For the majority of electric cooperative employees, financial statements are a bit of a mystery. For communicators, this set of obscure descriptions and numbers is more often a "graphic element" that fills one page of the annual report. Developing a good understanding of a cooperative's financial statement is the basis for crafting words and infographics that tell a story. With this knowledge, you can artfully show the health of your cooperative—where it has been and where it is going.
The Big Three:
Of the three common financial statements, the income statement, or statement of operations, is probably the most frequently viewed. Two years of data is usually provided for comparison purposes. It shows the income of a cooperative over a period of time, usually a fiscal year, minus the expenses the co-op has incurred over that same period. It breaks down electric and non-electric revenue (think ancillary businesses or property sales) as well as the costs of running the cooperative, including interest and depreciation.
Beyond revenue, the most referenced line may be "Patronage Capital and Operating Margins." This is an indication of whether the co-op covered expenses through the rates and a declaration of margins that will likely be returned to the cooperative's members through capital credits, a distinction from for-profit companies.
The balance sheet is the second most commonly published financial statement. Unlike the income statement, which shows data from a date range, the balance sheet is truly an instant snapshot of a cooperative’s assets, liabilities and equity. It gets its name because assets must equal liabilities added to equity.
There are a number of things at play that specifically demonstrate how the cooperative relates to its members. The first is utility plant. The substations, transformers, poles and wire that make up our distribution system are the majority of co-op assets. While most businesses are very averse to debt, cooperatives carefully balance long-term loans and work plans to handle growth and system improvements. And finally, subtracting that debt (liabilities) from assets reveals the cooperative’s equity, an important measurement for management and also what the cooperative’s members actually own.
A statement of cash flows, the third of the major financial statements, shows the cash generated and spent during the reporting period, again usually a fiscal year. Only required for reporting by businesses since 1987, it is rarely seen in cooperative annual reports that do not publish a complete set of financials.
What happens next?
It’s not the job of the CFO or the communicator to apply interpretation or spin to financial statements. But what happens next -- and where a communicator has the opportunity to excel -- is in how the cooperative’s staff uses financial information to tell the rest of the story.
“The information in the financial statements is a snapshot,” comments Dawn Haskins, chief financial officer for Tri-County EMC and a CPA. “You can review financial statements and see that revenue went up or down or that equity changed, but you can’t see why.”
A cooperative might be in perfect financial health, but see a large dip in revenue due to mild weather. An infographic with several years of kWh sales and temperature data turns a single number into a story. A cooperative in a building mode might see erosion in equity levels because of increased utility plant and long-term debt. A graph showing the number of accounts by year along with a letter from the CEO explaining the cooperative’s equity management plan now ties two vague financial statement numbers to a strategic goal. “Sharing financial statements to the membership is important for transparency, but adding in statistics gives life to those snapshots,” says Haskins.
So beyond filling a page with the requisite financial statements, what can a communicator do to better understand the conditions driving their cooperative’s financials? The answer is probably right down the hall. “When I started here, these numbers were just that … numbers. But I sat down with our CFO and others and asked questions,” commented Kim Broun, communication specialist for Tri-County EMC. “Studying for the CCC was also helpful in understanding how the financials fit together.”
Ideally, cooperative communicators have a clear understanding of how financials affect the strategic plan and take a key role in how that plan is communicated to the membership. The co-op’s financials are a starting point for the issues driving that plan, and every communicator should work to understand them—but dig deeper. Income statements and balance sheets come directly from the first two pages of Form 7. Beyond that, the CFC Key Ratio Trend Analysis provides comparisons between your cooperative and its peers. If these documents are not available to you, access to them should be your next goal.
While financial statements can be daunting to the non-accounting professional, the relative pain of learning to understand them is critical to effectively communicating with your members. Remember, a story told without anecdotal evidence is less credible. Don’t tell your audience that you are the cheapest, the best or even halfway through your journey to a goal. Instead, show them with your command of your cooperative’s financials.