Data-Driven Finance Leader Krystal Pertuit and Karen Jones - - PDF document

Postlethwaite & Netterville, APAC December 5, 2019 1

a s s u r a n c e - c o n s u l t i n g - t a x - t e c h n o l o g y - p n c p a . c o m

Postlethwaite & Netterville, A Professional Accounting Corporation

Year-End CFO Seminar: Baton Rouge

December 5, 2019

a s s u r a n c e - c o n s u l t i n g - t a x - t e c h n o l o g y - p n c p a . c o m

Postlethwaite & Netterville, A Professional Accounting Corporation

Data-Driven Finance Leader

Krystal Pertuit and Karen Jones Penhallegon

Postlethwaite & Netterville, APAC December 5, 2019 2

Introductions

3

Agenda

4

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The Reality of the Finance Leader

Finance Leader Reality

6

CFO

Board Executive Team Customers Technology Finance Team

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Finance Leaders Admit…

7

Source: Argyle Executive Forum

64%

Say their finance function is not proactive enough in using data/analytics to identify, prioritize, and address critical issues in the business. The biggest challenges in creating a data- driven finance function

Finance Leaders Know…

8

Source: Argyle Executive Forum

77%

Say their organization requires a data-driven finance function to achieve its strategic and profitability improvement goals.

81%

Say that over the next two years, the pressure on their finance function to become more data-driven will increase substantially.

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Finance Leaders Can Be…

9

Source: Argyle Executive Forum

“Performing analytics against big data sets needs state-of-the-art database and analytics technology that runs close to the data in the cloud.” – Ian Howells, Head of Marketing, Sage Intacct The report creation feature that are most important

Finance Leader Evolution

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Finance Leadership 1.0

11

Finance Leadership 2.0

12

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Finance Leadership 3.0

13

Evolving with Your Data

14

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Evolving with Your Data

15

America’s Favorite Pie?

Evolving with Your Data

16

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Embracing Data Excellence

17

2000 BC 1500’s 1700’s 2000’s 2019

Finance Leadership 1.0

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Chart of Accounts of the Past

19

Acct – Loc – Dept – Project Account Title 4000 – 001 – 100 – 001 Revenue – Baton Rouge – Corporate – Project 001 4000 – 001 – 200 – 001 Revenue – New Orleans – Engineering – Project 001 4000 – 002 – 100 – 001 Revenue – Houston – Development – Project 001 4000 – 002 – 100 – 002 Revenue – Baton Rouge – Corporate – Project 002

Reporting of the Past

20

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Reporting of the Past

21

Dimensional Accounting

22

Natural Account 4000 Revenue Location Department Project Customer Employee 001 Baton Rouge 100 Corporate 001 C1000 E1100 002 New Orleans 200 Engineering 002 C2000 E1200 003 Houston 300 Development 003 C3000 E1300 400 Marketing 004 C4000 E1400 500 Sales 005 C5000 E1500

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Capturing Dimensional Data

23

Finance Leadership 2.0

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Bringing Relevance to Data

25

Non- Financial Data

• Income Statement
• Balance Sheet
• Financial Ratios

AND…

• Business specific

metrics

Financial data

Business Specific Metrics

26

Metrics aligned w/strategy Operational measures

Business Specific Metrics Value Drivers Business Objectives Strategy

Strategy Map

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Real Time Analysis Tools

27

One Source of the Truth

Dashboards Ad hoc Reporting/Pivots Financial Reports Standard Reports

Finance Leader Dashboard

28

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Overall Net Income

29

By Location

30

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By Department

31

Multi-Dimensional Analysis

32

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Finance Leader Dashboard

33

Revenue by Customer

34

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Revenue by Service

35

Business Metric Considerations

36 Financial Internal Processes Learning & Growth Customer

To succeed financially, how should we appear to

• ur stakeholders? What

is critical for our shareholders? To achieve our vision, how should we appear to

• ur customers? How do

customers perceive us? To achieve our vision, how will we sustain our ability to change and improve? To satisfy our shareholders and customers, what business processes must we excel at? Past Current Future Financial Non-financial External Internal

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Finance Leadership 3.0

Data Never Sleeps

38

Source: DOMO

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It’s a New World

39

Envisioning the Future

40

Source: Gartner Analytics Maturity Model

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Does It Scale?

Excel is the single most popular data analytics tool in the world. Is it the right tool for the job? Pros:

• Inexpensive/Available
• Easy to use for ad hoc research, filtering,

quick calculations, and sorting

• Savvy users can use formulas to perform

complex calculations Cons:

• Easy to make a costly error
• Becomes overly complicated and unwieldly as

business data increases in size and complexity

• Security concerns and version control issues

Graduating from Excel

Data needs can quickly outgrow Excel. Where do we go from here? Acct HR Sales ETL Process Data Marts Data Warehouse

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The Agile Method

43

Assessment Data Modeling Structure Creation Data Import Integrate Additional Business Logic Create Tabular Files Dashboard Creation

Enterprise Data Warehouse Enterprise Data Warehouse Data Mart Data Mart Data Mart Data Mart Data Mart Data Mart Process Start Dashboards/Reports

Be Agile Not Fragile

44

Acting with boldness while others hesitate can create exceptional advantages

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Are You Ready to be Data Driven?

45

Past Financial Non-financial

A Professional Accounting Corporation

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a s s u r a n c e - c o n s u l t i n g - t a x - t e c h n o l o g y - p n c p a . c o m

Postlethwaite & Netterville, A Professional Accounting Corporation

Brandon Lagarde, Director

Federal Tax Update

Overview

• 1. Tax Cut and Jobs Act Review and Update
• 2. Opportunity Zones
• 3. 2020 Candidates Tax Plans

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TCJA: Lessons Learned

49

Pass-through Income - Expires 12/31/25

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162A Trade or Business

• Groetzinger v Comm:

– “We accept the fact that to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify.”

51

162A Trade or Business

52

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Specified Service Trade or Businesses

Accounting Methods-Small Business Exceptions

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163(j)/Business Interest Expense Tax Shelter – Am I a Tax Shelter

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Syndicate NOL Changes

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Business Expensing/Bonus Depreciation 179 Business Expensing

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Real Property Business Expensing Business Deductions

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Important Figures - Individuals

Deduction 2017 2018 2019 2020 Standard – Single 6,350 12,000 12,200 12,400 Standard – MFJ 13,000 24,000 24,400 24,800 Personal Exemption 4,050 401k 18,000 18,500 19,000 19,500 IRA 5,500 5,500 6,000 6,000 HSA ‐ Single 3,400 3,450 3,500 3,550 HSA ‐ Family 6,750 6,900 7,000 7,100 FICA Limit 127,200 128,400 132,900 137,700

Qualified Transportation Fringe Benefits

64

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Opportunity Zones

What are Opportunity Zones?

https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx https://www.louisianaopportunityzones.com/

66

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How Does the Tax Incentive Work?

67

Step 1: Taxpayer Sells Capital Assets at a Gain Step 2: Taxpayer Invests Gain into QOF within 180 Days Step 3: QOF Invests in QOZ Property Step 4: Taxpayer files Election to Defer Gain

QOZ Investment Process

68

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Democratic Candidates Tax Plans

Democratic Candidates Tax Plans: Joe Biden

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Democratic Candidates Tax Plans: Elizabeth Warren Democratic Candidates Tax Plans: Elizabeth Warren

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Democratic Candidates Tax Plans: Bernie Sanders Democratic Candidates Tax Plans: Bernie Sanders

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A Professional Accounting Corporation a s s u r a n c e - c o n s u l t i n g - t a x - t e c h n o l o g y - p n c p a . c o m

Postlethwaite & Netterville, A Professional Accounting Corporation

Hot Topics in State & Local Tax

Kathryn Pittman, Associate Director

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77

Agenda

78

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Wayfair Economic Nexus

History of Physical Presence

80

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What’s with Wayfair? – Supreme Court Opinion

81

What’s with Wayfair? – Background Information

82

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What’s with Wayfair? – Supreme Court Opinion

83

State Response to Wayfair

84

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State Response to Wayfair – By the Numbers

85

State Response to Wayfair

86

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State Response to Wayfair

Pre Wayfair law was held up by courts.) Legislature reauthorized and lowered threshold (was $500k) as of 7/1/19.

87

State Response to Wayfair

• Louisiana’s Surrounding States

– Georgia – 1/1/19 – Report or Collect $250,000 or 200 transactions retail sales of TPP within state. (Legislation reduces to $100,000 / 200 transactions, eliminates reporting option effective 1/1/20) – Oklahoma – Legislation lowers threshold to $100,000 effective 11/1/19 and report or collect regime is ended. (Pre Wayfair law – Report or collect, $10,000 gross revenue retail sales of TPP or services in last 12 months).

88

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Next Steps After Wayfair

ACT 274 – 2017 Regular Session

90

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ACT 274 – 2017 Regular Session

91

LA Remote Sellers Commission

92

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LA Remote Sellers Commission

93

Jefferson Parish v Wal-Mart.Com

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Wayfair – Income Tax Wayfair – Income Tax

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Multistate Issues

Market Based Sourcing

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Single Sales Factor Apportionment

Effect of Single-Sales Factor and Market-Based Sourcing

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Louisiana

Smith v. Robinson, Sec’y of Dep’t of Rev.

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Smith v. Robinson, Sec’y of Dep’t of Rev. Smith v. Robinson, Sec’y of Dep’t of Rev.

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Act 442 – Attempt at Mitigating SALT deduction limitation Louisiana Issues

106

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107

Louisiana Issues

108

Louisiana Issues

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109

Kathryn Pittman

Associate Tax Director kpittman@pncpa.com 225.408.4455

a s s u r a n c e - c o n s u l t i n g - t a x - t e c h n o l o g y - p n c p a . c o m

Postlethwaite & Netterville, A Professional Accounting Corporation

M&A Valuation

Kevin Bohrer, CFA Beau Town, CVA

Postlethwaite & Netterville, APAC December 5, 2019 56

This presentation is for educational purposes only. Therefore, all of the materials in this presentation should be used for its intended purpose only.

Objectives and Outline

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Objectives and Outline

113

• 1. Due Diligence Overview

Acquisition Process

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The Acquisition Process

Non-Financial Buyer

• Industry operators
• Managers as shareholders’

agents

• Non-industry operators

– Diversification – Bottom fishers

115

Buyer’s Profile

Financial Buyers

• Private equity firm
• Platform companies or bolt-
• n acquisitions
• Strive to achieve maximum

ROI

The Acquisition Process

• Ability to complement the core business strategy
• Create new revenue or expand existing revenue streams
• Provide operational synergies
• Add new talent to the management team
• Increase customer stickiness
• Integrate efficiently with minimal disruption to entity
• Create minimal impact on corporate culture
• Meet ROI goals and timeframe

116

Buyer’s Acquisition Objectives

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The Acquisition Process

Buyers evaluate businesses as to their risk factors and expectations of future earnings:

• Historical earnings
• Growth prospects
• Depth of management
• Employee stability
• Potential synergies
• Terms of sale
• Competition
• Location and facilities

117

Buyer’s Perspective

The Acquisition Process

118

Acquisition Phases

Planning Search & Screen Value & Price Finance & Execute Due Diligence

Strategic Priorities

• Strong revenue growth
• Meet required IRR (20%-25%)
• Cost to acquire within established guidelines
• Accretive acquisition

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The Acquisition Process

• Pre-acquisition planning
• Search for targets
• Preliminary due diligence
• Internal valuation and pricing
• Initial expression of interest
• Negotiations
• Firm LOI – controlled and informal auctions
• Confirmatory due diligence
• Definitive agreement and closing
• Integration

119

Acquisition Steps

• 1. Due Diligence Overview

Due Diligence Process

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Due Diligence Process

Buyer

121

Perspective

Seller

Due Diligence Process

Diligence Areas

• Administrative
• Financial
• Asset
• Human Resources
• Taxes
• Intellectual Property
• Legal
• Customer
• IT
• Strategic Fit

122

Planning

Diligence Team

• Investors
• Investment bankers
• Attorneys
• Accountants
• Professional consultants

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• 1. Due Diligence Overview

Quality of Earnings

Quality of Earnings

124

Importance

Notes

• Approximately 34% of loan

applications were declined due to poor quality of earnings and/or cash flow.

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Quality of Earnings

Major focus of accounting due diligence is quality of earnings (QoE)

Qualitative analysis

• Financial trends and ratios
• Revenue recognition
• Cost structure

Qualitative Analysis

• Aggressive / conservative policies
• Management experience
• Reliability of internal controls

125

Overview

Quality of Earnings

The goal is to measure cash flow excluding any anomalies, accounting tricks, or one-time events that skew performance.

• Conservative vs. aggressive
• Cash vs. non-cash
• Based on fixed amount vs. based on estimate
• Recurring vs. non-recurring

126

Characteristics

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Quality of Earnings

• One-time revenues or expenses
• Restructuring charges
• Extraordinary legal expenses
• Reserve reversals
• Related party transactions
• Stand alone costs
• Private company costs
• Public company costs

127

Significant Items Affecting the Value Proposition

• Capitalized internal costs (i.e.

capitalized software costs)

• Barter transactions
• Acquisitions / Divestitures
• Changes in accounting policy or

practice

Quality of Earnings

• Cut backs or deferrals of

discretionary costs and expenses

• Independent auditor’s “passed”

judgements

• Off-market or non-cash

compensation

• Components of “other” income

including gains/(losses) on asset disposals

128

Significant Items Affecting the Value Proposition

• Pension/OPEB earnings
• Historical purchase account

earnings

• Lease obligations
• Severance
• Deferred revenue
• Purchase accounting

(unfavorable leases/contracts)

• Other benefit plans (cash

requirements vs. reported GAAP)

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Quality of Earnings

EBITDA

• Earnings Before Interest, Taxes, Depreciation, and Amortization
• Measure of operating performance
• Surrogate for pre-tax cash from operations

Normalized EBITDA

• Purpose of normalizing EBITDA is to convert actual results to an expected
• perating “run rate” for the business
• Reported EBITDA (reconciled to audited/reviewed financials)
• +/- management adjustments
• +/- due diligence adjustments
• = Normalized EBITDA

129

Normalized EBITDA

• 2. Business Valuation

Business Valuation Theory

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Business Valuation

131

Primary Approaches

Business Valuation

132

Market Approach - Overview

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Business Valuation

133

Market Approach - Pricing

Income Approach

134

Income Approach - Overview

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Business Valuation

135

Income Approach – Discount Rate

Income Approach

136

Cost of Capital – Illustration (Cost of Equity)

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Income Approach

137

Cost of Capital – Illustration (WACC)

Income Approach

138

Discounted Cash Flow Example

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Business Valuation

Takeover premium is the difference between the value of a company and the actual price paid to acquire it. Takeover premiums exist primarily due to two factors –

• Value of Synergies – the value of a company may be enhanced as it realizes benefits of

synergies from a buyer.

• Control Premium - The control premium is the additional benefit an acquirer receives

(compared to an individual shareholder) from having full control over the business.

139

Takeover Premium

• 2. Business Valuation

M&A Empirical Trends

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Rates of Return

141

From Cost of Capital to EBITDA Multiples

Source: Buy-Side M&A Strategies 2016 National Association of Certified Valuators and Analysts

Market Multiples

142

Total Enterprise Value (TEV)/EBITDA

Notes

• On average, multiples trending

up over time

• In general, larger multiples for

larger size

• Largest, attractive targets

currently getting highest multiples

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Market Multiples

143

Total Enterprise Value (TEV)/EBITDA

Notes

• Wide range in average

multiples across different industries

• 6.7x for manufacturing

compared to 8.2x for healthcare

Market Multiples

144

TEV/EBITDA - Manufacturing

Notes

• The ytd industry average

multiple (6.7x) is low compared to industries in previous slide

• Large targets still command

high multiple (9.3x in this case)

Postlethwaite & Netterville, APAC December 5, 2019 73

• 3. Post-Transaction Valuation

Purchase Accounting & Fair Value

Post-Transaction Valuation

146

Purchase Accounting - Overview

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Post-Transaction Valuation

147

Purchase Accounting – Financial Reporting

Post-Transaction Valuation

148

Purchase Accounting – Tax Reporting

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Post-Transaction Valuation

149

Purchase Price Allocations -Tax vs. FR

• 3. Post-Transaction Valuation

Purchase Price Allocation

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Post-Transaction Valuation

151

Purchase Price Allocation - Valuation

Post-Transaction Valuation

152

Fair Value of Purchase Consideration

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Post-Transaction Valuation

153

Fair Value of Purchase Consideration

Post-Transaction Valuation

154

Fair Value of Purchase Consideration

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Post-Transaction Valuation

155

Intangible Asset – Identification Criteria

Post-Transaction Valuation

156

Common Intangible Assets / Liabilities

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Post-Transaction Valuation

157

Intangible Asset – Valuation Methods

Post-Transaction Valuation

158

Intangible Asset – Valuation Methods (cont.)

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Post-Transaction Valuation

159

Fair Value of Tangible Assets

Post-Transaction Valuation

160

Assessing Reasonableness of Results

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Post-Transaction Valuation

161

Internal Rate of Return - Example

Post-Transaction Valuation

162

Weighted Average Return on Assets - Example

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Questions

163 A Professional Accounting Corporation