Data Management
Important Facts about the Equity, Cost, and Minority Interest Methods
Before running scenario rollups, review this information about scenario rollup methods:
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If the rolled up parent has subaccounts for accounts used by the Cost, Equity, and Minority Interest methods, Strategic Modeling uses the first subaccount to hold the rolled up results. This applies to these accounts:
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Cost Method (v1190) —see Cost Method
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Equity Method (v2420)—see Equity Method
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Minority Interest Method (v1720), (v2780)—see Minority Interest Method
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Strategic Modeling enables blocking accounts used by Cost, Equity, and Minority Interest methods in parent files. A warning is written to the log when one of these accounts is blocked:
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Cost Method (v1190)—see Cost Method
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Equity Method (v2420.2), (v2420.3)—see Equity Method
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Minority Interest Method (v1720), (v2780)—see Minority Interest Method
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Cost Method
Use Cost Method when the amount of investment in a company is less than 20% and is held for at least one year. Only three calculations are performed and added to the rolled up parent:
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Dividends from Investments: Cost (v1190) account is increased by the ownership percentage times the investment's cash dividends (v1900 Total Common Dividends):
Parent's v1190 = Ownership% x investment's v1900
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In the valuation adjustment for Cost and Equity methods, SVA (v5.00.900) increases by the ownership percentage times the investment's SVA value (v5070 Shareholder Value):
Parent's v5.00.900 = Ownership% x investment's v5070
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In valuation adjustment for Cost and Equity methods, EP (v5.00.910) increases by the ownership percentage times the investment's EP value (v5790 Economic Profit Shareholder Value):
Parent's v5.00.910 = Ownership% x investment's v5790
Note:
The opening balance for the investment account (v2430.00 Investments: Cost Method) is in the parent company's file. The investment is carried at the lower of acquisition cost or market value.
Equity Method
Use Equity Method when the amount of investment in a company is at least 20% and less than 50% and is held for at least one year. Business unit values roll-up into Dividends from Subsidiaries and Earnings from Investments accounts, which are used to calculate the parent's Investments: Equity Method:
v2420.00 Investments: Equity Method (prior period)
+ v2420.01 Increase in Investments: Equity Method
- v2420.02 Dividends from Subsidiaries
+ v2420.03 Earnings from Investments: Equity
= v2420.00 Investments: Equity Method
Four calculations are added to the rolled up parent:
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The Dividends from Subsidiaries (v2420.02) account increases by the ownership percentage times the subsidiary's cash dividends (v1900 Total Common Dividends), automatically reducing the balance in the investment account:
Parent's v2420.02 = Ownership% x subsidiary's v1900
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The Earnings from Investments: Equity (v2420.03) account increases by the ownership percentage times the subsidiary's after-tax net income (v1750 Net Income), automatically increasing the balance in the investment account:
Parent's v2420.03 = Ownership% x subsidiary's v1750
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In the valuation adjustment for the Cost and Equity methods, SVA (v5.00.900) increases by the ownership percentage times the subsidiary's SVA value (v5070 Shareholder Value):
Parent's v5.00.900 = Ownership% x investment's v5070
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In the valuation adjustment for the Cost and Equity methods, EP (v5.00.910) increases by the ownership percentage times the subsidiary's EP value (v5790 Economic Profit Shareholder Value):
Parent's v5.00.910 = Ownership% x investment's v5790
Note:
The opening balance for the subsidiary investment account (v2420.00 Investments: Equity Method) should be in the parent company's file. The initial investment in the subsidiary should be recorded at cost.
Minority Interest Method
Use Minority Interest Method when the amount of investment is between 50% and 100% of the company's stock. This method also rolls up output values. While 100% of the business unit is rolled up, these calculations recognize the outside interest in the business:
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Minority interest percentage calculates as the difference between 100% and the ownership percentage:
MI% = 100% - ownership%
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Minority Interest (v1720) on the Income Statement increases by the minority interest percentage times the subsidiary's after-tax net income (v1750 Net Income):
Parent's v1720 = MI% x sub's v1750
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Minority Interest (v2780) on the Balance Sheet increases by the minority interest percentage times the subsidiary’s Common Equity account (v2890):
Parent's v2780 = (MI% x sub's v2890)
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In the valuation adjustment for Minority Interest, SVA (v5.00.920) increases by the minority interest percentage times the investment's SVA value (v5070 Shareholder Value):
Parent's v5.00.920 = Ownership% x investment's v5070
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In the Valuation Adjustment for Minority Interest, EP (v5.00.930) increases by the minority interest percentage times the investment's EP value (v5790 Economic Profit Shareholder Value);
Parent's v5.00.930 = Ownership% x investment's v5790
Time Periods in Rolled Up Parents and Child Models
The analysis length and time period detail level should be the same for all files in the scenario rollup. To ensure the integrity of the scenario rollup, the time period information in the rolled up parent is compared to the time period information in the child models as they are rolled up.
Several time period conditions could affect the results of scenario rollups:
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Uneven time periods are time periods exist in child models the rolled up parent, but not in both. Depending on the condition, data may or may not be included in the scenario rollup. See Uneven Time Periods.
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Mismatched historical and forecast period boundaries occur when the files in the scenario rollup do not match the last historical period. See Uneven Fiscal Year Ends.
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Uneven fiscal year ends exist when the year ends of the files in the scenario rollup do not match, and stops rolling up. See Mismatched Historical and Forecast Period Boundaries.
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Different levels of time detail occur when one or more files in the scenario rollup have different time dimensions than the other files. Some differences are acceptable, while others stop rolling up. See Differing Levels of Time Detail.
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Subperiods must be consistent between the child models and the scenario rollup parent to be included in the scenario rollup. If they are not, rollup could stop. See Mismatched Subperiods.
Uneven Time Periods
If the rolled up parent has more historical periods than the child models, Strategic Modeling assumes zero values in the rolled up parent, but not in child models. You can block the non-rolled up time period data to maintain data in other time periods of the rolled up parent.
If the rolled up parent has fewer historical periods than the child models, only data for historical periods in the rolled up parent is included in the scenario rollup.
If the rolled up parent has more forecast periods than the child models, Strategic Modeling assumes zero values for those periods in the rolled up parent but not the child model.
If the rolled up parent has fewer forecast periods than the child models, Strategic Modeling includes the child model forecast data in the residual value of the rollup up parent instead of the forecast. See Valuations with Scenario Rollups and Residual Values in Rolled Up Parent Models or Files.
Uneven Fiscal Year Ends
The fiscal year end of each child model must match that of the rolled up parent. If they do not match, Strategic Modeling logs an error and stops rolling up.
For example, if the rolled up parent uses a fiscal year end of July 31, all child models must use a fiscal year end of July 31.
Mismatched Historical and Forecast Period Boundaries
The last historical period in the rolled up parent defines the last historical period for the scenario rollup. The historical and forecast boundaries of both the rolled up and child models are compared based on the system labels assigned to files when created or imported. If the historical and forecast boundaries are different, a warning message displays, but the rollup finishes.
For example, if the child model uses months and the last historical period is 5/96, the rolled up parent uses quarters and the last historical period is 2Q96 (or 6/96). Data from the child model from the first forecast period (6/96) shifts to the last historical period in the rolled up parent.
Differing Levels of Time Detail
If files in scenario rollup structures have different time detail levels, the rolled up parent cannot have a more detailed time structure than the least detailed child model. The table below illustrates how level-of-time-detail rules apply to child models based on the level of time detail in the rolled up parent:
| Rolled Up Parent Uses: | Child Models Can Use: |
|---|---|
|
Years |
Years, Halves, Quarters, Months, or Weeks |
|
Halves |
Halves, Quarters and Halves, Months and Halves, or Weeks and Halves |
|
Quarters |
Quarters, Months and Quarters, or Weeks and Quarters |
|
Months |
Months or Weeks and Months |
|
Weeks |
Weeks |
If mismatched time periods do not fall within these rules, the rolled up parent uses the aggregate data from the child models. For example, if the rolled up parent is in years and the child models are in quarters, the scenario rollup uses yearly values for each of the child models.
If a time period mismatches is not covered by these rules, Strategic Modeling logs an error and stops the scenario rollup.
Mismatched Subperiods
Strategic Modeling rolls up subperiods if the rolled up parent and child models have matching subperiods.
If child models contain subperiods but the rolled up parent does not, the scenario rollup does not include subperiods. Subperiod data aggregates to the full period in the rolled up parent.
Number of Days
| Before Rollup: | Subperiod #1 | Subperiod #2 | Total Days |
|---|---|---|---|
|
Business Unit File |
30 |
335 |
365 |
|
Rolled Up Parent |
None |
365 |
365 |
| After Rollup: | Subperiod #1 | Subperiod #2 | Total Days |
|---|---|---|---|
|
Rolled Up Parent |
None |
365 |
365 |
If the rolled up parent has subperiods and the child models do not have matching subperiods, Strategic Modeling logs an error and stops the scenario rollup.
The same condition exists for subperiods with uneven lengths of time. In this example, the rolled up parent contains subperiods which match the length of time of the subperiods in business unit #1. The subperiods in child model #2 do not match, so Strategic Modeling would log an error and stops the scenario rollup.
Number of Days
| Before Rollup: | Subperiod #1 | Subperiod #2 | Total Days |
|---|---|---|---|
|
Business Unit File #1 |
30 |
335 |
365 |
|
Business Unit File #2 |
45 |
320 |
365 |
|
Rolled Up Parent |
30 |
335 |
365 |
Rollup of Files with Dissimilar Currencies
Strategic Modeling compares the Default Currency Name for each child model to that in the rolled up parent. If they are different, Strategic Modeling logs a warning, but continues rolling up. The rolled up values may not be meaningful.
This rule holds unless Currency Translator is involved.
Freeform Formulas in Scenario Rollups
Strategic Modeling
preserves the additivity of the child model output data whenever possible. Strategic Modeling solves for
@input if the rolled up parent contains a Freeform formula
using @input.
For example, child models and the rolled up parent use the same Freeform formula, which contains the @input function, to calculate Depreciation Expense (v1110) on the Income Statement. Strategic Modeling solves the rolled up parent input using the output values of the child models. In this example, the input of .86 is necessary to achieve the additive output of $430 in the rolled up parent.
Business Unit File Freeform formula:
@input * v2190.1
Rolled up parent Freeform formula:
@input * v2190.
Input Data:
| Account Name | Business Unit File #1 | Business Unit File #2 | Rolled Up Parent |
|---|---|---|---|
|
Depreciation Expense (Funds) (v2190.1) |
$200 |
$300 |
$500 |
|
Depreciation Expense (v1110.0) |
.80 |
.90 |
.86 |
Output Data:
| Account Name | Business Unit File #1 | Business Unit File #2 | Rolled Up Parent |
|---|---|---|---|
|
Depreciation Expense (v1110.0) |
$160 |
$270 |
$430 |
If the rolled up parent contains a Freeform Formula that does use
@input, the scenario rollup checks the rolled up parent to see
if the account has currency overrides. If there are, the currency override is the
sum of the output data of all child models in the scenario rollup.
For example, both business units use the same Freeform Formula, which
contains @input, to calculate Depreciation Expense (v1110) on the
Income Statement. The rolled up parent does not use @input. It sets
Depreciation Expense (v1110) equal to Depreciation Expense (Funds) (v2190.1). Strategic Modeling solves this using
the output values of the child models. In this example, a currency override of #430
achieves the additive output of $430 in the rolled up parent.
Business Unit File Freeform formula:
@input * v2190.01
Rolled Up parent Freeform Formula:
v2190.01
Input Data:
| Account Name | Business Unit File #1 | Business Unit File #2 | Rolled Up Parent |
|---|---|---|---|
|
Depreciation Expense (Funds) (v2190.1) |
$200 |
$300 |
$500 |
|
Depreciation Expense (v1110.0) |
.80 |
.90 |
#430 |
Output Data:
| Account Name | Business Unit File #1 | Business Unit File #2 | Rolled Up Parent |
|---|---|---|---|
|
Depreciation Expense (v1110.0) |
$160 |
$270 |
$430 |
If there are no currency overrides, the Freeform Formula in the scenario rollup is executed. It is possible, with no currency overrides, that the rolled up parent output is not equal to the sum of the child models.
Take the previous example, but with no currency override, and the Freeform Formula in the rolled up parent executes.
Business Unit File Freeform formula: @input * v2190.01
Rolled up parent Freeform Formula: v2190.01
Input Data:
| Account Name | Business Unit File #1 | Business Unit File #2 | Rolled Up Parent |
|---|---|---|---|
|
Depreciation Expense (Funds) (v2190.1) |
$200 |
$300 |
$500 |
|
Depreciation Expense (v1110.0) |
.80 |
.90 |
Executes Freeform Formula |
Output Data:
| Account Name | Business Unit File #1 | Business Unit File #2 | Rolled Up Parent |
|---|---|---|---|
|
Depreciation Expense (v1110.0) |
$160 |
$270 |
$500 |
Valuations with Scenario Rollups
Performing valuations in a rolled up parent and in a child model are similar. While most of the data comes from the child models, some accounts may be manually entered in the rolled up parent, depending on the scenario rollup structure.
Cash flows from child models are additive in full scenario rollup methods, unless you have selected to block accounts—see Rolling Up Scenario Rollups. Other child model accounts are also cumulative:
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Market Value of Debt (v5.00.500)
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Market Value of Other Obligations (v5.00.540)
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Underfunded Pension Liabilities (v5.00.520)
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Investment in Stocks and Bonds (v5.00.560)
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Market Value of Other Liabilities (v5.00.700)
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Market Value of Other Assets (v5.00.720)
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Residual NOPAT Adjustment (v5.00.820)
If these accounts contain data at a rolled up level, but not in child models, consider entering the data into one of the child models. Or, enter the account data in child models, to avoid changing files.
You can block the Cost of Capital account group and manually enter those accounts in the rolled up parent.
Otherwise, the cost of capital is calculated as a weighted average of the child models.
Residual Values in Rolled Up Parent Models or Files
If you roll up Residual Values, Strategic Modeling calculates them using the Liquidation method for both the Shareholder Value and Dividend Discount models. The Perpetuity method applies to the Economic Profit model. The Future Value of Residual Value (FVRV) from the child models are added to calculate the FVRV for the rolled up parent. The rolled up FVRV is discounted using a weighted average discount rate from the child models. If the Cost of Capital account group is blocked, discount rates in the rolled up parent are used instead of the weighted average.
If you block Residual Values, Strategic Modeling calculates them using the residual value method selected in the rolled up parent.
If you block the Residual Value account group is blocked, you must manually enter data in these accounts of the rolled up parent:
Shareholder Value Model
Perpetuity
Normalized Operating Profit Adjustment (v5110.00)
Residual Value Tax Rate (v4.00.560)
Growth in Perpetuity
Normalized Operating Profit Adjustment (v5110.00)
Residual Value Tax Rate (v4.00.560)
Perpetuity Growth Rate (v4.00.520)
Value Growth Duration
Normalized Operating Profit Adjustment (v5110.00)
Residual Value Tax Rate (v4.00.560)
Perpetuity Growth Rate (v4.00.520)
Perpetuity Value Growth Duration (v4.00.540)
Price/ Earnings Ratio
Normalized Earnings Adjustment (v5140.00)
Price/ Earnings Ratio (v5130.00)
Debt Discount/ (Premium) (v5150.00)
Market-to-Book Ratio
Market-to-Book Ratio (v5120.00)
Debt Discount/ (Premium) (v5150.00)
Liquidation
Liquidation Value (v5210)
Dividend Discount Model
Perpetuity
Long-Term Return on Book Equity (v4.00.780)
Residual Value Target Leverage Ratio (4.00.760)
Growth in Perpetuity
Long-Term Return on Book Equity (v4.00.780)
Perpetuity Growth Rate (4.00.720)
Residual Value Target Leverage Ratio (4.00.760)
Value Growth Duration
Perpetuity Value Growth Duration (v4.00.740)
Residual Value Target Leverage Ratio (4.00.760)
Perpetuity Growth Rate (4.00.720)
Price/ Earnings Ratio
Normalized Earnings Adjustment (v5440.00)
Price/ Earnings Ratio (v5430.00)
Market-to-Book Ratio
Market-to-Book Ratio (v5420.00)
Liquidation
Equity Liquidation Value (v5480.00)
Economic Profit Model
Perpetuity
Economic Profit Residual Tax Rate (v5.00.800)
Residual NOPAT Adjustment (v5.00.820)
Economic Profit Adjustment to NOPAT (v5740.00)
Economic Profit Adjustment to Assets (v5715.00)
Economic Profit Adjustment to Liabilities (v5720.00)