An annuity debt repayment profile involves “level debt service” – with interest reduces and principal increasing over the term of the debt. This modelling guide explains how calculate an annuity payment profile.
Accounting depreciation - Initial balances and ongoing capital expenditure (This guide replaces the guide - Advanced depreciation using SUMIF)
Ongoing capital expenditure programmes give rise to modelling challenges when it comes to accounting depreciation. Care must be taken since assets start and stop depreciating at different times.
In this guide, we will also consider how to model accounting depreciation relating to a partially depreciated initial balance.
This modelling guide looks at how to model key aspects of a loan – including a choice of debt repayment profiles (level debt service vs level principal).
The accompanying spreadsheet includes a presentation sheet that shows the main features of the loan.
In previous guides we have considered the use of VLOOKUP and INDEX / MATCH as a means of matching constants with a corresponding date on a horizontal timeline.
In this modelling guide, we will look at SUMIF.
Events in the real world have an annoying habit of not occurring on your financial model period end dates. This modelling guide gives you reusable code to calculate partial period factors. This will allow you to easily deal with events that occur in between period end dates.
It is tempting to dive straight into the spreadsheet when faced with a strict deadline.
However, taking the time to plan and create the model structure visually can be effective in ensuring the logic of the model is clear to the model developer and to anyone that uses the model later.
This guide concentrates on producing a conceptual model using tools that are readily available in Microsoft Office.
The reality of financial modelling is that the model build is not linear. We do not always get all the data at once and we do not always have all the necessary information. It’s important to have a coherent plan for these situations.
This modelling guide shows you how to present “placeholders” in a clear and efficient way. It also explains a technique of creating “placeholders” that will help you indicate clearly that something in your model is temporary code.
An annuity debt repayment profile involves “level debt service” – with interest reduces and principal increasing over the term of the debt. This modelling guide explains how calculate an annuity payment profile.
Accounting depreciation - Initial balances and ongoing capital expenditure (This guide replaces the guide - Advanced depreciation using SUMIF)
Ongoing capital expenditure programmes give rise to modelling challenges when it comes to accounting depreciation. Care must be taken since assets start and stop depreciating at different times.
In this guide, we will also consider how to model accounting depreciation relating to a partially depreciated initial balance.
This modelling guide looks at how to model key aspects of a loan – including a choice of debt repayment profiles (level debt service vs level principal).
The accompanying spreadsheet includes a presentation sheet that shows the main features of the loan.
In previous guides we have considered the use of VLOOKUP and INDEX / MATCH as a means of matching constants with a corresponding date on a horizontal timeline.
In this modelling guide, we will look at SUMIF.
Events in the real world have an annoying habit of not occurring on your financial model period end dates. This modelling guide gives you reusable code to calculate partial period factors. This will allow you to easily deal with events that occur in between period end dates.
It is tempting to dive straight into the spreadsheet when faced with a strict deadline.
However, taking the time to plan and create the model structure visually can be effective in ensuring the logic of the model is clear to the model developer and to anyone that uses the model later.
This guide concentrates on producing a conceptual model using tools that are readily available in Microsoft Office.
The reality of financial modelling is that the model build is not linear. We do not always get all the data at once and we do not always have all the necessary information. It’s important to have a coherent plan for these situations.
This modelling guide shows you how to present “placeholders” in a clear and efficient way. It also explains a technique of creating “placeholders” that will help you indicate clearly that something in your model is temporary code.
An Index Linked Bond is one in which bond cash flows are calculated with reference to future inflation rates. As at 2008, government issued index linked bonds exceeded $1.5 trillion.
This modelling guide explains how to model index linked bonds.
Working with more than one timeline in a model is common. Modellers need to be able to take series data calculated in a high resolution timeline (e.g. quarterly) and aggregate it in a low resolution timeline (e.g. annual).
In this modelling guide, we will explain how to aggregate quarterly series data in an annual model using SUMIF and SUMPRODUCT.
Excel, by default, recalculates all open workbooks whenever there is a change in an input or a formula in any of the open workbooks.
Excel has a number of options that allow you to control when open workbooks are recalculated.
There are two types of calculation mode in Excel: automatic and manual
This modelling guide will explore the different Excel calculation modes and how to use them.
Losses sustained by a company might be available to match against future profits. Lower future profits mean less tax paid.
A “tax loss carry forward” refers to the practice of matching the losses of previous periods with a current period’s profits.
This modelling guide explains how to calculate and account for tax loss carry forwards that have a limited shelf life i.e. they are forecast to expire.
There are two basic types of line item in financial models – flows and balances.
Balances are amounts at a point in time. Balances can be financial or non financial.
Every balance has similar properties. This guide explains what those properties are, and gives a standard model component that can be used for all balances.
Modelling can be tough – by following this guide you can shift your stress and make your colleagues lives hell!
The consequences for falling for some, or all of the following temptations are described in more than eighty spreadsheet problems at www.eusprig.org/stories.htm
Banks quote interest rates on a simple annual basis. These are known as quoted (or nominal) rates.
They often need to be manipulated in order to undertake modelling calculations.
Since different money markets quote using different conventions, it is important that the modeller understands how the quoted rate should be manipulated.
This modelling guide focuses on advance payments and retentions in construction contracts – this financial modelling approach can also be applied to other contracts where similar mechanisms are applied.
A project’s internal rate of return (IRR) includes all relevant cash flows regardless of when they occur.
Construction period cash flows may be modelled on one timeline (e.g. monthly) and operations period cash flows might be on a different timeline (e.g. quarterly).
So to calculate an appropriate internal rate of return, we use an approach based on two timelines – each with a corresponding set of cash flows.
Sometimes we need to multiply a vertical range of numbers, by a horizontal range of numbers. This requirement occurs frequently in project finance in calculating reserve account balances. This modelling guide shows you how to use the MMULT function effectively for this requirement.
Calculation blocks are a key feature of FAST models; they help to make models more readable.
Sometimes however, we have to repeat the same kind of calculation many times. Having lots of the same kind of calculation block is not always the best approach.
To simulate is to try to duplicate the features, appearance and characteristics of a real system.
The idea behind simulation is to imitate a real-world situation mathematically, to study its properties and operating characteristics, to draw conclusions and make action decisions based on the results of the simulation.
The real-life system is not touched until the advantages and disadvantages of what may be a major policy decision are first measured on the system's model.
In financial modelling, consistent, uniform design increases efficiency and reduces error.
This modelling guide sets out some recommendations for a “default” model design. This will often have to be adapted, but it’s a good place to start.
Charts and graphs are used to make information clearer and easier to understand. They play a critical role in helping people to visualise large amounts of information, make better decisions and communicate their results to others.
This modelling guide explains how to make quick charts and how they can be useful in analysing data.
In this guide we analyse the trend of operating revenues, operating costs and operating profits / (losses) over the timeline of a project.
There are numerous different ways of repaying the principal on a term loan: annuity style; level principal; bullet; balloon and sculpted repayment profiles.
A financial model should be able to switch easily from one scenario to another. A good Excel function to use is INDEX.
IF, CHOOSE and OFFSET are also frequently used by modellers – but they lack the structure, transparency and flexibility of INDEX.
We’ve taken three operations that we perform most often when constructing calculations and automated them using macros.
These additions will make a significant contribution to your construction skill efficiency, by removing the need to repeat lengthy keystroke combinations.
In this guide we will consider how to model a net present value (“NPV”). We will also consider the Excel functions available that are specific to calculating an NPV.
Inventories are short term assets held as part of an organisation’s core business operations.
Inventory management is an important part of working capital management. Where inventory levels are significant, a good model should show the impact on cash of holding such significant levels.
We will look at how to model three types of inventory: raw materials, work in progress and finished goods.
Corporation tax is a levy on profits earned by companies. A corporation is often required to make periodic payments of tax in respect of its estimated tax liability.
Modelling the frequency of tax instalments in a financial model is important if an organisation’s cash flows are to be modelled appropriately. It is also possible to model the frequency of payments such that they adapt with changes to the model timeline.
This modelling guide explains how to model instalment payments in a flexible, structured and transparent way.
An Index Linked Bond is one in which bond cash flows are calculated with reference to future inflation rates. As at 2008, government issued index linked bonds exceeded $1.5 trillion.
This modelling guide explains how to model index linked bonds.
Working with more than one timeline in a model is common. Modellers need to be able to take series data calculated in a high resolution timeline (e.g. quarterly) and aggregate it in a low resolution timeline (e.g. annual).
In this modelling guide, we will explain how to aggregate quarterly series data in an annual model using SUMIF and SUMPRODUCT.
Excel, by default, recalculates all open workbooks whenever there is a change in an input or a formula in any of the open workbooks.
Excel has a number of options that allow you to control when open workbooks are recalculated.
There are two types of calculation mode in Excel: automatic and manual
This modelling guide will explore the different Excel calculation modes and how to use them.
Losses sustained by a company might be available to match against future profits. Lower future profits mean less tax paid.
A “tax loss carry forward” refers to the practice of matching the losses of previous periods with a current period’s profits.
This modelling guide explains how to calculate and account for tax loss carry forwards that have a limited shelf life i.e. they are forecast to expire.
There are two basic types of line item in financial models – flows and balances.
Balances are amounts at a point in time. Balances can be financial or non financial.
Every balance has similar properties. This guide explains what those properties are, and gives a standard model component that can be used for all balances.
Modelling can be tough – by following this guide you can shift your stress and make your colleagues lives hell!
The consequences for falling for some, or all of the following temptations are described in more than eighty spreadsheet problems at www.eusprig.org/stories.htm
Banks quote interest rates on a simple annual basis. These are known as quoted (or nominal) rates.
They often need to be manipulated in order to undertake modelling calculations.
Since different money markets quote using different conventions, it is important that the modeller understands how the quoted rate should be manipulated.
This modelling guide focuses on advance payments and retentions in construction contracts – this financial modelling approach can also be applied to other contracts where similar mechanisms are applied.
A project’s internal rate of return (IRR) includes all relevant cash flows regardless of when they occur.
Construction period cash flows may be modelled on one timeline (e.g. monthly) and operations period cash flows might be on a different timeline (e.g. quarterly).
So to calculate an appropriate internal rate of return, we use an approach based on two timelines – each with a corresponding set of cash flows.
Sometimes we need to multiply a vertical range of numbers, by a horizontal range of numbers. This requirement occurs frequently in project finance in calculating reserve account balances. This modelling guide shows you how to use the MMULT function effectively for this requirement.
Calculation blocks are a key feature of FAST models; they help to make models more readable.
Sometimes however, we have to repeat the same kind of calculation many times. Having lots of the same kind of calculation block is not always the best approach.
To simulate is to try to duplicate the features, appearance and characteristics of a real system.
The idea behind simulation is to imitate a real-world situation mathematically, to study its properties and operating characteristics, to draw conclusions and make action decisions based on the results of the simulation.
The real-life system is not touched until the advantages and disadvantages of what may be a major policy decision are first measured on the system's model.
In financial modelling, consistent, uniform design increases efficiency and reduces error.
This modelling guide sets out some recommendations for a “default” model design. This will often have to be adapted, but it’s a good place to start.
Charts and graphs are used to make information clearer and easier to understand. They play a critical role in helping people to visualise large amounts of information, make better decisions and communicate their results to others.
This modelling guide explains how to make quick charts and how they can be useful in analysing data.
In this guide we analyse the trend of operating revenues, operating costs and operating profits / (losses) over the timeline of a project.
There are numerous different ways of repaying the principal on a term loan: annuity style; level principal; bullet; balloon and sculpted repayment profiles.
A financial model should be able to switch easily from one scenario to another. A good Excel function to use is INDEX.
IF, CHOOSE and OFFSET are also frequently used by modellers – but they lack the structure, transparency and flexibility of INDEX.
We’ve taken three operations that we perform most often when constructing calculations and automated them using macros.
These additions will make a significant contribution to your construction skill efficiency, by removing the need to repeat lengthy keystroke combinations.
In this guide we will consider how to model a net present value (“NPV”). We will also consider the Excel functions available that are specific to calculating an NPV.
Inventories are short term assets held as part of an organisation’s core business operations.
Inventory management is an important part of working capital management. Where inventory levels are significant, a good model should show the impact on cash of holding such significant levels.
We will look at how to model three types of inventory: raw materials, work in progress and finished goods.
Corporation tax is a levy on profits earned by companies. A corporation is often required to make periodic payments of tax in respect of its estimated tax liability.
Modelling the frequency of tax instalments in a financial model is important if an organisation’s cash flows are to be modelled appropriately. It is also possible to model the frequency of payments such that they adapt with changes to the model timeline.
This modelling guide explains how to model instalment payments in a flexible, structured and transparent way.
Everybody knows that in financial modelling, inputs, calculations and outputs should be separate.
When you’re in the “build phase” of a model, there can be short term benefits of locating inputs next to the calculations they are driving.
The guide explains those benefits, and shows you how to quickly and easily move the inputs to dedicated input sheets at the end of the build.
More Information:
https://flevy.com/browse/business-document/business-case-template-excel-683
DOCUMENT DESCRIPTION
For individuals who are fairly new at developing business cases, the Business Case Template Excel file provides a step-by-step methodology for developing a high level business case.
This Template Excel is also a companion document of the "How to Develop a Business Case" presentation which guide business leaders make investment decisions by helping them understand the financial impact of those decisions throughout the planning stage of a project to help justify a strategic direction and operating strategy
This Excel template includes the following sections:
- Instruction Guide
- Step 1. Input Variables
- Step 2. Generate Baseline Data
- Step 3. Input Benefit Estimate
- Step 4. Review Benefit Calc
- Step 5. Enter Investment
- Step 6. Review Cap Ex
- Step 7. Review Cash Flow Result
- Step 8. What-If Analysis
- Financial Summary
- Example Charts
Got a question about the product? Email us at support@flevy.com or ask the author directly by using the form to the right. If you cannot view the preview above this document description, go here to view the large preview instead.
Discussion 1 Analysis of Financial Statements.A. This discussi.docxfelipaser7p
Discussion 1: Analysis of Financial Statements
.
A. This discussion assignment will allow for the completion of a ratio analysis. It will also provide information that will be useful as you prepare the written report for Assignment 1: Financial Research Report, which is due at the end of Week 9.
Step 1
: Select a publicly-traded company that you will (or might) use for Assignment 1: Financial Research Report, which is due at the end of Week 9.
Step 2
: Locate financial ratio data from Mergent Online. Financial statements, ratios, and other useful information are available from the Mergent Online database that is available through the Strayer University Learning Resource Center (online). Please notice that financial ratios are grouped into appropriate categories (Profitability Ratios, Liquidity Ratios, Debt Management Ratios, and Asset Management Ratios), which makes it easy to set up the ratios and use them in the analysis.
Accessing the Mergent Online Database – Financial Statements for companies, financial ratios, and Form 10K annual reports can be obtained from the Strayer University Learning Resource Center, which is accessible from the Online Classroom (see tab at the top of the screen).
Select – Learning Resource Center
Select – Databases
Select Mergent Online
Then, in the block titled “Company Search – Enter Symbol or Company Name” enter the company’s name or its Stock Ticker Symbol (e.g., for McCormick & Company, enter MKC). Next, select the company from the drop-down menu.
For Financial Statements – Select “Company Financials” tab
For Financial Ratios – Select “Company Financials” tab and “Ratios” sub-tab
For Form 10K Annual Reports – Select “Filings” tab (and then select the most recent Annual Form 10K report)
Step 3
: Enter the financial ratio data into the Financial Ratio Analysis Model (the attached Excel spreadsheet). The data need to be entered into the yellow-coded cells (column is titled “Oldest Year”) progressing to the most recent year on the left (column is titled “Most Recent Year”).
The model presently contains financial information for McCormick & Company (Stock Ticker MKC).
You will note that the Excel spreadsheet model is programmed to identify if each ratio improved or deteriorated over the time period. And, the spreadsheet is programmed to calculate the percentage change in each of the ratios during the same period. This information should be helpful as you prepare your analysis.
(Note: This spreadsheet could be “imported” into the Assignment 1: Financial Research Report due at the end of Week 10.)
Step 4
: Prepare an analysis and discussion of the financial ratio data that are examined in the Financial Ratio Analysis Model. It is always appropriate to include the actual ratio data in the written analysis in addition to its presentation in a table, chart or graph.
(Note: In addition to Mergent, another good source of financial data and company information is:
http://www.advfn.com
.)
B. Fr.
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Chapter 5
Estimating Cash Flows
Blend Images/Corbis
Learning Objectives
A�er studying this chapter, you should be able to:
Describe the cash cycle of a typical firm.
Explain the significance and use of different financial statements.
Express why accoun�ng profits and cash flows some�mes differ.
Show how accoun�ng profits can be transformed into cash flows.
Explain how to construct pro forma financial statements.
Express how growth impacts a company's cash flows.
Show how to es�mate expected value of future cash flows.
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Ch. 5 Introduction
Cash—dollars and cents—is the lifeblood of every business. Companies distribute cash to shareholders in the form of dividends and use cash to pay
employees and suppliers, to pay taxes, and to repay loans. For a business to stay healthy, it is cash, not accoun�ng profits, that ma�ers. This may sound like
a contradic�on, but many profitable, fast-growing small companies have gone out of business because they lacked sufficient cash to pay their bills.
Regardless of its profitability, a firm without enough cash to pay its bills risks going bankrupt. Because cash is so important, we must understand how to
es�mate cash flow and how cash circulates through a company.
Profitability is not iden�cal to cash flow. One of the key objec�ves of this chapter is explaining why accoun�ng profits and cash flow can differ. This
difference hinges on several of the rules included in the accoun�ng profession's generally accepted accoun�ng principles (GAAP). We begin by describing the
cash cycle of a typical company, then we relate this cash cycle to basic accoun�ng concepts and the primary financial statements produced by a company.
Once we understand how accoun�ng profits and cash flows differ, we describe two methods for transla�ng accoun�ng profits into cash flows. We use these
techniques to es�mate the future cash flows for a brand-new project or investment. We extend this forecas�ng technique to the crea�on of pro forma (or
projected) financial statements. Once you have mastered these techniques—transla�ng accoun�ng data into cash flows, es�ma�ng cash flows for a new
investment, and crea�ng projected financial statements for a company—you will have gained a sound introduc�on to tools that are used daily by business
people in a variety of fields.
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2. ABOUT THE FINANCIAL
MODELLING HANDBOOK
Financial modelling should be collaborative. Collaboration reduces
error, speeds up development time and lowers cost. The Financial
Modelling Handbook is a collaborative, crowd-sourced guide to
building better financial models using the FAST Standard.
www.financialmodellinghandbook.com/contribute
3. financialmodellinghandbook.com
MAYANK JAIN
Mayank is a senior financial modeller
with F1F9. He has worked on projects
spanning various sectors including
enterprise reporting, marine, transport
and infrastructure.
Financial Modelling
HANDBOOK
4. INTRODUCTION
In this guide, we will consider how to model a
number of balance accumulations using a
corkscrew structure and 2D modelling techniques.
For further details on 2D modelling, please
download the guide on 2D calculation blocks.
financialmodellinghandbook.comFinancial Modelling
HANDBOOK
DOWNLOAD THIS GUIDE AND THE
ACCOMPANYING EXCEL EXAMPLE
5. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
2D CORKSCREWS
A corkscrew is a standardised calculation block used to model
balance accumulations.
2D corkscrews might be used when balance accumulations are
required for a number of balances.
Imagine we have a portfolio of 8 trade creditors. One approach
is to model each trade creditor with a separate corkscrew.
A 2D corkscrew would capture all 8 items in a single structure.
This is achieved by arranging ingredients of the calculation
block in batches.
6. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
CALCULATION INGREDIENTS
Some of the ingredients
are common to all
balances; others are
unique to a particular
balance.
In this case, the acquisition
/ initial balance date flag is
common to all balances.
Whereas initial balances,
operating cost accrued and
operating cost paid are
required for each of the
eight balances.
1
2
1
2
7. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
CALCULATION INGREDIENTS
Ingredients unique to a particular balance are grouped by type (trade creditors initial balance,
operating cost accrued and operating cost paid). When the grouping is collapsed, only the top
ingredient appears. The others are grouped beneath and appear once the grouping is expanded.
Ingredients that are common to all balances remain as a single ingredient (acquisition / initial
balance date flag).
3
3
4
4
8. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
2D CORKSCREWS
A corkscrew contains two calculations: (i) beginning balance and (ii) end balance. The beginning
balance is equal to the previous period’s end balance.
In a 2D corkscrew, each balance has its own calculation of beginning and end balance.
When the grouping is expanded, all the calculations and ingredients may be seen.
5
5
9. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
SINGLE CALCULATION VIEW
The trace precedent arrows on a collapsed 2D calculation block are identical to those on an
equivalent 1D calculation block.
The grouping informs a reviewer that they should expect to find consistent links and
calculations in those items that are not visible.
10. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
GROUPING
We have structured our 2D corkscrew such that a blank line (with a reduced row height) is left in
the following instances:
1. After 2D ingredients (constants and series)
2. Between 1D constant and 1D series
3. Between 1D series and 2D calculation
Blank lines are not left between any two 1D constants and any two 1D series lines.
6
6