Things to know before building the financial model | List of required Excel worksheets

 Things to understand before building the financial model | List of required worksheets

There are few things that a modeler should know before building the financial model. We will try to keep this post as short as possible and most importantly to the point, which will help you to build the model with much more ease.

Start with determining the number of tabs or worksheets to be built before starting the modeling exercise i.e. before punching even a single number you should know how many tabs or how many worksheets will be required for a particular financial model of a company.

Following are the common tabs (in sequence) for a financial model of a publicly listed company:

1. Cover sheet: 

It should always be updated with recent information. It contains information such as Name of the project (for example Five-year projection of the company “Alpha”), Ticker, Model date, Creator, Reviewer, Confidential messages, Disclaimer, etc

 

2. Output sheet: 

People usually place it at the end of the model but the right approach is to places it just after the cover sheet. It includes key statistics and ratios of the company. It is one of the important sheet where the investor will be spending a lot of his time. 

 

3. Valuation sheet / Credit rating sheet: 

It will include the summary of your valuation approaches (It can also be clubbed with output sheet)

 

4. Assumption sheet

It includes the key assumptions that were used to build the model. Basically, it shows how the revenue and costs are derived for a particular company, the assumed growth rate, etc.

 

5. Working sheets

It includes the Income statement, Balance sheet, Cash flow statement, Working capital schedule, Depreciation and amortization schedule, Operating statistics, etc. In other words, the working sheet includes all the quantitative part of the financial model.

 

6. Qualitative data/additional sheets: 

These sheets do not impact the financial model directly but they are used by the investor to get the necessary information about the company which may be quantitative as well as qualitative in nature.

Such as, what is the reason behind increasing revenue or increasing cost? (This information can be found out in the Management Discussion and Analysis (MD&A) section in the annual report). Examples of the sheets that needs to be included are MD&A analysis, Management’s guidance and recommendation, Expectation of sales, revenue, repayment of the debt, etc. for next quarter or year, Board of directors and management profiles, Management compensation summary, etc.

Include all the other relevant information that you believe is important for the investor in his decision-making process.

 

These were few initial things that a modeler should know before building the financial model. I hope this post was useful, keep checking out our latest post for the next part of the financial modeling series which will be out any soon.


Note: This post is a continuation of our financial modeling series, listed below

Financial Modeling series:

1. What is financial modeling - It’s scope, uses, types, and how to build a financial model? | Explained

2. Excel best practices while preparing financial models | List of important MS-Excel shortcuts

3. Things to understand before buildingthe financial model

 

Thanks for reading

The Finance Magic

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1 comments:

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March 4, 2021 at 9:34 PM ×

Extremely useful information which you have shared here about financial model and worksheet. This is a great way to enhance knowledge for us, and also beneficial for us. Thank you for sharing an article like this.
Fee only financial advisor DTC

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