VALUATION - Valuation Procedures
What is
The essential element for Risk and P&L evaluation of any long and short trade tonnage is their market price.
When market price information is out-of-date the risk and P&L projected reporting become badly distorted. VALUATION provides the facility for updating those details on a global basis, either as an absolute ‘price per UOM'' e.g. MT or utilising the TCCM based Futures prices. Individual TRADE contracts can be updated from the TRADE/financial tab.
The processes in VALUATION enable selection of specific FREEZE tables for update/reporting/enquiry.
Some of the processes in VALUATION enable selection of consolidation for several ITAS entities; the companies required are maintained in separate windows and the process is flexible in their selection, except that the user must have access rights to those companies.
When there is a combination of consolidation and FREEZE tables being selected, the procedure checks to ensure that the FREEZE tables exist in ALL the selected companies.
The market price for WIP (INVENTORY) units can be updated en-masse using VALUATION, or individually using WIP.
There is an alternative M2M subsystem that is S01 configured (ctrl30_mktprstyle); this enables 'Price Matrix' maintenance.
How to use Price Matrix
The prices are maintained per fixed grouping e.g. Full Commodity Code, Crop year, Admin Terms, Position month, Shipment Period . The content of the grid is determined by S01 configuration (ctrl30_mktprstyle).
Consolidation is enabled for Price Matrix.
Open TRADE and Inventory records are included in the process.
The prices are stored in the process table (gf_pmp01) i.e. server centric.
The activation of this process disables maintenance/use of the classic ITAS M2M data fields, but individual TRADE records can be marked to be excluded from 'Price Matrix' M2M process.
TRADE will show the current available (Price Matrix) M2M details in the Financial tab. If there is no suitable matrix element for the TRADE the reason will usually be no price element has been setup for the Current/Spot Month; an appropriate message will be shown.
Import of .csv, .xls data can be executed, see help? on Price Matrix/grid for more details
How to use Valuation Details Entry.
Select the database to be maintained, select the grouping criteria (Hivedome will setup some standard groupings and you can set-up new groups), use the filter button if you wish to restrict process timing and click OK button. Note that, if you are performing the maintenance for period-end and you want the same market prices for the current database, action maintenance on current database and then freeze/copy for period-end table. If the company is operating F&O based pricing, the grid allows for 2 styles of price entry. You make the relevant entry as to which style of market pricing for each row. The F&O entry style prompts for TCCM code, delivery month and a differential. The differential can be signed –ve or +ve and in the case of a cocoa trading operation it can also be signed with the multiply code ‘*’. If the company is not Futures oriented, entry is only currency, price-code and the price. The grid is presented with consolidated tonnages per the groupings. The process allows for update of individual rows whereby all the contract parts will be updated after the ‘save’ command. An alternative mode (right-click) is to 'Export to Excel' the grid contents. The user specifies the ITAS folder to deposit the .xls. The user can then update the .xls manually and use the updated .xls as an Import paste board i.e. after selecting Grouping, use right-click 'Import from Excel Sheet'. After import or use of Paste clip-board and/or manual update of grid contents, click Save. There is a ditto/replication feature (Ctrl R) that allows for the previous rows entry to be copied on the next row.
How to use Valuation Reports.
Select the database to be viewed, select whether Multi Currency or Single Currency (FRS23) reporting.
VALUATION provides reporting of any open status contract tonnage, whether allocated, long or short with different sequencing, sub-totalling and ‘what if’ evaluation. TRADE records which are quotations or 3rd party business are excluded automatically as are tonnages that are marked as write-offs. Brokerage trades can be excluded from the reports by using the standard selections. If a company is operating FX and Futures hedging, the valuation report can include sections for those trading types with their P&L.
There are many Report Styles;
a) Mark-to-Market valuation, illustrates TRADE, FX, TERM detail using the various selections financial evaluations of 'open' tonnage can be viewed using the current market prices and the extended contract values to provide a forecast P&L. The difference between styles a) and b) is the emphasis of style a) to show prices more than values.
b) Standard valuation, illustrates TRADE, FX, TERM detail using the various selections financial evaluations of 'open' tonnage can be viewed using the current market prices and the extended contract values to provide a forecast P&L.
c) Standard valuation style but allocated trades will be reported as 2 consecutive lines and the P&L is the net of the adjusted Sales and Purchase values. Unallocated contracts will be marked-to-market.
d) Stocks Valuation. Section 1 lists details of valuation and forecast for all TRADE records which are assigned to WIP accounts (Charter or Purchase type) where the TRADE record is not coded with a shipping status of 'warehoused', these details are grouped using their WIP account reference. Section 2 reports the TRADE records that are recognised as warehoused stocks (TRADE shipping status is warehouse, these are grouped by their warehouse code/reference)
Section 3 are the installation stocks (WIP accounts marked as Stock type) as maintained in the inventory subsystem.
e) Differentials Style. Only applicable to companies operating Futures hedging. Reporting traded and market differentials for comparison.
Pricing Trades (not fully priced) will use the F&O Differential plus the costs.
Fully Priced Trades will use the trade Hedge Price (if present) else will use contract price plus the costs and any linked F&O hedges.
f) Inconsistent valuation details for allocated trades. This is useful for identifying where the P&L on a WIP/Charter may be incorrect if allocated trades had different mark-to-market basis.
g) Original vs Current Valuation; The original and current valuations are based on the current valuation market price +/- the original and current premium/discounts. There will only be report item, if there is an Original differential maintained.
h) Simple valuation; lists contract pairs and any long/shorts selected with Gross margin shown and allows drill-down to TRADE and view the constituents of the Margin makeup i.e. allocated will show buy and sale values and long/shorts will show the M2M. Target currency equivalents.
j) Fair Value Inventory; lists Purchases that have been Invoiced and not Sales invoiced showing their P&L in separate columns i.e. Loss column and Profit column. Fixed Dept sequence with restricted selections. This enables easier reporting to Revenue according to International Financial reporting Standards (IFRS).
k) Fair Value Forward; lists TRADEs that have not been Invoiced showing their P&L in separate columns i.e. Loss column and Profit column. Fixed Dept sequence with restricted selections This enables easier reporting to Revenue according to International Financial reporting Standards (IFRS).
What if review.
After making the standard selections, you can select which TPRICE rates to use and if SPOT is used you add increase/decrease the secured rates by a percentage to review the P&L if the market moved in that direction.
These reporting styles and content are fixed but you can use the ReportWriter to design your own reports. Special rules exist for accumulating costs as a single value, calculation of market value and exchange rate application.
FAQ
a) F&O inclusion in the report is handled in 2 different methods, if the report is Department structured they will be listed in a section after the Physicals where all TERM deals for that department will be located. If the report sequence is not Department structured, only TERM deals that are assigned to TRADE contracts will be located and reported in the relevant reporting sequence
b) FX inclusion in the report is only available when a report sequence is Department structured. The FX will be located according to the TRS department coding and listed as a block of revaluation items after the Physicals and F&O sections
c) There are several inclusion selections on the reporting screen for brokerage trades, option cargos etc