Intuitive Analytics frees public finance analysts and decision makers from the limitations of available software.
"Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young. The greatest thing in life is to keep your mind young." - Henry Ford
One of the challenging things about multi-year and multi-period simulation-based analytics is the relative scarcity of standard metrics people use to describe results. When going from a single point to a whole distribution, it's essential for everyone to understand what the results are and how they should be interpreted. When we spoke about downside cash flow risk measures with the rating agencies, we used Cash Flow at Risk (CFaR) given it's a very straightforward concept with direct analogies to Value at Risk (VaR) in the investment world.
The video below uses the Excel file, SmartModels Free Cash Flow Model.xlsx, downloadable from our site to explain the various statistics that come from a simulation-based cash flow analysis for tax-exempt issuers. WARNING: the background music can stick for a while...
Using SmartModels Stage III, this video is a case study in analyzing whether to issue fixed or variable rate debt, both with and without cash on the balance sheet serving as a natural hedge. We calculate Cash Flow at Risk (CFaR) for the VRDBs and then graph the tradeoff between average annual (expected) debt service and CFaR. In the "with balance sheet cash" case, an efficient frontier-esque chart results from showing an optimal amount of VRDBs to issue.