Introduction to 3-statement modeling Flashcards
(28 cards)
What is a financial model?
A spreadsheet-based tool used to forecast a business’s future performance and support decision-making.
Which three core financial statements are “linked” in a 3-statement model?
Income Statement, Balance Sheet, and Cash-Flow Statement.
Give three common uses of a financial model.
Investment decisions, corporate transactions (e.g., M&A or capital raising), and project or strategic planning.
Name four specialised model types other than the 3-statement model.
DCF model, Merger (M&A) model, Leveraged-Buyout (LBO) model, Budget/Forecast model.
What are the three structural blocks of any model?
Inputs (assumptions) → Processing (calculations) → Outputs (reports/visuals).
Best practice: how many times should each piece of input data be entered?
Only once (single source of truth).
List two Excel features recommended for keeping inputs clear and error-free.
Data validation and conditional formatting (plus colour-coding for inputs vs. formulas).
What are the three sign-convention styles an analyst can choose?
“Negative-expenses,” “Positive-expenses,” and “Commingled” formats.
State one benefit and one drawback of highly complex models.
Benefit: high detail & precision. Drawback: harder to build, audit, and more error-prone.
Name the four revenue-forecasting methods covered.
- Top-down analysis
- Bottom-up analysis
- Regression analysis
- Year-over-year growth
Write the formula for Accounts-Receivable Days.
AR Days = (Accounts Receivable ÷ Sales) × 365.
What does “Accounts-Receivable Days” measure?
Average number of days it takes the company to collect cash from customers (the lower the better).
Write the formula for Accounts-Payable Days and state why a higher number can be good.
AP Days = (Accounts Payable ÷ Cost of Sales) × 365. A higher number means the firm keeps cash longer before paying suppliers.
Give the formula for Inventory Days.
Inventory Days = (Inventory ÷ Cost of Sales) × 365.
Provide either version of the Capital-Asset-Turnover Ratio.
List the seven-step forecasting sequence shown in the deck (high level).
- Load historical data
- Set assumptions/drivers;
- Forecast IS to EBITDA;
- Forecast working capital;
- Forecast PP&E/CapEx & depreciation;
- Forecast capital structure;
- Complete Cash-Flow Statement.
What modelling practice keeps output reports user-friendly?
Make outputs modular and include a compact summary section with only key metrics.
When building calculations, what is recommended instead of packing everything into one giant formula?
Break complex calculations into transparent, easy-to-audit steps.
Where does “Sensitivity Analysis” sit in the hierarchy of modelling tasks?
Above DCF analysis but below M&A or Capital-Raising analysis.
Explain the difference between sensitivity and scenario analysis.
Sensitivity isolates one driver at a time; scenario bundles multiple assumptions into cohesive cases (e.g., base, bull, bear).
Give one quick way to forecast depreciation when detailed asset lives are unknown.
Apply depreciation as a percentage of opening PP&E or revenue.
PP&E on the balance sheet changes through which two main cash-flow items?
Increases with Capital Expenditures (CapEx); decreases with Depreciation.
Name the three debt-and-equity forecasting philosophies discussed.
(1) Keep absolute debt & equity values constant;
(2) keep a target debt-to-equity ratio constant;
(3) let the mix adjust to cash-flow needs over time.
What are the three sections of the Cash-Flow Statement?
Operating Activities, Investing Activities, and Financing Activities.
