINANCIAL GENOME CONSULTANT TUTORIAL Sample Project Work Flow A step-by-step guide for using Financial Genome to build your custom financial forecasting model This tutorial provides the basic workflow steps for building a forecasting model with Financial Genome Consultant Edition using Excel The completed forecasting model will provide you with a customized set of integrated financial statements (Income Statement, Balance Sheet, Cash Flow Statement, Ratios Statement) based on GAAP (Generally Accepted Accounting Principles). The model design provides full cash closure at all times by reflecting the cumulative impact of your assumptions on the cash balance. The Excel 2007 version of Financial Genome (FG) employs Microsoft s new fluent ribbon interface with tabs (designated here as {tab}) and buttons in groups. The Excel 2003 version has a different interface using menus and toolbars, but operates on the same principles described here (see Appendix C). To start Financial Genome, click the {Financial Genome} tab in the Microsoft Excel menu, then click the Financial Genome Environment button. You will see the three Modernsoft tabs displayed: {Home}, {Model}, and {Format}. Additional tabs may appear if you have other addins installed (e.g., Acrobat).. NEED HELP? Please consult the extensive help system for a detailed explanation of all Financial Genome features. The Help button appears on the {Home} and {Model} tabs. Provides a menu of help topics relevant to your key tasks. The How Do I? menu appears on the {Home} and {Model} tabs. Provides detailed definition and relationships on any given term. The Explain Term button appears on the {Model} tab. Page 1 of 41

2 DOWNLOAD AND INSTALLATION Requirements: Excel 2007 (US Version) Windows Vista (32-bit version) or Windows XP (US Version) Single user stand-alone computers (non-server based machines) Installation of FG application on C:\ drive (uninstall all previous versions before installing new version) Download the correct version of FG depending on which version of Excel you are using. This tutorial applies to FGSetup2007c. All versions are compatible with both Windows Vista and Windows XP. When you install FG and run it for the first time, you are asked to enter the Free Trial Activation Code to start your 30 day free trial (that s the code sent to you in an after you downloaded the software). NOTE: FREE TRIAL ACTIVATION CODE is different from the PURCHASE REGISTRATION CODE (see below). During the trial period, the system will ask each time it is started whether you are ready to enter the purchase registration code. If you have NOT purchased the product, indicate NO and skip this step. After 30 days, you must purchase a code from our website to use the product. After you have purchased the product and received the Purchase Registration Code from us, you should enter the code by clicking {Home/Guidance}>Registration to access the registration window. Installation Guidance: Our web site ( has a Support tab, which allows you to view the Readme file, with additional detailed installation instructions. Page 2 of 41

3 WORK FLOW STEPS The tutorial will take you through the basic steps in creating and customizing your model, starting with a History Project and Data Entry, and guide you on how to complete your forecasting model. Once you have customized and finished your Financial Genome model, you can export (i.e., convert) your Financial Genome project from the Financial Genome environment into the regular Excel environment as a standard workbook. In this file format, you can share the model with others and make further enhancements using Excel s capabilities. FINANCIAL GENOME PRO (FOR USERS OF QUICKBOOKS): Please refer to Addendum A: Financial Genome Pro Guidance for special instructions for Financial Genome Pro. Introduction: The Financial Genome Environment: Image of completed model The Financial Dictionary Browser I. Getting Started Creating a New Model: New History Project Modify Time Periods Update Required II. Statement Design and Layout: Duplicating and Itemizing Terms Changing Label Names Hiding and Moving rows III. Data Entry Income Statement Balance Sheet Cash Flow Statement Ratios Statement IV. Forecasting Modify Time Periods for Forecasting Forecast Drivers Statement Data Entry - Reset Forecast Values Tool - View Inputs Tool Cash (Funds) Closure V. Export to Standard Excel Workbook Appendices: Appendix A: Sample Workflow Diagram Appendix B: Sample Project Statements Appendix C: Financial Genome Tools: Excel 2007 Ribbon Interface & Excel 2003 Toolbar Appendix D: Financial Genome INPUTS Appendix E: Terms That Cannot Be Duplicated or Itemized Appendix F: Forecast Formulas with Corresponding Actual Equivalents Appendix G: Using an External Database with Financial Genome GenomeLink - Formatting Requirements - Map Database Using GenomeLink - Use Database in Genome Project - Create a Genome database workbook from the INPUT Sheet Addendum A: Financial Genome Pro Guidance Page 3 of 41

4 INTRODUCTION: The Financial Genome Project Environment Before we take you through the detailed steps of creating a model, please review the layout of a completed model in Financial Genome as shown below, which uses the Income Statement as a sample display and pointers to identify key functions: Accessing the modeling tool buttons from the three ribbon tabs: {Home}, {Model}, {Format} Accessing statements on a separate sheets (the special Input Sheet contains only model Inputs) Customizing financial terms to match your chart of accounts Adjusting Time Periods to suit your requirements Entering actual(history) data values before creating a forecast model Completed Financial Genome Model Ribbon Tabs: Home Model (shown) Format Tool buttons {Model} tab tool buttons shown Actual Periods (History) shown Duplicates of term ( Sales shown) Forecast Periods shown Time Periods: Actual (History) Base (History) Forecast Financial Terms Income Statement terms shown Data Values: Green = Input Black = Calculated Blue = Database Magenta = Override database Input Sheet and Statements (Income Statement - shown, Balance Sheet, Cash Flow Statement, Ratios Statement and Forecast Drivers Statement - hidden) Page 4 of 41

5 The Financial Dictionary Browser Now that you have become acquainted with the overall Genome project environment, you should take another moment to review an important and unique feature of Financial Genome before we take you through the detailed steps. Financial Genome has a built-in Financial Dictionary which contains all the statements, terms and relationships required to create your model. You can access this Dictionary with the Financial Dictionary Browser, which allows you to examine its contents as well as letting you insert terms and statements from the Dictionary into your project. The browser is organized in a financial statement hierarchy and allows you to find any term or statement by browsing hierarchically or searching alphabetically and then obtaining an explanation. When you choose to start a new model by selecting a New History Project or New Forecast Project on the Model tab, you likely will not need to insert additional terms onto the statements provided for you. However, should you wish to do so, you can insert additional terms or statements from the Financial Dictionary Browser by clicking on any blank cell in the first column of your statement and hitting the >Enter key to bring up the Browser: When you insert terms / statements from the Dictionary, formulas are automatically written into your Financial Genome Project and Inputs are automatically included on the Input Sheet (in alphabetical order). You can also use the {Model}>Insert Term tool button to open the Browser. Find the term in the Browser (Search button provides an alphabetical listing) and click on the Insert Term button at the bottom of the Browser. The term will be inserted onto a blank row above the row you are currently on. If you simply want more information on the highlighted term (e.g., input vs. calculated term, formula for calculated term, definition, dependents), click on the Explain Term tool button. (example shown: Explain Term for Domestic Sales ) Page 5 of 41

6 I. GETTING STARTED Creating a New Model: New History Project Load Financial Genome: click on > Start >Programs >Modernsoft >Financial Genome. Excel should now load the Financial Genome addins automatically. Click on the >{Financial Genome Environment} menu tab to begin. Click on the >Financial Genome icon to enter the FG project environment. Click on {Home}>New History Project tool button. Financial Genome will automatically create a project with the basic statements (see appendices for sample statements): Income Statement (shown below), Balance Sheet, Cash Flow Statement and Ratio Statement for a history project (e.g., annual periods from ). Note: Initial input values are set to zero. Actual time periods: Initial History Project with no data values entered (zeroes) Input values in green Calculated values in black Input Sheet Basic statements (Income Statement shown) Page 6 of 41

7 Modify Time Periods Once the History Project has been opened, your first step is usually to adjust the time periods to suit your needs. If you wish, you can modify the time periods at any time later on. Click on {Model}>Time tool button if you wish to change the dates for actual (history) periods. The time wizard will display the fields for entering your time modifications as shown. Use Beginning through Base periods for entering actual periods. (Base year is the last actual period). Because we are creating a history project, be sure that the Ending period matches the Base period. Click on >OK. A forecast project is created when the Ending period is greater than the Base period. Later we will extend the Ending period when we perform Forecasting. History Project: Base Period = Ending Period Beginning Period Base Period Ending Period Note: The default Unit Time is Year (annual). You can select Quarter or Month for your Unit time. Once the Unit Time is selected for the project, do NOT change it during a project or else you will have to re-enter your data values. Update Required: Whenever the UPDATE REQUIRED alert appears on your statement (above the time periods), click on the {Model}>Update Required tool button. This step causes Financial Genome to generate formulas for revised rows. The update process may take some time if your project contains many time periods. If you are making many changes (e.g., changing row labels), you can delay using the Update operation until you are done and ready to examine the calculations. Page 7 of 41

8 II. Statement Design and Layout The history model contains all the financial terms and relationships that you can adapt to create a customized model that matches your chart of accounts. Formulas are automatically written into your Financial Genome Project for all calculated terms, and required Inputs are automatically listed on the Input Sheet (in alphabetical order). When you duplicate (or itemize) a dictionary term (see below), the duplicate will inherit all the properties of the original term. All the statements are dynamically linked changes on one statement will be reflected on all related statements. To adapt the model to your specific account structure and labels, you should use the following tools: {Model}>DUPLICATE ACCOUNT (creates one or more instances of a term) or >ITEMIZE ACCOUNT (creates one or more instances of a term with a total) {Model}>CHANGE LABEL (change term label to match your accounts) {Format}>MOVE ROW up/down (customize order of rows) {Format}>HIDE ROW (hide any rows not used or needed) IMPORTANT: When designing and customizing your FG Model, you must use the special Financial Genome tools provided. The conventional Excel editing functions will NOT work while you are in the Financial Genome environment. Please save you project work regularly. If you encounter an error message, saving the workbook will not create a usable FG project. Instead, resort to your last saved project. Each of these tools is discussed in detail below. Page 8 of 41

9 {Model}>DUPLICATE ACCOUNT The Duplicate Account operation creates duplicate instances of Input terms, allowing you to create, for example, multiple Sales accounts. Only input terms can be duplicated - calculated terms cannot be duplicated. A duplicate of a term inherits the properties of the original term duplicated, such as inclusion in statements, sections, and formulas defined in the Dictionary for the original term. In general, this means that duplicate accounts are automatically incorporated in formulas as sums (e.g., Sales1 + Sales2 ) - your model is always fully integrated and dynamically linked as you customize your statements. To duplicate an input term, select a term in the first column on your analysis work sheet. Example: Selling, general and administrative term selected for duplication. Example: Selling, general and administrative term duplicated Click the >Duplicate Account tool button You will now have a second input term called "<termname>2", and the original term is renamed "<termname>1" (the actual numbering will depend on how many duplicates already exist). Both new Input terms have the same properties as the original term that was duplicated. You can create as many duplicates as you need with Duplicate Account. You can change the row labels and move the rows anywhere you like on your project statement (see Change Label and Move Rows tool). {Model}>ITEMIZE ACCOUNT The Itemize Account operation is the same as Duplicate Account operation, but it also creates a TOTAL for itemizations on the statement (e.g., Sales TOTAL = Sales1 + Sales2 ). Example: Sales term itemized with Sales TOTAL Note: Certain input terms cannot be duplicated/itemized. FG will warn you if an action cannot be performed. Page 9 of 41

10 {Model}>CHANGE LABEL The Change Label operation allows you to conveniently rename terms in your original statement or terms that you have inserted into a work sheet from the Financial Dictionary or duplicated/itemized. Select the term in the first column and click the >Change Label button. The Change Name for Row dialog appears. Type in a new name (alias) for the term in the text input box. Click >OK. The term will be displayed with the new name both on your project statement(s) and on the Input Sheet. Example: Sales1 term label changed to Domestic Sales TIP: You may also change the label of a term (which is usually an account name) by simply typing a new name directly over the row label in the first column. {Format}>MOVE ROW up/down The >MOVE ROW operation will move any selected populated row, any selected itemized group, or any selected complete section up/down the work sheet by one row at a time. Example: Sales TOTAL row moved down. {Format}>HIDE ROW The Hide Row operation will hide any row that is displayed on a Financial Genome work sheet. Select row and click on the >Hide Row tool button. You can use the >Unhide Row tool button to make hidden rows visible again. TIP: Do not hide rows you may need for forecasting later on. For example, do not hide the special term Funds Deficit on the Balance Sheet (see Forecasting ). Page 10 of 41

11 III. Data Entry Now that you have customized your model to match your business account structure, you are ready to enter actual data for historical data (i.e., data for Beginning Period through Base Period). Enter all historical / actual data for the Income Statement, Balance Sheet and Cash Flow Statement and selected terms on the Ratios Statement. Make sure all statements reconcile to company data before proceeding to the forecast mode: Net Income should reconcile; the Balance Sheet should balance. There are several methods for data entry: Type data values directly into project statement cells (recommended for first time users) The most direct way to enter data values into a project is to type them into the data cells once the statements have been created and formatted with the appropriate row labels. This process builds up a set of historical values that propagate to all statements affected by them, and generates a complete data record on the project s INPUT Sheet. Calculated terms will be automatically calculated (black values). Enter data directly on statement for all inputs (green). Calculated terms (black) automatically updated. Type data values into a project s INPUT Sheet cells Another direct way to enter data is to type the data values directly into the INPUT Sheet, by locating the respective data rows that are displayed in alphabetical order (see Appendix). Create a Genome database from external data records You can use an external database that has been properly formatted in Excel and that has been mapped to the Financial Dictionary using GenomeLink. Recommended only for advanced users (see Appendix re: GenomeLink). Reconcile all historic data to match company records INCOME STATEMENT: Net Income should match actual company data, and discrepancies should be resolved. Check sign +/- used for inputs. IMPORTANT: Special treatment of depreciation and amortization: o Financial Genome requires that the depreciation and amortization component of costs and expenses be explicitly shown on the Income Statement so as to be able to reconcile to the Cash Flow statement. o Depreciation can be shown either before Gross Profit as Depreciation cost of sales and/or after Gross Profit as Depreciation expense. o Amortization should be shown separately as an expense item: either as Amortization goodwill and/or Amortization other intangibles. o Therefore, you may need to adjust other cost and expense accounts to exclude depreciation and amortization, if they contain these non-cash items. Page 11 of 41

12 BALANCE SHEET: By definition, balance sheets must balance (Total Assets = Total Liabilities + Equity). The indicator Balance Sheet Out-of-Balance term at bottom of your Balance Sheet should be zero. If the indicator Retained Earnings Out-of-Balance is not equal to zero, enter an equivalent value for Retained Earnings Adjustment to reconcile the Balance Sheet. FG assumes Retained Earnings = Retained Earning Prior Period + Net Income Dividends + Retained Earnings Adjustment. CASH FLOW STATEMENT: You should not change the basic layout of Cash Flow Statement, although you can hide unused rows. This statement is automatically derived from the Income Statement and Balance Sheet plus selected inputs. The components of the Cash Flow Statement (Operating, Investing and Financing activities) may only correspond roughly to company statements, which often contain accounting adjustments. If available, you should provide Input values for selected Cash Flow terms not contained in income statements and balance sheets. These terms are particularly relevant for forecasting your company s future cash position. - Capital expenditures - Acquisitions (of Gross Property, Plant and Equipment) - Dispositions (of Gross Property, Plant and Equipment) - Repayment of Long-term Debt - Proceeds from Long-term Debt - Common Dividends - Preferred Dividends Note: Uses of funds will be automatically recognized as negative numbers even though the value is entered as a positive number. For example, Capital expenditures and Repayment of Long-Term Debt will appear as negative numbers, even though you entered positive values on the statement. Make sure that the indicator Cash Out-of-Balance term at bottom of statement equals zero. First year cash flow figures may not meaningful because prior year Balance Sheet values are not available; therefore Cash Out-of-Balance may not equal zero in first time period. RATIOS STATEMENT: The formulas on the Ratios Statement cannot be changed, since they are governed by the Financial Dictionary and values are automatically derived from the inputs on other statements. If available, enter input values for: - Employees - Share Price Common - Share Price Preferred Congratulations! You have completed your History Project (see Sample Project Income Statement provided below). You can now build your forecast model by extending your History Project into future time periods and using the helpful forecasting features of Financial Genome described next. Page 12 of 41

13 SAMPLE HISTORY PROJECT FROM (Income Statement shown; see Appendix for statement samples) Time Periods: Beginning = 2004 Base = 2008 Ending = 2008 Duplicates of Sales with labels changed Depreciation broken out separately Amortization broken out separately The values shown in this illustration were created by using the Sample Data Base provided with Financial Genome. (See Appendix for how to use an existing database in a project.) Page 13 of 41

14 IV. Forecasting Financial Genome can automatically create a forecasting model which allows you to assume and project values for future periods. The model has several powerful features, which you should review before we guide you through the detailed steps of building your forecast: Forecast Formulas, Forecast Drivers and Actual Equivalents: The forecasting model is built around key forecast formulas (see Appendix F) based on operating, investing and financing relationships most typically used in the financial analysis of a business. These relationships are derived from the actual performance record and can be found on the Ratios Statement. For assistance in your forecasting, Genome provides forecast drivers which are key forecasting assumptions that you enter. Most forecast drivers are based on a corresponding historical ratio which is called an actual equivalent. Example: o Forecast Formula for Sales = Sales_prior * (1+Sales_growth_percent_forecast) o Forecast Driver for Sales = Sales_growth_percent_forecast o Actual Equivalent for Sales_growth_percent_forecast = Sales_growth_percent Forecast Drivers Statement: This statement displays all the forecast drivers and their actual equivalents. Automatic Initialization of Forecast Assumptions: Genome automatically initializes the input values for the forecast periods based on the Base Period values. For the most part, the base period values for the business are extended into the forecast periods. From this starting point, you modify your forecasting assumptions as desired. Reset Forecast Values Tool Button: This tool, found on the {Model} tab, allows you to select among several forecasting methods (see below). Show Inputs Tool Button: This tool, found on the {Model} tab, temporarily displays all the input terms upon which a calculated term (black) depends. Data can be entered while input rows are displayed. Full cash (funds) closure: Financial Genome operates on the principle that uses of funds equals sources of funds. Based on your forecasting assumptions, Genome automatically determines if a funding gap exists. This funding gap is referred to as the Funds Deficit, which shows a positive value when uses exceed sources of funds or a negative value (funds surplus) when sources exceed uses of funds. The term is shown on the liability side of the Balance Sheet and is also referenced on the Cash Flow and Forecast Drivers statements. To eliminate any funding gap (or surplus), you will need to modify your operating, investing and financing assumptions (see below). Page 14 of 41

15 The following section provides the steps for creating your forecasting model. Modify Time Periods for Forecasting Forecasting is possible only if the Ending period is greater than the Base period (last year of actual / historical). Click on {Model}>Time tool button. Enter a value for the Ending period (last forecast period) which is greater than Base period. Click >OK. You will find that forecast periods have been added to your project. UPDATE REQUIRED! Click {Model}>Update Required tool button to populate your model with all terms and formulas and recalculate project workbook. Forecast input values in the forecast periods will be automatically initialized: o o o o Forecast Drivers Statement Sales growth percent forecast will be set to zero (i.e., Sales forecast to be flat). Most forecast drivers with actual equivalents will assume their Base Period value. For example, SG&A percent of sales - forecast = SG&A percent of sales in the Base Period. Key cash flow inputs that are set to zero (i.e., Capital expenditures, Acquisitions, Dispositions, Repayment of long-term debt, Proceeds from long-term debt). Other forecast inputs will equal their Base Period values (e.g., Other Assets ). The Forecast Drivers Statement combines all the assumptions needed for forecasting on one statement. This is particularly useful because many forecast assumptions (e.g., forecast drivers) are not typically visible on the basic statements (Income Statement, Balance Sheet, Cash Flow Statement and Ratios Statement). You can only add the Forecast Drivers Statement after you have created a forecast project by extending the ending time period beyond the base period. To add the Forecast Drivers Statement to your project: Click on the {Model}>Statement tool button Select/highlight Forecast Drivers (last statement) from the pull-down list of statements Click >Add Click >OK The Forecast Drivers Statement has now been added to your project and can be accessed by clicking on the sheet tab. If the Update Required! button appears, click it to regenerate formulas. Page 15 of 41

16 Sample Forecast Project: Forecast Drivers Statement with Initialized Forecast Values Drivers Organized Into the Three Components of the Business System: Operating, Investing and Financing Color rules for data values are the same as in the History Project: Input values in green. Calculated values in black. Sales growth percent forecast: input value initialized at zero percent for forecast periods. Sales (total) growth rate SG&A percent of sales forecast: input value initialized with base period value of actual equivalent SG&A percent sales Input terms: forecast input values initialized with base period value. Page 16 of 41

17 Data Entry: Forecasting There are several methods to enter your forecasting assumptions. As in entering historic (actual) data values, you can enter future data values for all inputs directly on the project statements or on the Input Sheet, where all inputs are listed alphabetically. Note that for forecasting, many terms are now calculated with forecast formulas and therefore are no longer input terms as they were during the actual periods. The various inputs for the forecast formulas can be found on the Forecast Drivers Statement. ENTER VALUES FOR FORECAST DRIVERS ON THE FORECAST DRIVERS STATEMENT The Forecast Drivers Statement includes all the forecast drivers (inputs) for forecast. The drivers/inputs are organized into three groups: Operating, Investing and Financing Drivers. As mentioned earlier, their values have been initialized for the forecast periods. For the most part, the drivers have been initialized with the Base Period values of their actual equivalents. The actual equivalent terms and their calculated values are also included below their corresponding forecast drivers. OVERRIDE TERMS CONTAINING FORECAST FORMULAS WITH DIRECT INPUTS You can enter dollar inputs directly on a statement (e.g., Income Statement, Balance Sheet, Cash Flow Statement) or Input Sheet for terms containing forecast formulas (black). This action will override the default forecast formulas found in the Dictionary. Your direct inputs will now appear in green. REVERT TO FORECAST FORMULA Even after overriding a forecast formula by entering a dollar value, you can revert back to the default forecast formula by simply highlighting the cell and hitting the BACKSPACE key and then the ENTER key. RESET FORECAST VALUES TOOL BUTTON The {Model}>Reset Forecast Values tool button allows you to choose among several methods for inputting forecast values. Genome will have automatically filled in an initial set of forecast values for all forecast inputs using the default method for each term. - Find any row with an input term in the historic period (green or blue if using database) and select the column you want to modify. - Click the >Reset Forecast Values tool and Genome will provide you with options for initializing the forecast values in the window shown below. You can select one of several methods for setting forecast values starting with the column you select and applying the method across to the ending period: o Use zeroes o Copy across a value o Apply a growth rate (percentage change from the prior period) o Apply a percent increase (decrease) to existing forecast value o Restore the dictionary's default method for initializing forecast values Page 17 of 41

18 VIEW INPUTS TOOL BUTTON The {Model}>View Inputs tool temporarily displays and highlights all input terms in a statement that affect a calculated term to allow for data entry. This is most useful for terms containing forecast formulas, since the inputs / forecast drivers in the forecast formula may be hidden from view on the current statement. Select any calculated term, and click on the {Model}>View Inputs tool button. If inputs are not already being displayed for this statement, the following operation will occur: The system will unhide (or insert) and display with yellow highlighting all of the input terms that are associated with and affect the selected calculated term. You can change the data values of the highlighted input terms by typing new values directly into the appropriate cells on the statement. The actual equivalents associated with any forecast driver are also displayed for reference. The example below shows the View Inputs tool applied to the term Gross Profit = Cost of Sales / Sales Inputs for Gross Profit displayed and highlighted in yellow. Actual equivalent for each forecast driver displayed below driver. To restore the statement to its original layout, select the calculated term and click on the {Model}>View Inputs tool button. Select >Restore Entire Statement. Income Statement restored to original layout after using View Inputs tool. Page 18 of 41

19 Cash (Funds) Closure: Closing the Funding Gap Because your Genome model s financial statements are fully integrated and dynamically linked, as you enter your forecast assumptions, Genome continuously calculates whether a funding gap or surplus exists. A funding gap exists when the uses of funds exceed the sources of funds and is reflected as a positive value in the special term Funds Deficit. (A negative value in the Funds Deficit indicates that a surplus situation exists where sources of funds exceed the uses of funds. ) Funds Deficit term: The Funds Deficit term is automatically calculated by Genome and appears as a plug figure in the Liabilities section of the Balance Sheet and on the Cash Flow Statement in order to provide cash closure for the forecast periods. In addition, it appears in the Financing Drivers section of the Forecast Drivers Statement. Note that for history periods sources of funds must equal uses of funds by definition, that is, Funds Deficit = 0. When forecasting, however, your initial forecasting assumptions will likely result in a funding gap or surplus. To eliminate this funding imbalance you will need to adjust your forecasting assumptions to achieve funding balance (i.e., Funds Deficit = 0). Funding gap exists for forecast periods. Shown as plug figure on balance sheet. Change in funds deficit term used to provide full cash closure. Funds deficit term also shown in Financing Drivers section of Forecast Drivers statement. Page 19 of 41

20 Closing the Funding Gap: While there is no correct order to input your forecasting assumptions, we suggest you modify your forecasting inputs roughly in the order displayed on the Forecast Drivers Statement: Operating, Investing and Financing Drivers. Operating Drivers cover sales, cost and expense assumptions. Investing Drivers cover working capital (e.g., accounts receivable, inventories, accounts payable) and fixed assets assumptions (e.g., capital expenditures, depreciation). Financing Drivers deal with debt and equity financing assumptions (e.g., changes in debt and equity, dividends). Modify your assumptions until you find the scenario that closes the funding gap, i.e., funds deficit = 0. Because the funds deficit figure on the balance sheet is a cumulative value, you should reconcile forecast period 1 first, then forecast period 2, etc. Funding gap closed: Funds deficit = 0. You have now completed your forecasting model. Be sure to save your Financial Genome project. To open your saved project, first run Financial Genome before opening the project workbook file. You can now choose to export your completed Financial Genome project as a standard Excel workbook file for sharing and additional analytical enhancements, as described next. Page 20 of 41

21 V. Export to Standard Excel Workbook Once you have built your model in the Financial Genome environment, you can convert your project into the regular Excel environment as a standard workbook. In this file format, you can share the model with others and make further enhancements using Excel s capabilities. You can further customize your model by adding detail worksheets you designed as desired and linking them to the input sheet, by adding new user-defined terms, adding graphics, etc. To export your project, on the Excel menu, click the {Format}> Export to Excel Workbook tool button. Make note of where you save the workbook. After exporting your project, Financial Genome will automatically save and close your Financial Genome project. Open the exported workbook file. This is a standard Excel workbook and functions as any other Excel spreadsheet. However, all financial statements are protected. Furthermore, unlike the original Genome project, you cannot enter data values directly on the financial statements. If you unprotect these sheets and override a formula on the statement, the integrity of the analysis will be compromised. Entering Input Values: Your export model allows entering input values only on the Input Sheet. In contrast to the Genome project, the exported Excel workbook s Input Sheet now groups all inputs by statement and in the order they appear there or are needed by the calculated terms on the statements. This differs from the Input Sheet of the Genome project which lists inputs alphabetically. Forecasting drivers/assumptions are listed along with their respective financial statement inputs where applicable. While inputs will appear in green on the financial statements, their values must be entered on the Input Sheet. All financial statements in the export model are protected for this reason. Overriding Forecast Formula with Direct Dollar Input: Many of the terms use forecast drivers to derive their value for the forecast periods. You can override the use of the forecast formula on the statements if you enter a dollar value for these terms for the forecast periods on the Input Sheet. The value for a direct dollar input will override the forecast formula and the forecast driver value will be ignored. You can return to using the forecast formula by deleting the respective direct dollar input. Adding User Defined Rows: To insert a user defined row(s) on the statements, you must first unprotect the sheet ({Review}> Unprotect Sheet). You can add your own rows and formulas as you would on any Excel spreadsheet, but you should avoid changing any of the existing rows and values. Linking Detailed Worksheets to the Input Sheet: You can add worksheets to your workbook to provide supporting details for building up the values of such terms as Sales; Capital spending; Gross property, plant and equipment, Long-term debt, etc. These detailed worksheets must be referenced and linked to the appropriate dependent term on the Input Sheet. For example, you could provide product line sales detail (units sold and price per unit by product line) that would link to the corresponding Sales row on the Input Sheet. This concludes the tutorial guidance. Once you are in the Financial Genome environment, please consult our extensive help system for detailed explanations of all Financial Genome features. Click on the {Home} or {Model} tab to access the HELP tool button. Page 21 of 41

22 Appendix A: Sample Workflow Diagram Enter Financial Genome Environment: Create History Project: {Model} >New History Project Modify time periods: {Model}>Time Actual: Beginning to Base periods Base = Ending period Customize statements: {Model} >Duplicate Account {Model} >Itemize Account {Model} >Change Label {Format} Move Row Up / Down {Format} >Hide Row Enter data for all history input values Check results: Net Income? Balance sheet out-of-balance? Retained earnings out-of-balance? {Model} >Update Required! Build Forecast Model: Modify ending time period: {Model}>Time (Ending > Base) Add Forecast Drivers Statement: {Model} >Statements Enter data for all forecast input values using Genome tools: {Model} > Reset Forecast Values {Model} >View Inputs Close funding gap (Funds Deficit = 0) {Format} >Export to Excel Workbook Page 22 of 41

23 Appendix B: Sample Project Statements (For all sample statements, forecast period values shown based on automatic initialization of the input values for the forecast periods.) Sample Income Statement Page 23 of 41

24 Sample Balance Sheet Page 24 of 41

25 Sample Cash Flow Statement Page 25 of 41

26 Sample Ratios Statement Page 26 of 41

27 Sample Forecast Drivers Statement Page 27 of 41

28 Sample Financial Genome Project Input Sheet (only portion of Input Sheet shown) Page 28 of 41

29 Sample Export to Standard Excel Workbook: Input Sheet (only portion of Input Sheet shown) Page 29 of 41

30 Appendix C: Financial Genome Tools Excel 2007 vs. Excel 2003 Excel 2007: Financial Genome Ribbon Interface {Format} Tab Hide / Unhide Rows Move Row Up / Down Decrease / Increase Indent Color Pattern Bold/Italic/Underline/D Underline Toggle Headings Show Outlines Page Headings Export to Excel Workbook {Home} Tab New Project New History Project New Forecast Project How Do I? Sample Project Annotated Project About Financial Genome Tutorials Videos Contact Us Enable Auto Start Registration Modernsoft Online Return to Excel Environment {Model} Tab Time Statement Update Excel Sheet Explain Term Insert Term Blank Row Section Header Delete Row Duplicate / Itemize Account View Inputs Reset Forecast Values Assume Zero Values Convert to Input Use/Create/Map Database Refresh Input How Do I? Dictionary Help Excel 2003 (& earlier): New Project Control Panel & Financial Genome Toolbar Financial Genome Toolbar (Excel 2003 & earlier) Control Panel Insert Term Create Section Header Update Delete Row Move Row Up / Down New Project Alias Show Outlines Statements Duplicate Input Bold Data Itemize Italic Time Reset Forecast Values Underline / Double Underline Dictionary Convert to Calculated Toggle Headings Assume Zero Values Insert Blank Row View Inputs Decrease / Increase Indent Hide Row Unhide Rows Color Pattern Information Page 30 of 41

31 Appendix D: Financial Genome INPUTS INCOME STATEMENT INPUTS Sales Cost of sales excluding depreciation Depreciation cost of sales Selling, general and administrative Research and development Depreciation expense Amortization - goodwill Amortization - other intangibles Other operating expense Interest expense Interest income Other income (expense) Special items Provision for income taxes Extraordinary items Discontinued operations Minority profits Cumulative effect of accounting changes Preferred dividends Common dividends Common shares outstanding - basic Common shares outstanding - diluted BALANCE SHEET ASSET INPUTS Cash Short-term investments Accounts receivable Inventories Other current assets Gross property, plant and equipment Accumulated depreciation Minority investments Other investments Goodwill Other intangibles Deferred charges Other long-term assets BALANCE SHEET LIABILITIES INPUTS Notes payable Accounts payable Income taxes payable Accrued expenses Other current liabilities Current portion of long-term debt Long-term debt Funds deficit Deferred taxes Other long-term liabilities BALANCE SHEET EQUITY INPUTS Minority interest Preferred stock Common stock Capital surplus Reserves Retained earnings Treasury stock CASH FLOW INPUTS Retained earnings adjustment Other non-cash adjustments to net income Capital expenditures Acquisitions Dispositions Repayment of long-term debt Proceeds from long-term debt OTHER INPUTS Employees Share price preferred Preferred shares outstanding Share price common Page 31 of 41

32 Appendix E: Terms That Cannot Be Duplicated or Itemized Only terms classified as Inputs in the Dictionary can be duplicated. The Duplicate Account tool button creates duplicate instances of terms classified as Inputs in the Financial Genome Dictionary. A duplicate of a term inherits the properties of the original term duplicated, including inclusion in statements, sections, and formulas defined in the Dictionary for the original term. CERTAIN INPUT TERMS CANNOT BE DUPLICATED/ITEMIZED due to the nature of their linkages to other terms. Financial Genome will not allow these terms to be duplicated and will warn the user with this message: To maintain calculation integrity, this version does not allow duplicating or itemizing [term]. or Can t duplicate a term that might be used as a forecast driver. - Gross Property, Plant and Equipment - Accumulated Depreciation - Goodwill - Other Intangibles - Notes Payable - Current Portion of Long-term Debt - Long-term Debt - Funds Deficit - Retained Earnings - Share Price Common - Share Price Preferred - Preferred Shares Outstanding Forecast drivers cannot be duplicated. For example: - Sales Growth Percent forecast - Interest Rate forecast Page 32 of 41

33 Appendix F: Forecast Formulas with Corresponding Actual Equivalents Dictionary Name Interest_Expense Forecast Formula (Forecast Drivers in bold) This Column shows the "Actual Equivalent" term matching the Forecast Driver in formula. (Notes_Payable_prior + Notes_Payable)*.5*Interest_Rate_forecast* (Daysinperiod/360) + (Long_Term_Debt_prior + Long_Term_Debt +Current_Portion_of_Long_Term_Debt_prior + Current_Portion_of_Long_Term_Debt) *.5 * Interest_Rate_forecast * (Daysinperiod/360) Interest_Rate_Weighted_Average Accumulated_Depreciation Accumulated_Depreciation_prior + Depreciation_Cost_of_Sales + Depreciation_Expense + Accumulated_Depreciation_Adjustment_forecast Common_Dividends Common_Dividend_Payout_Percent_of_Income_Available_fore cast * Net_Income_Available_for_Common_Dividends Common_Dividend_Payout_Percent_of _Income_Available Common_Stock Common_Stock_prior + Change_in_Common_Stock_forecast Change_in_Common_Stock Cost_of_Sales_Excluding_De preciation Accounts_Payable Inventories COS_Excluding_Depreciation_Percent_of_Sales_forecast * Sales Cost_of_Sales * (360/Daysinperiod) * Accounts_Payable_Percent_of_COS_ending_forecast Cost_of_Sales * (360/Daysinperiod)/Inventory_Turnover_ending_forecast COS_Excluding_Depreciation_Percent_ of_sales Accounts_Payable_Percent_of_COS_e nding Inventory_Turnover_ending Provision_for_Income_Taxes Effective_Tax_Rate_forecast * Income_Before_Taxes Effective_Tax_Rate Goodwill Gross_Property_Plant_and_ Equipment Long_Term_Debt Other_Intangibles Other_Operating_Expense Goodwill_prior - Amortization_Goodwill Gross_Property_Plant_and_Equipment_prior + Capital_Expenditures + Acquisitions - Dispositions Long_Term_Debt_prior + Current_Portion_of_Long_Term_Debt_prior + Proceeds_From_Long_Term_Debt - Repayment_of_Long_Term_Debt - Current_Portion_of_Long_Term_Debt Other_Intangibles_prior - Amortization_Other_Intangibles Other_Operating_Expense_Percent_of_Sales_forecast * Sales Other_Operating_Expense_Percent_of_ Sales Preferred_Stock Preferred_Stock_prior + Change_in_Preferred_Stock_forecast Change_in_Preferred_Stock Research_and_Development R_and_D_Percent_of_Sales_forecast * Sales R_and_D_Percent_of_Sales Retained_Earnings Cash Short_Term_Investments Accounts_Receivable Retained_Earnings_prior + Net_Income - Preferred_Dividends - Common_Dividends + Retained_Earnings_Adjustment Sales * (360/Daysinperiod) * Cash_Percent_of_Sales_ending_forecast Sales * (360/Daysinperiod) * Short_Term_Investments_Percent_of_Sales_ending_forecast Sales * Accounts_Receivable_DSO_ending_forecast / Daysinperiod Cash_Percent_of_Sales_ending Short_Term_Investments_Percent_of_S ales_ending Accounts_Receivable_DSO_ending Sales Sales_prior * (1+Sales_Growth_Percent_forecast) Sales_Growth_Percent Selling_General_and_Admini strative SG_and_A_Percent_of_Sales_forecast * Sales SG_and_A_Percent_of_Sales TOTAL_Assets - TOTAL_Current_Liabilities - TOTAL_Shareholders_Equity - Long_Term_Debt - Deferred_Taxes - Funds_Deficit Other_Long_Term_Liabilities - Minority_Interest Treasury_Stock Treasury_Stock_prior + Change_in_Treasury_Stock_forecast Change_in_Treasury_Stock Page 33 of 41

34 Appendix G: Using an External Database with Financial Genome - GenomeLink You can use an external database to import data into your Genome project. The database file must meet certain conditions: Database workbook must be in a particular Excel format. Database must be mapped to the Financial Genome dictionary using GenomeLink. Formatting requirements Financial Genome will access financial information only from Excel workbooks in a format where rows contain the financial data and columns the identifying labels and time periods: The first column must contain a unique identifying label (account name, e.g., Accounts payable, Accounts receivable - net ) for each record. The second and successive columns must identify the time periods in the required format (e.g., MM/DD/YYYY, that is 12/31/2008, etc.) Optional: Name the database sheet as Data. The illustration below shows a portion of a formatted database (see also SampleDatabase.xlsx workbook in the folder c:\program Files\Modernsoft\Databases\). Account labels Time periods (MM/DD/YYYY) Data values Data sheet GenomeLink sheet (see Map Database below) Preformatted Database Template provided with Financial Genome This template can be found in your file directory: C:\Program Files\Modernsoft\Extras\Databases\Database Template.xlsx. You can use it as a guide to configuring your data files on a spreadsheet for use in creating the database workbook for your project, or you can simply enter your data directly on this template, rename it and save it for use as the data record in the database workbook. If you make any changes to the data records on the template (e.g. renaming record labels, adding or deleting record rows) you will need to remap the database from scratch before using the workbook in your Genome project (see Map Database Using GenomeLink below). Page 34 of 41

35 Map Database Using GenomeLink The Map Database operation (GenomeLink) allows you to define how the database record names in your Excel workbook data file correspond to the terms in the Financial Genome Dictionary. To run GenomeLink, close all open Genome projects and click on the {Model} >Map Database tool button. Map Database opens your database file, locates the worksheet entitled DATA, and adds a worksheet, called GENOMELINK. The {Model} tab now enters the Map Database Operation mode. Your task is to indicate how database record names on the DATA sheet correspond to terms in the Financial Genome Dictionary. First, notice the columns on the GenomeLink worksheet (an example is shown below). - Database Record Name - Genome Dictionary Print Name. - Statement Alias (optional) - Flip Sign - Ignore Second, notice that when the GenomeLink worksheet was created, the program automatically mapped database record names that correspond to print names in the Financial Genome Dictionary by filling in the names in the second column. Terms with no exact match are marked as TRUE in the Ignore column. Exact match to Genome Dictionary name. No match to Genome Dictionary name. Initially marked as Ignore (TRUE). GenomeLink sheet automatically created. Your task is to handle any unmapped terms (i.e. terms with no exact match to Genome print names), unnecessary records (e.g. sub-totals), and data sign problems. Each of these tasks is briefly discussed below. Page 35 of 41

36 For more detailed explanations, once the {Model} >Map Database operation is initiated, click on the >How Do I? button. Mapping Unmatched Terms to Financial Dictionary Financial Genome's power and flexibility comes from its Financial Dictionary. The Dictionary includes common accounting terms and relationships, which are typically found in most financial statements. For each financial term, the Dictionary contains information to identify it, to define it, to control how it is displayed, and to define its relationship to the other terms in the Dictionary. When you open a data file using Financial Genome, the program searches the file's record headers and matches them against the Dictionary terms. If the database record names (account names) in your data file do not match the generic print names contained in the Genome Dictionary (or if you disagree with the exact match mapping), you need to decide how to map the database record names to the Dictionary term names. To resolve any of these issues, select the appropriate cell in the Genome Dictionary Print Name column of the GenomeLink worksheet, and press the Enter key on your keyboard or select Show Browser from the Map Database Operations. Tip: If you want to change the Dictionary Term that already appears in the cell, simply press the DELETE key on your keyboard, then ENTER (to delete the term) and then ENTER again (to open the browser). This brings up the Financial Dictionary Browser dialog in map mode, as shown below. Click on >Show Browser to enter map mode. Verify Mapping button Example shown: Database record Accounts Receivable Net mapped to Genome Print Name Accounts Receivable Map Term, Flip Sign, Ignore Row, Up, Down, Close buttons Page 36 of 41

37 There are several dialog buttons available to assist you in completing the database mapping process: Map Term - Map an unmatched database record to the appropriate term in the Dictionary. Browse for the term in the Financial Dictionary. Select term and click >Map Term. You can map more than one of your database records to the same Genome Dictionary term. Genome will automatically create duplicates of the dictionary term when you use the data file in a project. Example of multiple database records mapped to same Genome Dictionary term: e.g. Domestic Sales and International Sales mapped to Sales (Genome name). Ignore Term - Indicate (flag) a database record that you wish to ignore entirely. Sub-totals of terms in the database file should be ignored. Your Genome project will calculate totals and sub-totals for you (e.g. Gross Profit, Net Income, Total Assets, Total Liabilities). Enters a value (TRUE) in the Ignore column. Flip Sign - Indicate (flag) a database record where the "sign" of the record value needs to be reversed. Enters a value (TRUE) in the Flip Sign column. Up / Down Move the selected cell in the Genome Dictionary Print Name column up or down one cell. This will allow you to continue mapping another unmatched term without closing the Browser. Close - When you are finished mapping terms, click the Close button, and the Browser will close. TIP: You can also type directly onto the GenomeLink worksheet without using the Browser. You can change the terms in columns two (Database Record Name), three (Genome Dictionary Name), four (Flip Sign) and five (Ignore) of the worksheet by directly entering terms yourself. Finally, notice you that you are not allowed to modify the first column or delete rows on the GenomeLink sheet. To modify the database labels, edit the DATA sheet and recreate the GenomeLink worksheet by using Verify Mapping (see below). Whenever you reopen a database using MAP DATABASE, the program will also ask you whether you want to recreate the mapping from scratch. Statement Alias (Optional) Except for duplicates, Genome will use the Dictionary Print Name in your project unless you choose to enter an alias in the Statement Alias column. You can enter any term in this column. It does not have to be the same as your record name. For duplicates of any Dictionary term, Genome will insert your record name in the Statement Alias column when you verify the mapping (see below). You can override this term. Verify Mapping After completing the mapping process, or changing a mapping, you should verify the mapping. This operation will be invoked automatically when you close the database. However, it is convenient to verify the mapping as you work, to be sure that the print names are valid Excel labels and that the terms you are entering are consistent. Verify, Save, and Close Database Once you are satisfied with your mapping, click >Verify, Save, and Close Database button to exit the Map Database Operations mode. Your database file is now ready to be used in a Genome project. Page 37 of 41

38 Use Database in Genome Project If you have a database workbook you have either linked to the dictionary or which was created automatically from the INPUT sheet (see below), you can use it with a new project. Open Financial Genome and click on {Home} >New Project tool button. Proceed through each step of the New Project Wizard until you reach Database Information Step 4 of 5. Check Use Database and Browse to find your linked database. Click Next to enter the Time Information dialogue and to complete the New Project Wizard operation. Please be aware that connecting an arbitrary database to an arbitrary project will cause inconsistencies if terms are aliased or duplicated differently. Therefore, unless the database file was created from the project s Input sheet (see below), specify that you want to use a database workbook at the time you create a new project using the New Project Wizard. Create a Genome database workbook from the INPUT Sheet You can create a database workbook from the data contained in the INPUT sheet of your active project which you can save as a free-standing database for use with your current as well as other new projects. Click on the {Model} >Create Database (from Input Sheet) tool. Check Create database from INPUT sheet and click OK to save the linked database workbook. This action automatically creates a linked Excel workbook with the data from your INPUT Sheet and connects the database with your current project. Page 38 of 41

39 Addendum A: Financial Genome Pro Guidance (for users of QuickBooks) Financial Genome Pro contains all the capabilities of Financial Genome Consultant plus additional features designed for users of QuickBooks only. The following features are unique to FG Pro: Custom Financial Genome Dictionary designed for QuickBooks users You can automatically import account names and data directly from your QuickBooks file You can automatically map your QuickBooks accounts to the FG Dictionary You can revise account mappings with the Account Mapping Editor Your forecasting model and formulas are automatically generated using the FG Dictionary for QB. 1. Open QuickBooks.qbw File for Company 2. Import Data from QuickBooks and Create New Forecast Project Run Financial Genome Pro: Start > Programs > Modernsoft > Financial Genome Click on the HOME tab and select IMPORT FROM QUICKBOOKS. A dialog box will automatically open. Select Create New Forecast Project, click OK. 3 files will automatically be created by FG (create a special folder to save these files in): Report (QBCompanyReport.xls) Database (DBFromCompany.xls) FG Project (Company.xls) Account Mapping Editor: Financial Genome will try to find the Financial Genome dictionary term that most closely matches the account you have used in QuickBooks. This matching process is usually automatic when you use conventional account names. In other cases, Financial Genome will attempt to find the best match by looking for keywords that appear in the account name. When this process is completed, you will receive the following message: Click OK to continue. Page 39 of 41

40 Note: The default mapping will be financially correct. When a term cannot be matched to a FG dictionary term using keywords, it will be mapped to the term OTHER of the same financial type. We recommend accepting the initial mapping and reviewing the results in the Financial Genome s statements. Click HELP for detailed instructions. Click DONE when finished mapping and proceed to create project file. When project file is successfully created (this may take a few minutes) you will receive message: Import from QuickBooks is complete > click OK Time Periods: FG automatically finds the last fiscal year data by month plus this fiscal year to date data. The base year in the FG Project is the last period with actual data. All periods after the base period are forecast periods. FG will automatically create additional forecast periods for the balance of the current fiscal year. Note: The forecast time periods can be modified using the Time Wizard. Page 40 of 41