Fincura | Resources

Our resources

Thought leadership, articles, media, and more


What is Financial Spreading Anyway?

Posted by Max Blumenthal | Jan 26, 2021 3:56:41 PM

Financial Statement

Not all financial statements are made the same. In fact, almost none of them are made the same! Financial statements are like snowflakes. They come in just as many shapes, sizes, and formats as there are businesses to create them. At first glance this might sound strange. One would think that accepted accounting principles, such as GAAP and IFRS, would help standardize this. However, there is also flexibility left to business in how they share this data.

Why is there no standardized financial statement?

There are several reasons why there is no true standardized business financial statement. The most prominent factor is that every business is unique, and the financial statements of a business reflects those unique aspects. A standardized financial statement would abstract much of this detail that is so important to understanding each business.

Additional factors include which bookkeeping software the business uses (if any), who they hire as their CPA or Auditor, or simply how the person preparing the financial statement wants it to look.

Why financial statements are evaluated

While all businesses prepare financial statements to calculate taxes, other institutions rely heavily on financial statements too.

Banks use financials to determine the creditworthiness of a company, and the health of the business throughout the duration of a loan. Business insurance companies need to determine the financial risk when underwriting a policy. A business advisor will use financial statements to calculate dozens of metrics to better understand the business, such as how long it takes your customers to pay you, or how much money you take home for every dollar of sales.

The problem these external institutions face is that, once again, every financial statement looks different from the rest. This makes it difficult to quickly understand one business and how it compares to others in a portfolio, or an industry, or a geography. A loan officer may want to find which of her existing customers could handle a higher credit card limit. A bank’s Chief Credit Officer may want to set a policy to limit exposure to Oil & Gas companies in Alberta with high leverage.  

Achieving this without a standardized view of financial statements is difficult, if not impossible.

How financial spreading helps

Spreading financial statements is the process of putting a set of bespoke financial statements into a standard format that is easier for the reviewer to digest. Spreading financial statements also helps to compare companies against others. However, just like financial statements, spreading approaches can look drastically different from one institution to the next.

How Standards Proliferate

Spreading databases exist so that an institution can set a template used for all of its business customers. However, these databases are not standard across the industry.

For example, a regional bank may have a spreading database where their employees can manually enter standardized financial statements. A debt fund may have an excel template that the entire firm uses. A community bank may not have a standardized process, but instead will allow each individual loan officer to do what is best for her.

Challenges of spreading financial statements

Regardless of how an institution is set up to handle financial statement spreading, the process is frequently time consuming, prone to error, and repetitive.

Manual process

Let's consider an analyst at a regional bank that has a spreading database. A business submits its financial statements in three separate scanned PDF documents that each contain two years of financial statements. The analyst will create a new excel template that matches her spreading database. Then, she will type numbers, one by one, into her excel template.

Because the spreading template has a different set of accounting line items than the financial statement that the business sent, she has to add several rows together across the income statement and balance sheet.

Data is difficult to analyze and change

Once the spread is complete, the database will automatically calculate the multitude of ratios that are helpful for her analysis, although the ratios are "stuck" in the database and are not easy to manipulate or recalculate during the course of her analysis.  

In total, the process of spreading these financials from the company-supplied documents into her bank's database will have taken well over an hour with hundreds or thousands of keystrokes, each capable of altering the opinion she later forms on the company's creditworthiness. This does not count the hours upon hours of work she needs to perform to get the ratios and metrics to change in real time as she does her analysis work.  

Adding to the challenge is that spreading templates create layers of abstraction that make it challenging to retroactively change a template once it has been set.

For example, if a spreading template includes only one line item for operating expenses, it would be impossible to later review which companies in the portfolio have the highest Personnel Expense relative to Sales. Once the spread is complete, the data is gone unless somebody manually spreads each and every document that contains financial statements that the bank has ever received.


There has to be a better way

More recently, technologies have been built to automatically read, understand, and capture all information from financial statements and footnotes. This allows the user to simply manipulate the data rather than keying in numbers manually from a scanned PDF to an excel template to a database.

If you couldn’t tell yet, this is Fincura’s bread and butter.

Fincura can distill the analyst's experience to zero keystrokes and no more than a few minutes of her time. From there, she can run all of her analysis within a digital platform that saves her work and allows her to quickly change any subjective decisions she made while spreading and analyzing the business.

We understand that buying new technology can be a lengthy process for any financial institution. That's why we wanted to help make your financial spreading easier, even without using our software.

Something to get you started

If you’re ready for something more, or just to learn about our technology out of your own curiosity, give us at Numerated a call. We’re always here to help.

Learn more

Topics: perspectives, articles, featured

Written by Max Blumenthal

Co-Founder and CEO