THE ULTIMATE

FINANCIAL
MODELLING
GUIDE FOR YOU
 WHO DOES WHAT
WITH
FINANCIAL MODEL
CFO Controller FP&A Specialist Investment Banker

➢ Preparing detailed budget

➢ Strategic financial planning and Overseeing the accuracy and models.
➢ ➢ Building detailed financial
forecasting. timeliness of reports resulted Variance analysis (actuals vs.
➢ models for valuation (DCF,
➢ Evaluating potential mergers from models. forecasts). comparable, precedents).
and acquisitions (M&A). Ensuring that accounting Analyzing profitability of
➢ ➢ ➢ Analyzing potential M&A
➢ Analyzing and deciding on practices comply with standards products, services, or business opportunities.
capital allocation. and regulations. units. ➢ Supporting IPO processes with
➢ Presenting financial forecasts to Using models to analyze past Projecting financial
➢ ➢ financial data.
the board and investors. financial performance. performance under various ➢ Advising clients on financial
➢ Ensuring the company's Reconciliation of accounts and scenarios.
➢ strategies based on model
financial plans align with financial data. Supporting strategic decisions
➢ outcomes.
strategic goals. with financial insights.

Modeling for LBO (Leveraged

➢
Buyout) analysis.
Corporate finance
➢ Evaluating the financial specialist
performance of portfolio
companies.
➢ Projecting returns on potential
investments.
➢ Conducting due diligence on
investment opportunities using
financial models.

➢ Evaluating capital structure and

financing options.
➢ Analyzing investment
opportunities or capital
expenditures.
➢ Conducting risk assessments
and sensitivity analysis.
Private equity ➢ Projecting financial impacts of
corporate strategies.
consultant

➢ Modeling the future ➢ Projecting financial ➢ Modeling for cash flow

performance for investor ➢ Provide an accurate data input
performance of early-stage forecasting.
pitches. for modeling.
companies. ➢ Analyzing and optimizing
Budgeting and forecasting cash ➢ Using models for tax planning
➢ Evaluating the potential return ➢ liquidity positions.
flow needs. and optimization.
on investment. ➢ Evaluating hedging strategies
Evaluating potential funding ➢ Analyzing financial data for
➢ Conducting scenario and ➢ for currency or interest rate
options and their implications. auditing purposes.
sensitivity analysis for startups. exposure.
Analyzing business model ➢ Assisting in budget preparation
➢ Assessing financial viability and ➢ ➢ Supporting decisions on short-
viability. and forecasting.
scalability of business models term investments or debt.

Treasurers & Cash Management

Venture capitalist Startup founders
Managers accountant
 STEPS TO CREATE
FINANCE MODEL
Data Collection: Business Model Understanding:
Gather historical financial data, if available. Understand the company's core business model,
Collect industry benchmarks and market 1 revenue streams, and customer segments.
research data. Identify key value propositions, competitive
Obtain detailed information about advantages, and market positioning.
products/services, pricing, and sales channels.
2
Make model objectives before you Departmental Inputs:
start with excel Communicate with heads of departments to gather
What the model will communicate 4 3 their input and assumptions.
to users Collect data on departmental budgets, expenses, and
Will they understand the model. Key growth strategies.
model outcomes

Make model layout:

Operating Plan: Define what schedules you will include
Develop a detailed operating
5 How you keep consistency in
plan, including sales formatting
forecasts, production How will key model outcomes look like
schedules, and staffing How to organize error and consistency
requirements. 6 checks
Revenue Projections:
Consider seasonality and
Estimate sales volumes and prices for each
market trends in your plan.
product or service.
7 Factor in customer acquisition and retention rates.

Cost Projections: Personnel Expenses:

Break down costs into fixed and variable categories. 8 9 Project employee salaries, benefits, and hiring
Obtain cost estimates from suppliers, vendors, and plans.
service providers. Include training and development costs.
Consider inflation and cost escalations.

Capital Expenditures (CapEx):

Tax expense 11 Identify and plan for any major capital
Based on revenues and expense
make corporate tax planning
10 investments such as equipment, facilities, or
technology upgrades.
Review tax rates, tax base Determine the timing of CapEx expenditures.
adjustments, tax provisions etc.. Working Capital:
- Estimate accounts receivable,
13 accounts payable, and inventory
turnover.
- Calculate working capital needs.
Financing Assumptions:
Specify the sources of funding
(e.g., equity, loans, grants).
Detail interest rates, repayment
12
schedules, and terms of
financing.
Scenario Analysis:
Sensitivity Analysis: - Create multiple scenarios (e.g.,
- Perform sensitivity analysis on optimistic, pessimistic, base case)
key assumptions to assess the
14 15 to evaluate different outcomes.
model's robustness.

Build 3 Statements model:

- Prepare income statements, Review and Validation:
balance sheets, and statements of - Validate your assumptions with relevant
cash flows for each period in your
16 stakeholders.
model. 17 - Review the model for errors and
consistency.

Documentation:
- Document your Dashboard and Visualization:
assumptions, data
sources, and methodology
18 19 - Create visual representations of your
financial model, such as charts and graphs,
clearly. for better understanding.

Sensitivity Testing:
- Test your model with different
20 inputs and assumptions to assess its
sensitivity to changes.
 FINANCE MODELING
BEST PRACTICES FOR 2024
EXPLAINED
Learn business model Be familiar with sales Better assumptions More automation
Business models becomes Learn sales channels ROI, Connect your ERP with FP&A
Gather more reliable
more complex. Market position, CAC, tools, integrate spreadsheets
assumption sources and
Understanding them makes a Customer acquisition funnel within one tool
difference document them properly

Timely communicate Work with department

Storytelling Schedules selection
Present model assumptions Let Departmental heads be
and objectives to board Let your model tell a story to Use optimal number of
your best friends. Collect
before your start with its users. Make it easy to schedules and tables
usable data from
schedules understand
departments

Advanced sensitivity Separate sheets Visuals Error and Consistency

Use scenario planning, Use separate sheets for Nobody from board wants to Accuracy and consistency
sensitivity analysis etc. assumptions, data inputs &
read hundreds of lines and checks included on top of
summary
columns in spreadsheets every page where applicable

Table of content Simple formulas Format consistency Focus on key variables

Use table of content if your Use simple formulas, avoid Use consistent formatting in Analyze how much sales are
model conation a lot of hardcode values in cells all schedules sensitive on prices and
schedules quantities.

Clean 3 statements Look the others

Tax become challenging Simplicity is key
Tend to compare your
Avoid formulas on 3 Include tax adjustments, Without blank columns
outcomes with industry
statements projections and temporary/perm differences between periods, use lookup
benchmarks and comp.
sheets and tax incentives in model where possible
figures
FINANCIAL MODEL
INPUTS & DRIVERS
INPUTS DRIVERS

Inputs are the starting point for any financial model. Drivers are the underlying factors that influence the values
of your inputs.
They are the specific values and assumptions that are fed
into the model to generate forecasts. They are the "engine" that makes your model work.

EXAMPLES OF COMMON INPUTS EXAMPLES OF COMMON DRIVERS

Historical financial data Economic trends Sales volume Pricing

Management
Industry trends Operating efficiency Market conditoins
assumptions

TYPICAL ASSUMPTIONS EXAMPLE

Project name Acme Ltd.
1 REPORTING CURRENCY
Set the most appropriate currency for modeling e.g. $ thousands Currency $
Current year 2023
PERIOD Corporate income tax rate 15%
2 Set the period (year) you want to analyze e.g. 2023. Note the
financial projections starts for next period. Local inflation rate estimate 10%
Discount rate 11%
TAX RATE Long term cash flow growth rate 1.5%

3 Select the (effective) corporate tax rate applicable in a country

where the subject of analyses operates in. Take any tax
Average Headcount current period
Average Headcount last period
16
16
incentives into account.
Estimated revenue growth rate 10%
Gross margin rate that will be applied in
INFLATION RATE
4 Select the inflation rate applicable in a country where the subject
projections 38%
of analyses operates in. Use official data from central bank.

DISCOUNT RATE D Deliver what model user

understand
BEST PRACTICES
5 The discount rate is to be calculated in to separate sheet in this
model and linked to the initial
≈ÇÇ√
assumption page. R Research industry trends, sales
channels, competitors
❖ Each input should be entered
into model a once
LONG TERM GROWTH RATE (TERMINAL GROWHT RATE)
6 This is expected cash flow rate after period of projections. See
the page related to discounting cash flows.
I Identify optimal number of
drivers
❖ Avoid linking of multiple
instances in series

HEADCOUNT V Verify your drivers with

departmental heads
❖ The most of modelers prefer
keep input sheet as last one
7 Enter average headcount number for the current period.
That is number of employees + number of leased
employees. E Enter the driver value in the
model only in one place
❖ Use clear and concise
language when defining your

R
inputs and drivers.
Review drivers values with
REVENUE GROWTH RATE
8 For best estimate, follow the checklist given in revenue forecast
industry experts
❖ Document your assumptions
section of this model.
S Sensitivity analysis is a must
❖
and sources of information.

Regularly review and update

GROSS MARGIN RATE
9 Enter the best estimate of gross margin rate. See the revenue ALL DRIVERS TESTED ON your inputs and drivers as
needed.
forecast section. DIFFERENT SCENAIROS
❖ Conduct sensitivity analysis to
SALARY INCREASE assess the impact of changes

10 The reflection of employee expectation and management BEST

CASE
BASE
CASEV
WIORST
CASEV
in key drivers on your
forecasts.
understanding on increase of salaries
 FINANCIAL MODELING
DO’S & DON’TS
Understand the company's core business model, Miscommunication with heads of departments
revenue streams, and customer segments. (e.g., Sales, Marketing, Operations) to gather their
input and assumptions.
Be familiar with company value propositions, Avoid to understand customer acquisition flow and
competitive advantages, and market positioning. conversion rates

Obtain detailed information about products/services, Neglect industry benchmarks and market research
pricing, and sales channels. data

Collect data on departmental budgets, expenses, and Create a model that is not aligned with company
growth strategies. strategy and long-term objectives

Set model objectives before you start with excel Create a model that is hard to understand by end
users, overscheduling

Define what the model will communicate to users, Complicated organization of data input
and how (easy to understand)

Define what schedules you will include, and use Not having a consistency in formatting and break
optimal number of schedules consistency in formulas

Implement error and consistency checks Avoid sensitivity analysis on sales forecasting

Document your assumptions and validate that with Use poor assumptions about sales prediction
relevant stakeholders

Analyze how much sales are sensitive on prices and Avoid macroeconomic indicators like inflation and
quantities. GDP growth rate

Scenario planning Neglect income tax effects, tax base adjustment,

deferred taxes etc.

Create visuals, such as charts and graphs, for better Create a model without instructions and
understanding assumptions page up front

Separate sheets for model summary and data inputs Too much granularity and complex circularity

Explain what different format means in front sheet Not use lookup and reference functions used
where applicable

Accuracy checks included on top of every page Hardcode values into formulas
where applicable

Include a table of content if model content more Having a blank columns between periods
that 15 or 20 sheets

Have separate sheet for all assumptions Complex formulas on the 3 statements schedules
7 SCENARIO ANALYSIS IN
FINANCIAL MODELS
DESCRIPTION PRUPOSE HOW TO PERFORM
Integrates the income statement, A projection of a • Start with the income statement, projecting
balance sheet, and cash flow into company's future financial revenues, costs, and arriving at EBITDA.
BEST / WORST one dynamically connected health. • Based on the income statement calculate key
financial model. It is used to Understanding of how
CASE forecast a company's future statements interact. •
balance sheet positions like, AR, AP, inventory
Build CAPEX and Debt schedules in import
financial performance based on its
SCENARIO historical performance.
Insight into a company's
liquidity, profitability, and •
outcomes in balance sheet
Build the cash flows based on the changes in the
solvency over time. balance sheet and income statement items.

Company's intrinsic value, • Identify Key Drivers: Determine which variables

This involves changing one key Understanding of how significantly impact the model.
DISCOUNTED factor at a time (like sales volume, changes in assumptions
(e.g., WACC, growth rates)
• Vary Each Driver: Change one variable at a time
price, cost, etc.) to see how while keeping others constant.
CASH FLOW sensitive the model is to changes impact valuation. • Observe Changes: Notice how sensitive the model
Sensitivity analysis results is to changes in each variable.
MODEL in that factor.
to understand valuation • Report Findings: Identify the most sensitive areas
under various scenarios. that need attention.

Feasibility assessment of • Calculate Fixed and Variable Costs: Identify all

an LBO transaction. costs associated with the business.
This scenario determines the point
LEVERAGED at which total costs and total
Expected Internal Rate of
Return (IRR) for equity
• Determine Sales Price: Establish the price at which
goods or services will be sold.
revenue are equal, i.e., there is no
BUYOUT net loss or gain.
investors.
Debt repayment schedule
• Calculate Break-Even Point: Find the point where
total revenue equals total costs.
MODEL and understanding of • Assess Viability: Use the break-even point to
leverage effects on evaluate the financial feasibility.
company's performance.

Accretion/dilution analysis • Develop assumptions about the deal, such as

Evaluates the financial viability of of earnings per share (EPS) purchase price, form of payment (cash, stock, or
a merger or acquisition. It's used post-merger. both), and synergy projections.
to analyze how the consolidation Synergies estimate post- • Build standalone models for both the acquirer
M&A MODEL affects the combined company, merger. and the target.
including accretion/dilution of Impact on financial • Combine the income statements of both entities,
earnings per share (EPS). metrics and ratios of the adjust for synergies and the financing mix.
combined entity. • Analyze the impact on EPS and other metrics.

Used for internal planning and A detailed financial plan • Collect customer data, sales pipeline data, hiring
budgeting within a company. It for business operations. plan.
helps in allocating resources for Identification of cost • Get info about budget per departments
BUDGETING the upcoming year(s). Used to
apply various budgeting methods
savings or areas requiring
additional investment.
• Start with revenue and cost projections.
• Break down the budget into various departments
MODEL like zero based budgeting, Basis for performance
evaluation and
or units.
bottom up budgeting, top down • Integrate expected financial statements and cash
budgeting, beyond budgeting management flow projections.
and others. accountability. • Compare actual performance with the budget

Predictions of future
Similar to budgeting models but revenue, profit, and • Use historical data to identify trends and growth
usually with a longer horizon, growth trends. rates.
FORECASTING focusing on predicting future Guidance for strategic • Project future revenue and expenses based on
these trends.
MODEL financial performance based on
historical data and growth
planning and decision-
making. • Create projected financial statements.
assumptions. Early warning signs for • Regularly update the model as new data becomes
potential financial distress. available.

Used to assess the economic and Net present value, Internal • Identify the project's lifespan, key stages, and
PROJECT financial viability of a project,
such as a new investment, a
rate of return, Economic
value added, Payback •
deliverables.
Estimate costs and revenues
EVALUATION product launch, or an expansion
initiative. This model helps in
period, Risk assessment • Calculate the net cash flows for each period,
Incorporate non-financial Factors
through sensitivity analysis •
MODEL determining whether a project and scenario outcomes • To account for the time value of money, discount
should be undertaken based on future cash flows to their present value
its potential to generate value. • Analyze key metrics and perform sensitivity test.
 SPREADSHEETS IN
FINANCE MODELS
LEGEND: FINANCIAL ANALYSIS PLANNING VALUATION ACCOUNTING M&A CASH FLOW SUPPORT

HISTORICAL
VISUAL FINANCIALS RATIO ANALYSIS VERTICAL ANALYSIS EBITDA KPIS
FINANCIALS
Presentation of financials 3 statements given Profitability, liquidity, Analyses financial Calculation of EBITDA KPIs
with historical analysis through the graphs efficiency and structure categories as share of top
ratios category ie. revenues

BREAKEVEN HORIZONTAL ANALYSIS 6+ P&L TEMPLATES KPIS DASHBOARD BUDGET MODEL

Calculation of breakeven Financial categories PL for manufacture, SaaS, KPIs presentation in Full company budget
point analysis during different retail, real estate, powerful dashboard preparation sheets
periods wholesale, services
COGS AND GROSS
REVENUE HEADCOUNT SALARIES OVERHEAD EXPENSES
PROFIT
Revenue planning based Planning of cost of goods Projection of employee, Projection of wages, taxes Fixed and variable
on different assumptions sold and gross profit based contractors number and bonuses expenses projection based
on assumptions on given assumptions

NON-CASH EXPENSES WORKING CAPITAL CAPEX FINANCING INCOME STATEMENT

Projections of Evaluates AR, Inventories Tangible and intangible Debt schedules, dividends Full projection of income
impairments, gains / losses and AP based on DSO, DIO assets and depreciation planning, increase of statements based on
of fixed assets sold and DPO schedules capital previous schedules
SUBSCRIPTION BASED
BALANCE SHEET KPI PLANNING INCOME TAX WACC
REVENUE
Full projection of income Calculation of KPIs based Evaluates MRR – ARR for Schedule of income taxes Calculation of cost of
statements based on on projected 3 statements subscription based based on various tax base capital for discounting of
previous schedules business model adjustments projected cash flows

COMPARABLE PRECEDENT
DCF NET PRESENT VALUE EVA
COMPANIES TRANSACTIONS
Full valuation based on Valuation based on Business valuation based Evaluates project Evaluate value –
discounted cash flow comparable companies on precedent transaction performance by performance based on
method method method calculation of NPV economic value added

IRR CONVERSION RATES REPLACEMENT COSTS VENTURE CAPITAL BERKUS METHOD

Calculate project – Calculate. Conversion Valuation method for low Valuation method for Startup valuation based on
business internl rate of rates, LTV, CAC and other income performing startups popular method for
return metrics for SaaS valuation businesses startups

NET BOOK VALUE BONUS SCHEMES ACCURED EXPENSES DEFERRED INCOME DEFERRED TAXES

Capital intensive Calculate employee Increase quality of Revenue recognition in Calculate deferred income
companies valuation bonuses based on OKRs, accounting based on accordance with GAAP assets and liabilities and
method and other factors precise cost recognition provides journal entries

GOODWIL 13 WEEKS CASH FLOW

EBITDA ADJUSTMENT QUALITY OF EARNINGS PAPER LBO
IMPARIMENT FORECAST
Investigates EBITDA Evaluate real operating Simplified exercise used to Evaluates fair value of cash Cash flow forecast model
adjustments in books earnings from a business assess the potential in LBO generating units based on direct method
transaction

CASH FLOW
CASH KPIS INSTRUCTIONS ASSUMPTIONS VALIDATION CHECKS
STATEMENT
Projection of cash flow Evaluates CASH KPIs of Model instructions, List of assumptions used in Errors and consistency
statements based on all projected financial formatting, formulas etc.. model checks over model
above schedules statements
FINANCE
MODELING CHECKLIST
BUSINESS MODEL UNDERSTADING MODEL LAYOUT

Understand the company's core business model Instructions and assumptions page up front

Know revenue streams, customers, competitive advantages All relevant schedules included

Gather historical financial data and industry benchmarks data Subtitle, date and time on every page

Get assumptions and inputs from departments heads Separate sheets for model summary and data inputs

Collect data on department budgets and growth strategies Avoid much granularity and complex circularity

FORMATING FORMULAS

Clear and consistent inputs and unique cells formatting Ensure formulas are consistent and correctly copy-pasted

Explain what does different format means in front sheet Lookup and reference functions used where applicable

Dynamics headers and footers used Math and statistical functions used where applicable

All schedules, columns, headers, consistently formatted No long formulas on statements sheet

Use proper functions for dates and currency No hardcode values into formulas

MODEL VALIDATION MODEL COMPREHENSIVENESS

Implement data validation rules to prevent input errors Operating, Financial and Capital schedules included

Accuracy checks included on top of every page 3 Statements projections and analysis

Separate page for validation and error checking Consistency checks for key outcomes

Use Excel tools for integrity check and trace formulas Ability to run different scenarios - Include scenario analysis

Ensure there are no circular references in your model Model properly communicates the outcomes to the users
CAPITAL BUDGETING
Capital budgeting is a process of
investment typically significant 1
Defining Project and
Assumptions 8 Identify potential risks associated
with the project
amount of money and have long-
Identify potential investment 9
term implications for the business. 2 opportunities.
Comparison of Projects
The main goal of capital budgeting 10 Ranking Projects
is to determine which projects will 3 Assumption Setting

STEPS
yield the most return over an 11 Alignment with Strategy
applicable period. 4 Forecasting Cash Flows
12 Decision Making
5 Terminal Value
13 Securing a finance funds

INITIAL
6 Calculation of Financial
Indicators 14 Implementation and Monitoring

7 Sensitivity analysis 15 Post-Implementation Review

CASH NET PRESENT VALUE

Total inflow
2024
100,000
2025
300,000
2026
330,000
2027
363,000
2028
399,300
FLOWS Discount factor 1.0986 1.2070 1.3260 1.4568 1.6005
Present value of total inflow 91,023 248,556 248,867 249,179 249,492
SUB TERMINAL Total outflow (674,125) (407,225) (227,685) (250,191) (274,948)
SEQUENT Discount factor 1.0986 1.2070 1.3260 1.4568 1.6005
Present value of total outflow (613,609) (337,394) (171,707) (171,742) (171,793)
Present value of Period net inflow (outflow) (522,586) (88,838) 77,160 77,437 77,698
MODEL

Cumulative (522,586) (611,424) (534,264) (456,827) (379,129)

EVA 2024 2025 2026 2027 2028 2029

Sales 100,000 300,000 330,000 363,000 399,300 439,230
KEY ASPECTS Operating expenses (60,500) (180,500) (198,500) (218,300) (240,080) (264,038)
Corporate income tax (5,625) (17,625) (19,425) (21,405) (23,583) (25,979)

1 Identification of Potential
Investments
Other expenses
NOPAT
Invested capital 606,000
0
33,875
(500)
101,375
812,600
(500)
111,575
819,860
(500)
122,795
827,846
(500)
135,137
836,631
(500)
148,713
846,294

2
WACC 9.86% 9.86% 9.86% 9.86% 9.86% 9.86%
Evaluation of Investments EVA (25,890) 21,234 30,718 41,150 52,626 65,249

3 Estimation of Cash Flows

EVALUATION INDICATORS
4 Risk Analysis
IRR PI
5
Decision Making
Internal rate of return is
Implementation and discount rate that makes Ratio of the present value of

6 Monitoring
the net present value equal to
zero. IRR is the estimated rate
of growth an investment is
future cash flows to the initial
investment, used for
comparing different projects.
expected to generate.
DRAWBACKS
Complexity and Time- Cost of Capital It calculates the value of a Financial performance based
Consuming Estimation Challenges series of cash flows by on the residual wealth
discounting them to the present calculated by deducting its
Uncertainty and Risk Impact of Inflation using a specific rate of cost of capital from its
return, reflecting the operating profit,
Subjectivity in Technology and
Assumptions Market Changes
time value of money adjusted for taxes on
and investment risk a cash basis.
Long-Term Overemphasis on NPV EVA
Commitment Financial Metrics
 FINANCE BUSINESS OPERATING
MODEL MODEL MODEL
DEFINITION
Primarily concerns the management,
creation, and study of money, Refers to the way an organization
investments, assets, and liabilities. Describes how a company creates, conducts its business to achieve its
Focuses on how resources are allocated delivers, and captures value. It objectives. This includes the structure,
within an organization, including capital encompasses the product or service processes, and practices needed to
raising, investing, and forecasting. being offered, the target market etc.. deliver the business strategy.

SCOPE AND FOCUS

Deals with financial aspects like cash flow, Broader than the finance model, focusing Focuses on operational efficiency, process
profitability, financial performance, and on how the entire business operates, optimization, resource allocation, and
return on investment. including customer engagement, value day-to-day activities of the business.
proposition, and marketing strategies.

COMPONENTS

Includes financial statements based on Comprises value proposition, customer Consists of organizational structure,
various schedules, funding strategies, risk segments, channels, customer business processes, technology
management, and investment decisions. relationships, revenue streams, key infrastructure, governance, and human
resources, and cost structure. resources.

PURPOSE

To ensure financial sustainability and

profitability, and show where the To outline the strategy for creating value To execute the business strategy
company is goiong from the financial for customers and capturing that value in efficiently and effectively.
aspect. a sustainable way

IMPACT

Direct impact on the financial health, Determines the market position and Affects the day-to-day efficiency and
earning and investor relations of a competitive advantage of the company. long-term operational success.
company.

ADAPTABILITY

Must evolve with market trends, Should be flexible to process changes,

Needs to adapt to changing financial technological advancements, and shifts in
customer needs, and competitive
markets and economic conditions. business strategy.
landscapes..

MEASUREMENT OF SUCCESS

Measured by financial metrics like profit Evaluated based on market share, Assessed through operational metrics
margins, ROI, EBITDA, IRR, NPV, DCF. customer loyalty, brand value. like efficiency ratios, turnaround times,
and quality measures
 FINANCE MODELING

OLD SCHOOL VS NEW WAVE

Spreadsheets & Manual Entry Advanced Tools & Automation

DATA SOURCES

Internal data and basic market research form the Integration with external databases, APIs, and machine
foundation, often lacking real-time updates and granular learning algorithms provides access to vast, real-time,
insights. and alternative datasets.

SOFTWARE

Excel reigns supreme. While powerful, its reliance on Specialized modeling platforms and cloud-based
manual formulas and static cells leaves it prone to errors solutions are gaining traction, offering user-friendly
and limitations in complexity. interfaces, automation, and advanced functionalities.

COLLABORATION

Silos are common, with models built and shared Cloud-based models facilitate real-time co-creation,
individually, hindering transparency and version control. version control, and improved communication between
teams.

SCALABILITY

As businesses grew, their financial models became more The new way accommodates the scalability demands of
intricate, making it increasingly difficult to manage them growing businesses. Complex models can be managed
effectively in spreadsheets. and updated more efficiently, supporting adaptability in
dynamic market conditions.

ERRORS

Human errors in data entry, formula creation, and model Modern financial modeling tools leverage automation to
linking were common in spreadsheet-based financial import and update financial data automatically. This
models. reduces the risk of errors

OTHER

Outputs like financial statements and ratios are Advanced tools enables scenario analysis and stress
prioritized, with limited capabilities for scenario analysis testing, robust data visualization capabilities, making it
and dynamic simulations. Expertise in Excel and finance easier to present financial data in a clear and compelling
is required, excluding non-finance professionals from way, they often integrate with accounting software, ERP
meaningful participation. systems, and other data sources, allowing for seamless
data extraction and synchronization
 FINANCE
VS BUDGETING
MODELING
Think of a financial model as a crystal ball
for your business. It's a dynamic tool used A budget, on the other hand, is your
to analyze, forecast, and simulate various roadmap to execution. It's a more detailed
financial scenarios. Its primary focus is on and operational plan that outlines how you
strategic planning and informing high-level will allocate resources (funds, personnel,
decision-making, such as: etc.) over a specific period, typically one
year. Its primary purpose is to:
1. Assessing the feasibility of new
PURPOSE ventures or investments. 1. Control expenses and track
2. Evaluating potential mergers and performance against financial goals.
acquisitions. 2. Ensure efficient resource allocation for
3. Optimizing pricing strategies. day-to-day operations.
4. Identifying potential risks and 3. Monitor progress and identify areas for
opportunities. improvement.

Financial models can range from simple

spreadsheets to complex software-based Budgets are generally more granular than
simulations. The level of detail depends on financial models. They break down income
the specific purpose and the desired level of and expenses into specific categories and
LEVEL OF accuracy. Assumptions about future events, line items, providing a clear picture of
resource allocation at the departmental or
like market trends or competitor actions,
DETAIL play a significant role in shaping the model. even individual level.

The beauty of financial models lies in their

flexibility. They can be readily adjusted to While budgets provide a roadmap, they are
incorporate new information, changing less flexible due to their focus on a specific
assumptions, or unexpected events. This timeframe. However, adjustments can be
made during the budgeting period if
FLEXIBILITY makes them ideal for scenario planning and
risk analysis. necessary.

Financial models can be used for any

time horizon, from short-term Budgets typically have a shorter time
TIME projections to long-range strategic horizon, usually one year.
planning.
HIORIZON

Financial modeling is like researching Budgeting is like packing your bags and
different routes, estimating gas costs, and setting a daily allowance. It ensures you
considering potential obstacles. It helps have the resources you need to reach your
you understand the big picture and make destination and stay on track throughout
ANALOGY informed decisions about your journey. the trip.
 TYPICAL ROLLING
VS
BUDGETING FORECAST
JAN FEB DEC Q1 Q2 Q3 Q4 Q1 Q2

PROFIT PROFIT

REVENUES REVENUES

COST COST

TRACKING (EG. FOR Q1)

ACTUAL Q1 VS BUDGET Q1 + FCST Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3

FYBUD Q1 VS FYFCST Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

DEFINITOIN AND PURPOSE

This is the process of creating a plan for a company's future Involves continuously updating a financial forecast, typically
income and expenses over a specific period, typically a year. It's every quarter, to reflect changes in the business environment
mainly used for setting targets and limits on spending. and company performance. It's more flexible and often extends
beyond the fiscal year.

TIME FRAME AND FLEXIBILITY

Usually extends three to six quarters ahead and is updated
Typically fixed for a year. Generally static and less flexible once regularly (often quarterly). Highly flexible, allowing adjustments
set. based on current business realities.

COMPLEXITY & PREDICTIVE CAPABILITY

Can be very detailed, with specific allocations for different May be less granular, focusing more on key performance
departments and activities. Less effective in rapidly changing indicators and major revenue/cost drivers. More effective in
environments due to its static nature. dynamic environments due to its adaptability.

RESOURCES, DECISIONS & UNCERTAINTY

Although it requires regular updates, each iteration may be less
Often requires significant time and resources to develop. Used resource-intensive than a full annual budget. Assists in strategic
for setting annual goals, resource allocation, and performance planning, operational adjustments, and responding to market
evaluation. Tends to be less adaptable to uncertainty and changes. Better suited to managing uncertainty by allowing
unexpected changes. continuous adjustments.
 FINANCE MODELING
HANDBOOK
DATA COLLECTION ASSUMPTIONS MODELS
MACRO-ECONOMY INDUSTRY REVENUE COST
REVENUES 3 STATEMENTS MODEL
• Review historical prices and factors impacting prices; Sales volume (units sold) • Fixed versus variable costs
• GDP growth rate • Market growth rate •
historical records on sold quantities, per products, Sales growth rate • Cost escalation rates (due to Used to integrate a projections of the
• Inflation rate • Market share changes •
customers, lines Pricing strategy and price inflation or other factors)
• Analyze customer contracts, retention rate and customer
• Interest rates (short-term • Competitive landscape •
• Economies of scale benefits
income statement, balance sheet, and
and long-term) evolution changes
churn cash flow statement for financial
• Review sales and marketing plans and find anomalities OTHER analysis and valuation purposes.
and risks
CAPITAL
• Utilize industry reports, market research, and external Headcount growth
data sources
• Target debt-to-equity ratio • Cost of capital • Capital Expenditure • PROJECT EVALUATION MODEL
• Dividend payout ratio • Cost of debt • Useful life • Salaries growth
• Interest rates on borrowings WACC • DPO, DSO, DIO • Long term CF growth rate
EXPENSES •
Assesses the feasibility and potential
• Make sure you identified recurring costs and predict return on investment of a specific project
MODEL LAYOUT
them in projections
• Gather historical data to analyze the patterns and trends
or initiative. Calculate NPV, EVA, IRR and
of fixed costs other project performance.
• Collect detailed expense information from various
departments
Validation Historical Projections/ Data BUDGETING MODEL
• Professional fees aligned with planned transactions
Instructions Analysis Summary
sheet reports Schedules inputs
ASSETS AND LIABILITIES Helps in planning and allocating financial
• Align Capex forecasts with the company's strategic resources for a specific period, usually to
control and guide spending.
MODEL ACCURACY VALIDATION
objectives and long-term goals
• New investment plan discussed with CEO/CFO
• Check potential changes in lease agreements and how it
reflects in budget DCF MODEL
• Evaluate the condition, maintenance costs, and Total Assets = Total Equity and liabilities in last year 0
remaining useful life of current assets Total Assets = Total Equity and liabilities in current year 0 Estimates the value of an investment
Net income from current year P&L = Equity increase in BS 0 based on the present value of the
HEADCOUNT Cash at the end of period in Cash flow statement = Cash and equivalents in BS 0 expected future cash flows, discounted
• Determine level of workforce and make sure that level is at an appropriate discount rate that
aligned with company objectives Starting revenue in revenue projection table = historical revenue 0
• Gather information about salaries industry benchmarks –
reflect appropriate level of risks.
Starting headcount number in projection table = historical headcount number 0
for all positions
Total Assets = Total Equity and liabilities in projected years 0
• Based on new comers expected, examine recruitment
Starting figures of variable overhead costs in projection table = historical variable overhead costs 0
VALUATION MODEL MODELS
and other costs
• Consider one-time costs, bonus accruals, prizes, Starting figures of fixed overhead costs in projection table = historical fixed overhead costs 0
stimulations, overtime pay Used to determine the value of an
asset, company, or investment, often
CONSISTENCY CHECKS incorporating various techniques like
CELLS FORMAT multiples, DCF, and comparable
transactions and companies, Berkus
Revenue assumed growth rate vs. revenue CAGR in projections 10% vs 10%
method, net book value method etc.
100 Revenue projected growth rate vs. headcount projected growth rate 10% vs 7%
Input cell
Revenue growth rate vs. Labor cost growth rate 10% vs 17%
Revenue projected growth rate vs. variable overhead costs projection rate 10% vs 16%
HEADCOUNT & SALARIES
100 Cell under formula
Revenue projected growth rate vs. fixed overhead costs projection rate 10% vs 11%
Revenue projected growth rate vs. gross profit projection rate 10% vs 8% Forecasts the number of employees and
100 SUM formula applied associated salary costs for an organization
Interest expenses share in debt: historical vs. projected average 11% vs 11%
over a specific period based on various
Accuracy check, should be 0 Total fixed costs in revenue: historical vs. projected 12% vs 12%
assumptions and factors incorporated in
0 always the model.
DO AND DONT’S IN MODELING
CAPEX MODEL
MODELING TIPS Keep It Simple: Start simple and add complexity only when necessary. A more Avoid Hardcoding: Don't input numbers directly into formulas. Instead, place
complex model isn't necessarily a better one. them in separate cells and reference those cells in the formula. This makes the Plans and forecasts the company's
model more transparent and flexible.
Use Consistent Formatting: This makes the model easier to read and follow. spending on long-term assets like
1. Structured Layout: Organize your model in a logical For example, you might color-code inputs, outputs, and calculations
differently.
Don't Overcomplicate: Adding unnecessary details or overly intricate formulas machinery, property, or equipment.
can make the model prone to errors and difficult to understand.
sequence, such as Inputs, Assumptions, Calculations, Calculate purchase value, depreciation,
Outputs. This flow aids understanding and navigation. Document Assumptions: Clearly state and justify any assumptions you're Avoid Circular References: They can cause calculation errors and can be difficult accumulated depreciation and carrying
making, as they form the foundation of your model. to trace.
2. Segment Different Scenarios: Incorporate toggles or
value of assets in projected period.
Be Transparent: Avoid "black box" calculations. Anyone looking at your model Don't Neglect Data Validation: Ensure that the data you input into the model is
dropdown menus to switch between various scenarios should be able to understand the logic behind every formula. accurate, as the output is only as good as the input.
(e.g., best case, base case, worst case) for easy NET WORKING CAPITAL
comparison. Perform Sensitivity Analysis: This helps understand the potential variability in Avoid Excessive Use of External Links: These can break easily, especially if the
your outcomes based on changes in assumptions. external file's location changes or if the file gets deleted.
3. Use Charts and Graphs: Visual representations can help Build in Error Checks: These can highlight if something is going wrong within Don't Ignore Outliers: If real-world data contains outliers, consider them
Predicts a changes in receivables,
simplify complex data and make your model's the model, such as a balance sheet that doesn't balance. carefully before incorporating them into the model. inventories and trade payables in based
conclusions more accessible.
Don't Over-rely on the Model: Remember that all models are based on
on sales and purchases assumed in
4. Avoid Volatile Functions: In Excel, functions like OFFSET,
Regularly Review and Update: Especially for ongoing business models, assumptions and predictions. No model can capture every real-world nuance or order to predict cash flows. Also, in
periodically check and adjust your assumptions as real-world data comes in. foresee all possible future events.
INDIRECT, and NOW can slow down your model, boarder line evaluates a company's
especially as it grows. Use them sparingly. Protect the Model: Lock cells that shouldn't be changed to avoid accidental Don't Skip Peer Review: Having someone else review your model can catch short-term liquidity by analyzing its
overwriting or tampering. errors and provide valuable feedback.
current assets versus current liabilities.
5. Use Consistent Time Intervals: If you're working on a
multi-year projection, it's easier to use consistent
intervals, like monthly or annually, for clarity. PROJECTED ASSETS AND LIABILITIES STRCUTRUE REVENUES AND EBITDA MONTHLY PLAN CASH FLOW FORECASTING
6. Back Up with Real-World Data: Whenever possible, base
your assumptions on historical data or industry
Predicts future financial or operational
benchmarks rather than gut feelings.
cash flows on historical data and
7. Test Extreme Values: This can be helpful to ensure the assumptions. It is often prepared for 13
model doesn't break and behaves logically under weeks (one quarter) or annually, per
extreme conditions.
EXAMPLE OF CASH FLOW MODEL months.

10 EXCEL FORMULAS Cash flow statement 2024 2025 2026 2027 2028 LEVERAGE BAYOUT MODEL
Net income 853 848 901 1,092 1,233

=SUMIF () =IFERROR ()
Depreciation and amortization 195 375 415 465 495 Assesses the financial feasibility and
(Increase) or decrease in account receivables (23) (29) (33) (36) (40)
(Incerease) or decrease in inventories 8 (64) (74) (85) (98) returns of acquiring a company primarily
Increase (decrease) in trade payables (107) 26 29 32 36 using borrowed funds.
=XIRR () =XNPV () CF from operating activities 1,007 1,179 1,457 1,452 1,586
(Purchase) or sales of capital assets (750) (1,050) (450) (150) (150)
Changes in Other investments (50) (70) 20 (50) (10) EBITDA ADJUSTMENT MODEL
CF from investing activities (800) (1,120) (430) (200) (160)
=PMT () =INDEX ()
Increase of share capital 150 250 350 450 550
Increase (decrease) in financial and other long term liabilities 100 110 110 110 110
Dividends paid (500) (500) (300) (750) (900) Adjusts the Earnings Before Interest, Taxes,
=XLOOKUP () =EOMONTH () CF from financing activities (250) (140) 160 (190) (240) Depreciation, and Amortization for non-
recurring items to get a clearer picture of a
Total cash flow (43) (81) 1,187 1,062 1,186
Cash at the beginning of period 1,310 1,267 1,186 2,373 3,434 company's operational performance.
=MATCH () =SQUENCE () Cash at the end of period 1,267 1,186 2,373 3,434 4,620
 CUSTOMER ACQUISITION
MODEL Growing rates Conversion rates

Number Growth Conversion rates

Different sales May June May June
Website channels
Impressions 2,700,000 2,950,000 9%
Clicks 26,500 29,000 9% 1.0% 1.0%
Contact / Sign ups 2,500 2,650 6% 9.4% 9.1%
Marketing qualified leads 1,000 1,200 20% 40.0% 45.3%
Sales qualified leads 750 750 0% 75.0% 62.5%
Customers 350 365 4% 46.7% 48.7%
Expenditures 35,000 36,500 4%
CAC - Customer Acquisitions Cost 100 100 0%

Social media
Impressions 1,500,000 1,800,000 20%
Followers 3,000 3,250 8% 0.2% 0.2%
Reactions 15,254 16,540 8% 1.0% 0.9%
Contact / Sign ups 650 650 0% 4.3% 3.9%
Marketing qualified leads 300 320 7% 46.2% 49.2%
Sales qualified leads 200 195 -3% 66.7% 60.9%
Customers 95 102 7% 47.5% 52.3%
Expenditures 28,500 31,200 9%
CAC - Customer Acquisitions Cost 300 306 2%

E-mail marketing
Email sent 48,500 51,000 5%
Contact / Sign ups 1,050 1,500 43% 2.2% 2.9%
Marketing qualified leads 700 710 1% 66.7% 47.3%
Sales qualified leads 295 305 3% 42.1% 43.0%
Total new
Customers 75 78 4% 25.4% 25.6%
Expenditures
customer tracking 15,500 19,920 29%
CAC - Customer Acquisitions Cost 207 255 24% Cost per customer
acquisition - CAC
Direct sales
Calls - Contacts 150 165 10%
Meetings 58 78 34% 38.7% 47.3%
Marketing qualified leads 50 74 48% 86.2% 94.9%
Sales qualified leads 48 68 42% 96.0% 91.9%
Customers 35 38 9% 72.9% 55.9%
Expenditures 15,800 17,500 11%
CAC - Customer Acquisitions Cost DOWNLOAD - LINK
451 IN A POST
461 2%

Total new customers 642 699 9%

3 STATEMENTS MODEL
INCOME STATEMENT
REVENUE, COGS
AND GROSS Profit and Loss Account 2023 2024 2025 2026 2027

PROFIT SCHEDULE $ thousands

Revenue 11,000 11,880 13,156 14,577 16,162

COGS 6,800 7,344 8,133 9,011 9,991
Gross profit 4,200 4,536 5,023 5,566 6,171
Overhead costs 2,200 2,751 3,146 3,439 3,859

HEADCOUNT Other 160 122 24 27 124

EBITDA 1,840 1,663 1,854 2,101 2,188
PLANNING Depreciation and amortization 100 171 351 380 449
EBIT 1,740 1,492 1,502 1,721 1,739
Interest 50 50 62 75 82
Financial income 10 5 5 5 5
EBT 1,700 1,447 1,445 1,651 1,662
Tax 310 240 239 270 257
Net income 1,390 1,207 1,206 1,381 1,405
SALARIES
SCHEDULE
BALANCE SHEET
Balance sheet 2023 2024 2025 2026 2027
$ thousands

OPERATING Cash 1,310 1,623 1,950 3,665 4,822

EXPENSES Account Receivables

Inventories
500
300
553
282
721
334
799
395
886
465
SCHEDULE Current assets 2,260 2,620 3,184 5,057 6,394
Fixed assets 750 1,279 1,897 1,697 1,628
Total assets 3,010 3,898 5,082 6,755 8,022

Account payables 350 243 269 298 331

Financial liabilities 200 355 505 667 742
Current liabilities 700 760 954 1,164 1,293
CAPEX SCHEDULE Long term fin. liabilities 520 491 525 557 590
Equity 1,790 2,647 3,603 5,034 6,139

Total Equity and liabilities 3,010 3,898 5,082 6,755 8,022

FINANCING (DEBT
AND INTEREST) CASH FLOW STATEMENT
Cash flow statement 2024 2025 2026 2027 2028
$ thousands

Net income 1,207 1,206 1,381 1,405 1,582

NET WORKING Depreciation and amortization 171 351 380 449 475
CAPITAL (Incerease) or decrease of other
current assets (53) (168) (78) (87) (97)
SCHEDULE CF from operating activities 1,337 1,363 1,651 1,754 1,920
(Purchase) or sales of capital assets (750) (900) (200) (355) (135)
Changes in Other investments (50) (70) 20 (50) (10)
CF from investing activities (800) (970) (180) (405) (145)

Increase (decrease) in financial debt 126 184 194 108 109

Dividends paid (500) (500) (300) (750) (900)
EQUITY AND CF from financing activities (224) (66) 244 (192) (241)
DIVIDENDS Total cash flow 313 327 1,715 1,157 1,534
Cash at the beginning of period 1,310 1,623 1,950 3,665 4,822
Cash at the end of period 1,623 1,950 3,665 4,822 6,356
7
TYPES OF
FINANCIAL MODELS
OBJECTIVES HOW TO BUILD OUTCOMES
Integrates the income statement, • Start with the income statement, projecting A projection of a
balance sheet, and cash flow into revenues, costs, and arriving at EBITDA. company's future financial
THREE one dynamically connected • Based on the income statement calculate key health.
financial model. It is used to balance sheet positions like, AR, AP, inventory
STATEMENTS forecast a company's future • Build CAPEX and Debt schedules in import
Understanding of how
statements interact.
financial performance based on its
MODEL historical performance. •
outcomes in balance sheet
Build the cash flows based on the changes in the
Insight into a company's
liquidity, profitability, and
balance sheet and income statement items. solvency over time.

• Forecast free cash flows (operating cash flow Company's intrinsic value,
Estimates the value of an minus capital expenditures) for projected period. Understanding of how
DISCOUNTED investment or company based on • Calculate the terminal value using either a
perpetual growth model or an exit multiple.
changes in assumptions
(e.g., WACC, growth rates)
its expected future cash flows,
CASH FLOW adjusted for the time value of • Discount the cash flows to the present value using impact valuation.
the weighted average cost of capital (WACC). Sensitivity analysis results
MODEL money. It's widely used in equity
research and corporate finance. • Sum the present values to get the total enterprise to understand valuation
value. under various scenarios.

• Create assumptions about the purchase price, Feasibility assessment of

debt, equity, and interest rates. an LBO transaction.
Used primarily in private equity
Build a sources and uses table to understand
LEVERAGED
• Expected Internal Rate of
and investment banking, it helps
where capital is coming from and how it will be Return (IRR) for equity
in evaluating the financial
BUYOUT feasibility of acquiring a company
•
used.
Forecast the company's financial statements,
investors.
Debt repayment schedule
using a significant amount of
MODEL borrowed money (leverage).
•
incorporating the debt repayments.
Model out the exit strategy and calculate the
and understanding of
leverage effects on
internal rate of return (IRR) and equity multiple company's performance.

• Develop assumptions about the deal, such as Accretion/dilution analysis

Evaluates the financial viability of purchase price, form of payment (cash, stock, or of earnings per share (EPS)
a merger or acquisition. It's used both), and synergy projections. post-merger.
to analyze how the consolidation • Build standalone models for both the acquirer Synergies estimate post-
M&A MODEL affects the combined company, and the target. merger.
including accretion/dilution of • Combine the income statements of both entities, Impact on financial
earnings per share (EPS). adjust for synergies and the financing mix. metrics and ratios of the
• Analyze the impact on EPS and other metrics. combined entity.

Used for internal planning and • Collect customer data, sales pipeline data, hiring A detailed financial plan
budgeting within a company. It plan. for business operations.
helps in allocating resources for • Get info about budget per departments Identification of cost
BUDGETING the upcoming year(s). Used to
apply various budgeting methods
•
•
Start with revenue and cost projections.
Break down the budget into various departments
savings or areas requiring
additional investment.
MODEL like zero based budgeting, or units. Basis for performance
evaluation and
bottom up budgeting, top down • Integrate expected financial statements and cash
budgeting, beyond budgeting flow projections. management
and others. • Compare actual performance with the budget accountability.

Predictions of future
Similar to budgeting models but • Use historical data to identify trends and growth revenue, profit, and
usually with a longer horizon, rates. growth trends.
FORECASTING focusing on predicting future • Project future revenue and expenses based on
these trends.
Guidance for strategic
financial performance based on planning and decision-
MODEL historical data and growth • Create projected financial statements. making.
assumptions. • Regularly update the model as new data becomes Early warning signs for
available. potential financial distress.

Used to assess the economic and • Identify the project's lifespan, key stages, and Net present value, Internal
deliverables.
PROJECT financial viability of a project,
such as a new investment, a • Estimate costs and revenues
rate of return, Economic
value added, Payback
EVALUATION product launch, or an expansion
initiative. This model helps in
•
•
Calculate the net cash flows for each period,
Incorporate non-financial Factors
period, Risk assessment
through sensitivity analysis
MODEL determining whether a project • To account for the time value of money, discount and scenario outcomes
should be undertaken based on future cash flows to their present value
its potential to generate value. • Analyze key metrics and perform sensitivity test.
WORKING CAPITAL MODEL
+ IMPACT ON CASH FLOWS

Key Analyze Approach the factors that can impact DSO in

assumptions historical DSO , future (e.g. Payment terms policy, customer
for NWC DIO, DPO and relationships, competitors terms etc..)
planning ratios.

Fill historical Make best estimate based

figures on all factors considered

Working capital projections 2022 2023 2024 2025 2026 2027 2028

Days sales outstanding 16 16 17 20 20 20 20

Days inventory outstanding 12 13 14 15 16 17 18
Days payable outstanding 6 12 12 12 12 12 12
Other current assets % in revenues 1.0% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4%
Other current liabilities % in revenues 1.3% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4%

Revenues from sales 10,000 11,000 11,880 13,156 14,577 16,162 17,930
Inventory turnover 6,200 6,800 7,344 8,133 9,011 9,991 11,084
Suppliers turnover 6,200 6,800 7,344 8,133 9,011 9,991 11,084

Account receivable 450Make best

500 estimate
553of 721 799 886 982
Inventory 200
DSO, DPO300
and DIO282
based 334 395 465 547
Account payable 100 350 243 269 298 331 367
Other current assets 100 150 162 179 199 220 244
Other liabilities 125 150 162 179 199 220 244

Working capital, net 525 450 430 607 697 800 918

Revenues Cash flow statement Y1 Y2 Y3

AR =
Net income 1.207 1.206 1.381
( 365 / DSO )
Depreciation and amortization 171 351 380
Impairment of receivables 11 12 13
COGS Impairment of inventories 11 12 13
I=
Losses (gains) from sale of non-current assets, net 100 0 0
( 365 / DIO )
(Incerease) or decrease of other current assets -53 -168 -78
(Incerease) or decrease in account receivables -23 -29 -33
COGS (Incerease) or decrease in inventories 8 -64 -74
AP = Increase (decrease) in trade payables -107 26 29
( 365 / DPO ) Increase (decrease) in other liabilities 12 17 19
CF from operating activities 1.337 1.363 1.651
 CAPEX SCHEDULES
INVESTMENT PLAN
Fixed assets Useful life Dep' rate 2024 2025 2026 2027 2028 Fill the existing assets
Tangible assets 5 20% (250) (20) 150
capitalization or
Existing assets (250) 0 0 (20) 150 disposal plan and do
Tangible investment 1 12 8% 350 (100) the same for new
Tangible investment 2 5 20% 100 900 investments, based on
Tangible investment 3 10 10% 120
New investment 570 900 0 (100) 0 investment plan
Total 320 900 0 (120) 150

AGGREGATE PURCHASE (NOMINAL) VALUE

Aggregate purchase (nominal) value 2024 2025 2026 2027 2028 Model will
Tangible assets 150 150 150 130 280
automatically calculate
Existing assets 150 150 150 130 280 the aggregate
Tangible investment 1 350 350 350 250 250 purchase value, as
Tangible investment 2 100 1,000 1,000 1,000 1,000 basis for further
Tangible investment 3 120 120 120 120 120
New investment 570 1,470 1,470 1,370 1,370 calculations.
Total 720 1,620 1,620 1,500 1,650

DEPRECIATION AND AMORTIZATION (D&A)

Depreciation per year 2024 2025 2026 2027 2028 Model will calculate
depreciation and
Tangible assets 30 30 30 26 56
Existing assets 30 30 30 26 56 amortization per year,
Tangible investment 1 29 29 29 21 21
based on useful life
Tangible investment 2 20 200 200 200 200 assumed in first
Tangible investment 3 12 12 12 12 12
New investment 61 241 241 233 233 column
Total 91 271 271 259 289

ACCUMUMULATED D&A
Accumulated depreciation 2024 2025 2026 2027 2028
Model will calculate
Tangible assets 30 60 90 116 172 accumulated
Existing assets 30 60 90 116 172
depreciation taking
Tangible investment 1
Tangible investment 2
29
20
58
220
88
420
108
620
129
820
the SUM of annual
Tangible investment 3 12 24 36 48 60 depreciations.
New investment 61 302 544 776 1,009

Total 91 362 634 892 1,181

CARRYING VALUE Model will calculate

Carrying value 2024 2025 2026 2027 2028 carrying value
Tangible assets 120 90 60 14 108
substracting
Existing assets 120 90 60 14 108 accumulated
Tangible investment 1 321 292 263 142 121 depreciation and
Tangible investment 2 80 780 580 380 180 amortization from
Tangible investment 3 108 96 84 72 60
New investment 509 1,168 927 594 361 aggreate purchase
Total 629 1,258 987 608 469
value
PAPER

LEVERAGED BUYOUT
MODEL
INPUTS - ASSUMPTIONS ENTRY VALUE
Target company's LTM sales ($) 10,000,000 LTM EBITDA ($) 3,000,000
Target company's LTM EBITDA margin 30% Entry Enterprise Value ($) 12,000,000
Entry EBITDA multiple 4 Entry Debt Balance Value ($) 1,800,000
Annual Sales growth - 5y projection 10% Entry Equity Value ($) 10,200,000
EBITDA margin - 5y projection 30%
Corporate income tax rate - 5y projection 10%
1) You are acquiring a company through LBO. Prior to acquisition,
Exit EBITDA multiple - exit after 5y 4
company was debt-free. Debt you issued to finance the acquisition will be
% of debt used for acquisition 15% repaid by Free Cash Flow company will generate
D&A as % of sales - 5y projection 10%
2) You plan to sell a company after 5 years
CAPEX as % of sales - 5y projection 10%
3) All Free Cash Flow Company generates during 5 year period will be used
NWC investments as % of sales - 5y projection 10%
for repayment of debt. Excess cash after paying debt will increase Equity
Interest rate - 5y projection 10% value.

INCOME STATEMENT
INCOME STATEMENT ($) 0 1 2 3 4 5
Sales 10,000,000 11,000,000 12,100,000 13,310,000 14,641,000 16,105,100
EBITDA 3,000,000 3,300,000 3,630,000 3,993,000 4,392,300 4,831,530
D&A / 1,100,000 1,210,000 1,331,000 1,464,100 1,610,510
EBIT / 2,200,000 2,420,000 2,662,000 2,928,200 3,221,020
Interest expenses 0 180,000 180,000 180,000 180,000 180,000
EBT / 2,020,000 2,240,000 2,482,000 2,748,200 3,041,020
CIT / 202,000 224,000 248,200 274,820 304,102
Net Income / 1,818,000 2,016,000 2,233,800 2,473,380 2,736,918

CASH FLOW STATEMENT

CASH FLOW STATEMENT ($) 0 1 2 3 4 5
EBITDA 3,000,000 3,300,000 3,630,000 3,993,000 4,392,300 4,831,530
Interest expenses 0 180,000 180,000 180,000 180,000 180,000
CIT / 202,000 224,000 248,200 274,820 304,102
CAPEX / 1,100,000 1,210,000 1,331,000 1,464,100 1,610,510
NWC / 1,100,000 1,210,000 1,331,000 1,464,100 1,610,510
Free Cash Flow / 718,000 806,000 902,800 1,009,280 1,126,408
Cumulative Free Cash Flow / 718,000 1,524,000 2,426,800 3,436,080 4,562,488

EXIT VALUE RATE OF RETURN

EBITDA - year 5 ($) 4,831,530 MOIC - Multiple on Invested Capital (Equity) 2.17

Exit Enterprise Value ($) 19,326,120 IRR - Internal Rate of Return 16.71%

Exit Debt Balance Value ($) 1,800,000 The Rule of 72 IRR - applicable only if your MOIC is close to 2!!! 14.40%

Cumulative Free Cash Flow ($) 4,562,488 The Rule of 114 IRR - applicable only if your MOIC is close to 3!!! 22.80%

Exit Equity Value ($) 22,088,608 The Rule of 144 IRR - applicable only if your MOIC is close to 4!!! 28.80%
SCENARIO PLANNING
1
Layout your report. You can apply
2 3 Determine forecasting
method and calculate actual
value of drivers
scenario management to Income
statement, Sales report, salaries Input historical data
schedule or whatever

4
Input values for Base
case, Best case and
Worst case

6
Model will pick up value of
selected scenario resulting
5 for IF formula settled here

Create drop list for selection

of wished scenario
7
Model calculate forecast based od selected scenario
and related drivers, including forecast of Income
statement and profitability ratios
 STARTUP
FINANCE MODEL
MRR AND REVENUE PLANNING EXPENSES

STEP 1: CURRENT USERS BASE FORECAST (CHURN IS NOT CONSIDERED IN THIS PHASE) Baseline -typical
month Assumptions Month 1 Month 2 Month 3 Month 4

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10
Raw material costs 220 4.6% 246 252 258 264
120 120 120 120 120 120 120 120 120 120 Cost of goods 250 5.2% 280 286 293 300
75 75 75 75 75 75 75 75 75 75 Customer support costs 21 0.4% 24 24 25 25
25 25 25 25 25 25 25 25 25 25 Subctontractors 20 0.4% 22 23 23 24
35 35 35 35 35 35 35 35 35 35 Buffer 10 71
170 170 170 170 170 170 170 170 170 170 Cost of goods sold 521 573 585 598 684
85 85 85 85 85 85 85 85 85 85
25 25 25 25 25 25 25 25 25 25
Sales and marketing 35 0.7% 39 40 41 42
15 15 15 15 15 15 15 15 15 15
Distribution 50 1.0% 56 57 59 60
550 550 550 550 550 550 550 550 550 550
Database and sofware 50 1.0% 56 57 59 60
Maintenance 100 2.1% 112 114 117 120
Other variable expenses 70 1.5% 78 80 82 84
STEP 2: NEW USERS Buffer 70 20
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Variable expenses 375 342 349 357 386
12 13 15 16 18 19 21 23 26 28
7.5 8.3 9.1 10.0 11.0 12.1 13.3 14.6 16.1 17.7
3 3 3 3 4 4 4 5 5 6 Rent and utilities 100 0.4% 101 102 103 104
4 4 4 5 5 6 6 7 8 8 General and administration 100 0.4% 101 102 103 104
17 19 21 23 25 27 30 33 36 40 Licenses and subcription 100 0.4% 101 102 103 104
9 9 10 11 12 14 15 17 18 20 R&D 100 0.4% 101 102 103 104

Revenue| Expenses | Salaries | Budget | Actual | BVA | Visulas | KPIs

Revenue Revenue | Expenses
Expenses | Salaries | Budget | Actual | BVA | Visulas | KPIs

ACTUAL FIGURES BUDGET VARIANCE ANALYSIS

Month 1 Month 2 Month 3 Month 4 Month 1 Month 2 Month 3 Month 4

Income Statement

Revenues 5,000 5,000 5,100 Revenues (355) (470) (496)

Cost of goods sold 600 600 600 Cost of goods sold 27 15 2

Gross profit 4,400 4,400 4,500 0 Gross profit (382) (485) (498) 0

Salaries and wages 2,022 2,022 2,022 Salaries and wages 97 97 97

Sales and marketing 40 50 60 Sales and marketing 1 10 19

Distribution (6) (7) 0
Distribution 50 50 59
Database and sofware (6) (7) 0
Database and sofware 50 50 59
Maintenance (12) (64) 33
Maintenance 100 50 150
Other expenses and buffers 2 (0) 3
Other expenses and buffers 80 80 85
Variable expenses (22) (69) 55 0
Variable expenses 320 280 412 0

Rent and utilities (1) (2) (3)

Rent and utilities 100 100 100
General and administration (1) (2) (3)
General and administration 100 100 100
Licenses and subcription (1) (2) (3)
Licenses and subcription 100 100 100
R&D (1) (2) (3)

Revenue | Expenses | Salaries | Budget | Actual | BVA | Visulas | KPIs Revenue | Expenses | Salaries | Budget | Actual | BVA
BVA | Visulas | KPIs

GRAPHS KPI DAHSBOARD

Month 1 Month 2 Month 3 Month 4

40000
ACT 88% 88% 88%
20000 Gross margin BUD 89% 89% 89% 88%
VAR -1% -1% -1%

0
1 2 3 4 5 6 7 8 9 10 11 12
ACT 5% 0% 2%
Revenue MoM growth rate BUD 7% 2% 2% 2%
VAR -2% -2% 0%

20000

10000
ACT 31% 32% 31%
EBITDA margin BUD 38% 38% 39% 39%
0 VAR -6% -6% -9%

1 2 3 4 5 6 7 8 9 10 11 12

Revenue | Expenses | Salaries | Budget | Actual | BVA | Visuals

Visulas | KPIs Revenue | Expenses | Salaries | Budget | Actual | BVA | Visulas | KPIs
KPIs