FINANCIAL MODELING

The role of Financial Models
1 – Decision Making: Financial Models are very important tools in supporting businesses with complex decisions
2 – Communication: Financial Models are used as tools in communication at the business, so they must be clear and simple for others to understand and use

DESIGN
The Financial Model design should be simple and easy to use and follow.
It should have:
1 – Cover Page (To communicate model information)
2 – Outputs (Executive Summary/Dashboard)
3 – Inputs (What drives the model? Understanding the drivers needs business knowledge)
4 – Model (The structure, Operational Schedules and Statements)

Why is Cover Page important?
• It establishes credibility
• It positions the model as a presentation to the stakeholders
• It shows the summary of the Model checks

Importance of Dashboards
Executives will only focus on the Dashboard from the Model, so it is very critical that all the important information is included in the Dashboard.

Operational Schedules are:
• Revenue Schedule
• Cost Schedule
• Working Capital Schedule
• Depreciation Schedule
• Asset Schedule
• Income Tax Schedule

Structure: Capital Structure
What is a Capital Structure: It is a mix of debt and equity that a company uses to finance its business. For example, if company has 50% equity and 50% debt, it means the company has both types of finances in its business.

Equity Schedule: It includes retained earnings
Debt Schedule: Include cash to get interest income and then calculate net interest expense.

Balance Sheet work as an Error Detection System
An unbalanced balance sheet is useful because it focuses on showing that there is an error somewhere that needs to be addressed.
Total Assets = Total Liabilities + Equity