Thursday, September 1, 2016

How to Do a Flux Analysis

How to Do a Flux Analysis

First, what IS a flux analysis? In my world of accounting for equity compensation, very simply, it is an analysis of the changes to equity compensation expense from period to period. 

Why did my company's stock plan expense go up by 15%?
Why did my company's stock plan expense go down by 20%?

Inquiring CFOs want to know!

Generally, I see these performed at the grant level and the grants are categorized into nine or so categories, which explain the increase or decrease in expense. We will cover six of these in the table below, and another three in my next blog. 

Most of the time and, depending on the stock plan system you use, variances in expense on the grant level are due to a few simple factors:




To quantify the impact of these factors, you simply put together the key information about each grant:

  • Grant Date
  • Cancel/Termination Date
  • Final Vest Date
  • Shares Outstanding
  • Shares Vested
  • Shares Unvested
  • Prior Period Expense (estimated forfeiture adjusted)
  • Current Period Expense (estimated forfeiture adjusted)
In many systems, you can pull this information together by running three reports:
  • Grant Summary / Personnel Summary
  • Prior Period Expense report
  • Current Period Expense report
I drop all three reports into a single spreadsheet and pull the expense information into the Grant Summary tab by adding columns with an index/match or sumifs. 

Then I add a variance column that compares prior expense to current expense. I always subtract prior from current. 

Then I add a "category" or "reason" column, which I begin to populate by first filtering the data for the various variance causes listed above (e.g. filter for grant date in the current period, and add "Current Period Grant" in the reason column for all those grants). 

However, you should also ensure that all the grants in that category have the "expected outcome" for that category (in the example above, the expense is greater than in the prior period). So after filtering for the grant attribute (grant date in the current period), you should also filter the variance column for the expected result (variance is positive). Then you add the reason to the reason column by pasting down the column. 

Some grants will fall into more than one category, but you want to categorize based on the primary reason for the expense variance. As you begin each variance category, first filter for reason = blank so you don't continually re-categorize the grants. 

In some cases, the variance will NOT be as expected, more on that in the next blog entry... 

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