Financial Modelling help forecast a business’ financial performance into the future based on historical data and assumptions. At Anup N. Amatya & Associates, professional Financial, Business & Management Consultants, we help our clients to develop appropriate Financial Modelling tools to forecast future outcomes with alternate business strategies.
Hierarchy of Financial Modelling
Three Statement Model – Income Statement, Balance Sheet, Cash Flow Statement
DCF Analysis – Discounted cash flow analysis to value a business
Scenario Analysis – Estimate changes in the value of a business in different possible scenarios
Sensitivity Analysis – Evaluate how sensitive investment is to changes in drivers
M&A Analysis – Evaluate the attractiveness of potential merger, acquisition or divestiture
Capital Raising – Analyze the pro forma impact of raising debt or equity
LBO Analysis – Determine how much leverage can be used to purchase a company
Good models separate inputs, processing, and outputs
Inputs:
- Clearly identified
- Should only ever be entered once
Processing:
- Processing should be transparent
- Broken down into simple steps
- Easy to follow
Outputs:
- Quickly accessible
Model Inputs
Objectives:
- Accurate
- Reasonable data ranges
- Easy to use
- Easy to understand
- Easy to update data
Achieving Objectives:
- Enter each data once
- Use colour to differentiate inputs with outputs
- Use data validation & Conditional formatting
- Use comments
Model Processing
Objectives:
- Easy to maintain
- Accurate processing
- Transparency
Achieving Objectives:
- Break down complex calculations
- Use comments and annotations
- Use formatting & Calculate final figures for the output reports
Model Outputs
Objectives:
- Provide key results to aid decision-making
- Easy to understand
- Unambiguous
Achieving Objectives:
- Make outputs modular
- Consider creating a summary section with only the key model outputs
Financial forecasting framework (for a Three Statement
Financial Modelling)
Assumptions & drivers – Historical ratios and figures which drive the forecast
Income statement – Summarizes the company’s profit and loss
Balance sheet – Displays the company’s assets, liabilities and
shareholders’ equity
Cash flow statement – Reports the cash generated and spent by a company
Supporting schedules –Breaks down longer calculations such as PP&E and debt
schedule
Illustrations:
- Three Statement Model Illustration
- eCommerce Startup Model Illustration
- Mergers & Acquisitions Financial Model Illustration
- DCF Analysis Illustration
Anup N. Amatya & Associates, professional Financial, Business & Management Consultants can help our clients implement appropriate Financial Modelling tools for alternate business strategies to gauge their outcome.
For more details, Contact Us, or follow the links below.
Author: Anup Narsingh Amatya