A Step by Step Guide to Construct a Financial Model without Plugs

and without Circularity for Valuation Purposes

Ignacio Vélez–Pareja
Universidad Tecnológica de Bolívar
Cartagena, Colombia
ivelez@unitecnologica.edu.co
nachovelez@gmail.com

First version: May 28, 2008

This version: July 25, 2008

Electronic copy available at: https://ssrn.com/abstract=1138428

ABSTRACT
In this teaching note the reader finds a simplified financial model. In reality, financial models
are huge and cumbersome. This is a very simplified model compared with what is found in
practice.
We present some basic principles for constructing the financial statements needed for valuation.
The reader is encouraged to construct the financial statements for herself on a spreadsheet. The
relevant financial statements are: the Balance Sheet (BS), the Income statement (IS) and the
Cash Budget (CB). The construction of the financial statements starts from policies and/or
targets (i.e. accounts receivable policy or target). With these targets or policies we can construct
the financial statements.

The first table to be constructed is the table of parameters. This table organizes all of the
relevant information. The subsequent tables are linked to the table of parameters via formulas.
We construct other supplementary tables that will be used in the construction of the main
financial statements. We indicate the formulas that have to be utilized in the construction of the
financial model. In the first line and in the first column the reader finds the letters and numbers
corresponding to the Excel® spreadsheet in order to make it easier the localization and the
construction of the formulas. In the last two columns we have written those formulas. Usually
they correspond to the year 0 and/or year 1. When necessary, we show the formulas for other
years and we indicate it. Shaded cells are for the input data. If the reader wishes to construct the
model exactly as we did, she will be able to do that step by step.
The contribution of this work is double: one is to show that we can construct financial
statements without the use of plugs and circularity and the second is that we can use a very
simple approach to construct cash flows and to value them.

The model shown has two parts. One is the proper financial statements forecast. The second one
is a simple cash flow calculation and valuation exercise using the Capital Cash Flow and
assuming the risk of the tax savings equal to Ku, the cost of unlevered equity.
KEY WORDS.
Accounting, Forecasting Financial Statements, Decision Making, plugs, Planning and control, double
entry principle, unbalancing problem, cash flows, firm valuation, cost of unlevered equity.

JEL CLASSIFICATION
D6, E47, G31,H43

ii

Electronic copy available at: https://ssrn.com/abstract=1138428

 A Step by Step Guide to Construct a Financial Model without Plugs
and without Circularity for Valuation Purposes
Introduction
In this teaching note the reader finds a simplified financial model. In reality, financial
models are huge and cumbersome. What we present is very simplified model in comparison
to what is found in practice. We indicate the formulas that have to be utilized in the
construction of the financial model. We have constructed the formulas in such a way that
they can be used to construct part of or the complete model. In the first line and in the first
column the reader finds the letters and numbers corresponding to the Excel® spreadsheet in
order to make it easier the localization and the construction of the different formulas. In the
last two columns we have written those formulas. Usually the formulas correspond to the
year 0 and/or year 1. When necessary, we show the formulas for other years and we
indicate it. Shaded cells are for the input data. All input data are a number so we think that
the model is parameterized, this is, expressed in terms of some selected parameters. The
convenience of this approach is to allow for sensitivity analysis or even, Monte Carlo
Simulation, MCS.

The contribution of this work is double: one is to show that we can construct financial
statements without the use of plugs and circularity and the second is that we can use a very
simple approach to construct cash flows and to value them. The financial statements we
construct are: Cash Budget, CB (similar to Cash flow Statements but more detailed and
prospective), the Income Statement, IS and the Balance Sheet, BS.

The model shown has two parts. One is the proper financial statements forecast. The second
one is a simple cash flow calculation and valuation exercise using the Capital Cash Flow
and assuming the risk of the tax savings equal to Ku, the cost of unlevered equity. We
propose a way to construct the CCF from the CB because it is closer to the idea of cash
flows. In fact, the CB lists all the cash transactions of a firm. We prefer this approach
because we can "see" the items that are considered as part of the CCF. With this approach
the probability of mistakes in the construction of the CCF is reduced. We expect the reader
will find this approach more intuitive and easy to follow than the traditional.

Vélez-Pareja and Tham 2007a, show how to proceed from historical financial statements to
derive some input data for forecasting financial statements. Vélez-Pareja, 2007b, shows the
inconveniences of using plugs and a procedure to avoid that malpractice. In both works the
idea is that plugs are avoided if we recognize that the critical items in the financial
statements are the calculation of debt and/or cash excess invested in market securities. Once
we calculate the debt or investment in market securities for each year, interest earned
and/or paid is based on the previous period balance of debt and/or market securities. That
has been the rule we follow in constructing the forecasted financial statements.

Electronic copy available at: https://ssrn.com/abstract=1138428

On the other hand, one of the reasons to introduce circularity is that usually people work in
terms of years. When this is done, we recognize that practitioners wish to reflect what
happens within the year in terms of debt payment and short term investment. Hence, to
recognize this, what is usually done is to consider debt and/or short term investment as an
average of beginning and ending balance and from it they calculate the interest. With the
power of current spreadsheets we could even work for daily periods is we wish.1

The approach includes the construction of intermediate tables. The interesting thing is that
once we have the intermediate tables the IS and the BS are derived just picking the values
from the intermediate tables.

Please, construct the model trying to understand why we use the different cells that appear
in the formula and do not use this assignment as a typing exercise.

Remember that the tables and formulas come from an English version of Excel. You should
use the proper configuration in your Excel file in order to obtain the same appearance in the
formulas. For instance, if you are using Spanish configuration in Excel, then the function IF
will be shown as SI and the function Sum will be shown as SUMA. On the other hand, the
argument separators when you use the Spanish configuration in Excel is “;” semicolon and
when you use the English configuration is “,” comma.

Critical issues in forecasting (and shown in the model) are three:

1. Calculation of short term deficit to define short term debt to cover operational
deficits.
2. Calculation of long term deficit to define the long term debt and/or equity to cover
capital investment deficits.
3. Calculation of excess cash to be invested in market securities.

In the model we assume a given percent of long term deficit to be covered by debt and the
remainder to be covered by equity.

The model makes extensively use if the Fisher equation. This is a tool for calculating
nominal rates (interest and price increases).

Section Two
An Example of Forecasting Without Plugs and Without Circularity
Some features and assumptions of the model are:

1. No plugs.
1
The last Excel® spreadsheet (Excel 2007) has more than 16,000 columns that would allow for more than 44
years in a daily period basis and more than 1,000,000 lines. We think that this is good enough to consider the
need of introducing circularity in a financial model like the one we show here.
2

Electronic copy available at: https://ssrn.com/abstract=1138428

 2. No circularity.
3. A new firm (starting from zero).
4. A simple firm with only one product
5. A commercial firm that purchases a product to be sold at a higher price
6. Taxes are paid the same year as accrued
7. All the expenses are paid on a cash basis. The only credit is from the supplier of
product and has to be paid the following year and an advance payment prior to the
purchase. Part of the purchase is paid the same year when the purchase is done.
8. Customers have to pay some portion of the sales in advance. They pay 5%
(Accounts Receivables) of the amount sold in the next period. The remaining
amount has to be paid the current year.
9. Dividends are not greater than the Net Income of previous year. The payout ratio is
70%
10. Dividends are paid the next year after the Net Income is generated.
11. The firm can repurchase equity and the amount is defined as a percentage of the
depreciation charge. (Depreciation retains cash in the firm that can be distributed).
12. In the model the limit of the repurchase of equity is the amount of depreciation
charge.
13. Input prices are fixed and do not depend on volume purchased.
14. It is expected to invest in new assets (Capital expenditures, Capex) every year.
There are two lines for investing in fixed assets: one is the investment of the amount
of depreciation charge. The second is a fraction of current net fixed assets equal to
the real growth expected for the next year.
15. Any deficit is covered by new debt and new equity investment. In the example, 60%
of deficit is covered by long term debt, the rest by equity. Deficit in the after
investment in fixed assets module (Module 2) should be covered with long term
loans, and not with short term loans.
16. Deficit in the operating module (Module 1) should be covered with short term
loans.
17. Short term loans will be repaid the following year.
18. Long term loans are repaid in 5 years for the first loan and in 10 years for the
second.
19. Any cash excess is invested in short term securities.
20. Inventory valuation is done under the First in, First Out (FIFO) policy.
21. A deficit can arise in any year when a dynamic approach is used (input data can be
changed and the results reflect that change. In this example we only consider two
types long term loans and one short term (for illustration purposes).
22. Short term portion of debt is not considered in the current liabilities.

Section Three
Concluding Remarks
After working out the model the reader will have the experience to have constructed a
financial statement forecast without using the typical and popular tool of the plug and

Electronic copy available at: https://ssrn.com/abstract=1138428

circularity. On the other hand, she will find a very easy way to value cash flows (without
circularity, as well).

We expect to convince teachers and authors about the inconvenience of keeping the use of
plugs a malpractice that might conceal many errors and mistakes. We invite the reader to
practice with this model and profit from the approach to construct consistent financial
statements and cash flows for valuation.

Bibliographic References
Vélez-Pareja, Ignacio and Tham, Joseph, 2007a, "Prospective Analysis: Guidelines for
Forecasting Financial Statements" (Updated on May 4, 2008). Available at SSRN:
http://ssrn.com/abstract=1026210

Vélez-Pareja, Ignacio, 2007b, "To Plug or Not to Plug, That is the Question: No Plugs, No
Circularity: A Better Way to Forecast Financial Statements" (Updated on March 15, 2008).
Available at SSRN: http://ssrn.com/abstract=1031735.

Appendix
Financial Statements and Intermediate Tables
In the next tables the reader will find the figures and formulations taken directly from the
spreadsheet.

Although the idea is to encourage the reader to replicate the model, the completed
spreadsheet is available from the author. Please feel free to write requesting the xls file.

Electronic copy available at: https://ssrn.com/abstract=1138428

 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
5 Input data. Datos de entrada
6 Fixed assets. Activos fijos AF 45,0
7 Lineal Depreciation (4 years) 4,0

8 Equity investment. Inversión de patrimonio 15,0

9 Corporate tax rate. Tasa de impuestos 35,0%
10 Initial inventory (units) 4,0
Initial purchase price. Precio de compra
11 inicial 5,0
Estimated Overhead expenses. Gastos
12 generales. GG 22,0
Administrative and Sales payroll. Gastos
13 laborales. 24,0

Long term (LT) years Loan 1 at (N years).

14 Plazo de Préstamo a largo plazo (N años) 5,0
Long term (LT) years Loan 3 (M years).
15 Plazo préstamo LP 10,0
Short term loan 2 (1 year). Plazo préstamo a
16 corto plazo 1,0
Taxes are paid the same year as accrued.
Los impuestos se pagan el mismo año que se
17 provisionan
18 Inflation rate. Tasa de inflación 6,0% 5,5% 5,5% 5,0% 4,5% 4,0%
Real increase in selling price. Aumento real
19 de precio de venta 1,0% 1,0% 1,0% 1,0% 1,0% 1,0%
Real increase in purchase price. Aumento
20 real de precio de compra 0,5% 0,5% 0,5% 1,0% 1,0% 1,0%
Real increase in overhead expenses.
21 Aumento real de GG 0,5% 0,5% 0,5% 0,5% 0,5%
Real increase in payroll expenses. Aumento
22 real de nómina. 1,5% 1,5% 1,5% 1,5% 1,5%
Increase in sales volume (units). Aumento
23 de volumen 0,0% 1,0% 2,0% 2,0% 2,5% 2,5%
24 Real interest rate. Tasa de interés real 2,0%
Risk premium for cost of debt. Prima de
25 riesgo para la deuda 5,00%

Risk premium for return on ST investment

Prima de riesgo para la rentabilidad de la
26 inversión de corto plazo -2,00%

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 1
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
27 Policies and goals. Políticas y metas Year 0 1 2 3 4 5 6
Promotion and advertising as % of sales.
28 Gastos de publicidad y promoción 3,0%
Inventory as % of volume sold. Política de
29 inventario % de ventas del año. 1/12 1/12 1/12 1/12 1/12

Accounts receivable as % of sales. Cuentas

30 por cobrar CxC como % de ventas. 5,0%
Advance payments from customers as % of
next year sales. Anticipos recibidos de
clientes como % de las ventas del año
31 siguiente 10,0%

Accounts payable as % of purchases.

32 Cuentas por pagar CxP como % de Compras 10,0%

Advance payments to suppliers as a % of

next year purchases. Anticipo a proveedores
33 como % de las compras del año siguiente 10,0%

Payout ratio. Proporción de utilidades

34 repartidas 70,0%

% of sales as Cash. % de ventas como caja y

35 bancos 4,00%
% of financig with debt the rest is financed
by equity. % de financiación con deuda y el
36 resto con patrimonio 60,00%
Minimum cash required for initial year
(based on overhead, payroll and sales
comissions). Saldo mínimo de caja para año
0 com % de gastos de nómina, GG y de
37 comisiones de ventas 13,0

38 Selling comissions. Comisiones de ventas 4,00%

Market research. Investigación de mercado.

Datos y coeficientes para simular el estudio
39 de mercado y la elasticidad
40 Selling price. Precio de venta. 7,0
41 Coeficiente de elasticidad b -0,350
42 Coeficiente de elasticidad b0 100,00

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 2
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
Quantity sold for first year. Cantidad que se
43 espera vender para año 1 50,6 Fórmula Q=b0Priceb

Repurchase of equity as a % of funds

generated by depreciation. Recompra de
44 participación como % de la depreciación. 0% 0% 0% 0% 0%
Nominal increase in prices. Aumento
45 nominal de precios. Year 0 1 2 3 4 5 6 1 2
46 Selling. Venta 7,1% 6,6% 6,6% 6,1% 5,5% 5,0% =(1+E$18)*(1+E19)-1 =(1+F$18)*(1+F19)-1
47 Purchase. Compra 6,5% 6,0% 6,0% 6,1% 5,5% 5,0% =(1+E$18)*(1+E20)-1 =(1+F$18)*(1+F20)-1
48 Overhead expenses. GG 6,5% 6,0% 6,0% 5,5% 5,0% =(1+E$18)*(1+E21)-1 =(1+F$18)*(1+F21)-1
49 Payroll expenses. Gastos de personal. 7,6% 7,1% 7,1% 6,6% 6,1% =(1+E$18)*(1+E22)-1 =(1+F$18)*(1+F22)-1
Minimum cash required. Saldo mínimo de
50 caja. 15,17 16,33 17,74 19,19 20,77 =+$E$35*E103 =+$E$35*F103
51 Year 0 1 2 3 4 5 6 1 2
Increase factor in volume. Factor de
52 aumento acumulado de volumen 1,000 1,010 1,020 1,020 1,025 1,025 =+(1+E23) =+(1+F23)
53

Basic input variables calculation. Cálculo

54 de la proyección de las variables básicas. Year 0 1 2 3 4 5 1 2
55 Sales in units. Ventas en unidades. 50,6 51,1 52,1 53,2 54,5 55,9 =+D43 =E55*F52
56 Selling price. Precio de venta 7,5 8,0 8,5 9,0 9,5 10,0 =D40*(1+E46) =E56*(1+F46)
57 Total sales. Ventas totales 379,3 408,2 443,6 479,9 519,1 558,9 =+E56*E55 =+F56*F55
58
59 Year 0 1 2 3 4 5 6 1 2
60 Risk free rate, Rf. Tasa libre de riesgo 8,12% 7,61% 7,61% 7,10% 6,59% =((1+E18)*(1+$E$24)-1) =((1+F18)*(1+$E$24)-1)
Return of short term investment from
CAPM= Rf+risk premium of ST return.
Tasa de interés de inversión a corto plazo
CAPM = Rf+ prima de riesgo del
61 rentabilidad de inversiones de CP 6,12% 5,61% 5,61% 5,10% 4,59% =+E60+$E$26 =+F60+$E$26
Cost of debt, Kd, from CAPM= Rf+risk
premium in cost of debt. Costo de la deuda
62 = Rf + prima de riesgo 13,12% 12,61% 12,61% 12,10% 11,59% =E60+$E$25 =F60+$E$25
63

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 3
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
Depreciation schedule. Tabla de
64 depreciación
65 Year 0 1 2 3 4 5 1 2

66 Beginning fixed assets. Saldo inicial AFN 45,0 45,5 46,4 47,3 48,5 =+D77 =+E77

Formula for
Annual depreciation year 0. Depreciación year 1/Fórmula
67 anual año 0 para año 1 11,3 11,3 11,3 11,3 =$D$77/$D$7 =$D$77/$D$7

Formula for
Annual depreciation year 1. Depreciación year 2/Fórmula
68 anual año 1 para año 2 2,9 2,9 2,9 2,9 =+E76/D7 =+F68

Formula for
Annual depreciation year 2. Depreciación year 3/Fórmula
69 anual año 2 para año 3 3,8 3,8 3,8 =+F76/D7 =+G69

Formula for
Annual depreciation year 3. Depreciación year 4/Fórmula
70 anual año 3 para año 4 4,7 4,7 =+G76/D7 =+H70

Formula for
Annual depreciation year 4. Depreciación year 5/Fórmula
71 anual año 4 para año 5 6,0 =+H76/D7

72 Annual depreciation. Depreciación anual 11,3 14,2 17,9 22,7 17,4 =SUM(E67:E71) =SUM(F67:F71)
Cumulated depreciation. Depreciación
73 acumulada 11,3 25,4 43,4 66,0 83,4 =+E72+D73 =+F72+E73
Investment to keep level of fixed assets
constant. Inversión para mantener los
74 activos fijos constantes 11,3 14,2 17,9 22,7 17,4 =+E72 =+F72
Investment in fixed assets for growth.
75 Inversión en activos fijos para crecer 0,5 0,9 0,9 1,2 1,2 =+D77*F23 =+E77*G23
76 New fixed assets. Nuevos activos fijos 11,7 15,1 18,9 23,8 18,6 =+E75+E74 =+F75+F74
77 Net fixed assets. Activos fijos netos 45,0 45,5 46,4 47,3 48,5 49,7 =+D6+D76 =+E66+E76-E72
78

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 4
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
Inventory valuation using FIFO. Valoración
79 de inventarios PEPS
Inventory and purchases in units.
80 Inventarios y compras en unidades Year 0 1 2 3 4 5 6 0 1
81 Units sold. Unidades vendidas 0,0 50,6 51,1 52,1 53,2 54,5 55,9 0 =+E55
Final inventory in units, Inventario final en
82 unidades 4,0 4,2 4,3 4,3 4,4 4,5 0,0 =+D10 =E81*E29
Initial inventory in units. Inventario inicial
83 en unidades 0,0 4,0 4,2 4,3 4,3 4,4 4,5 =C10 =D82
84 Purchases in units. Compras en unidades 4,0 50,8 51,2 52,2 53,3 54,6 51,3 =D81+D82-D83 =E81+E82-E83
Unitary cost of purchase. Costo unitario de
85 compra
86 Year 0 1 2 3 4 5 0 1
87 Purchases in units- Compras en unidades 4,0 50,8 51,2 52,2 53,3 54,6 51,3 =+D10 =+E84
Forecasted unit cost. Precio proyectado de
88 compra 5,00 5,33 5,65 5,99 6,35 6,70 7,04 =+D11 =+D88*(1+E47)
89
Cost of goods sold (COGS) calculation.
90 Cálculo del costo de ventas Year 0 1 2 3 4 5 0 1
Initial inventory in dollars. Inventario inicial
91 en pesos 0,0 20,0 22,5 24,1 26,0 28,1 30,4 =+D83*D88 =+D93
92 Purchases in dollars. Compras en pesos 20,0 270,7 288,9 312,7 338,2 366,1 361,4 =+D84*D88 =+E84*E88
Final inventory in dollars. Inventario final
93 en pesos 20,0 22,5 24,1 26,0 28,1 30,4 =D88*D82 =E88*E82
94 COGS. Costo de ventas 0,0 268,3 287,3 310,7 336,1 363,8 =+D91+D92-D93 =+E91+E92-E93
Administrative and selling expenses. Gastos
95 administrativos de y de ventas Year 0 1 2 3 4 5 0 1
96 Sales commisions. Comisiones de ventas 15,2 16,3 17,7 19,2 20,8 =+E57*$E$38
97 Overhead expenses. Gastos generales 22,0 23,4 24,8 26,3 27,8 29,2 =+D12 =D97*(1+E$48)
98 Payroll expenses. Gastos de nómina 24,0 25,8 27,7 29,6 31,6 33,5 =+D13 =D98*(1+E$49)

99 Advertising expenses. Gastos de publicidad 11,4 12,2 13,3 14,4 15,6 =E57*$E$28
Administrative and selling expenses. Gastos
100 de administración y ventas 75,8 81,1 87,0 92,9 99,0 =SUM(E96:E99)
101

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 5
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
102 Sales and purchases. Ventas y compras Year 0 1 2 3 4 5 6 0 1
103 Total sales revenues. Ventas 379,3 408,2 443,6 479,9 519,1 558,9 =+E57
Inflow of sales revenues for current year.
104 Ingresos por ventas del año en curso 322,4 346,9 377,1 407,9 441,3 475,1 =+E57*(1-$E$30-$E$31)
105 Credit sales (1 year). Ventas a crédito 19,0 20,4 22,2 24,0 26,0 27,9 =+E57*$E$30
106 Payment in advance. Anticipo de clientes 37,9 40,8 44,4 48,0 51,9 55,9 =+E103*$E$31
107 Total purchases. Compras totales 270,7 288,9 312,7 338,2 366,1 361,4 =+E92
Purchases paid the same year. Compras
108 pagadas en el año en curso 20,0 216,6 231,1 250,2 270,6 292,9 289,1 =+D92 =+E92*(1-$E$32-$E$33)
Purchases on credit (1 year). Compras a
109 crédito 0,0 27,1 28,9 31,3 33,8 36,6 36,1 =D92-D108 =+E107*$E$32
Payment in advance to suppliers. Anticipo a
110 proveedores 27,1 28,9 31,3 33,8 36,6 36,1 =+E107*$E$33
111
Inflows from sales. Ingresos por ventas y
112 egresos por compras Year 0 1 2 3 4 5 6 0 1

Inflow of sales revenues for current year.

113 Ingresos por ventas en el año en curso 0 322,4 346,9 377,1 407,9 441,3 =+D104 =+E104
Inflows from Accounts Receivables.
114 Ingresos de cartera 0 0,0 19,0 20,4 22,2 24,0 =C105 =D105
Inflow for advance payments. Ingreso por
115 anticipos 37,9 40,8 44,4 48,0 51,9 55,9 =+E106 =+F106
116 Total inflows. Ingresos totales 37,9 363,2 410,3 445,5 482,0 521,2 =+D114+D113+D115 =+E114+E113+E115
Purchases paid the current year. Compras
117 pagadas en el año en curso 20,0 216,6 231,1 250,2 270,6 292,9 =+D108 =+E108
Payment of Accounts Payable. Pago de
118 cuentas por pagar 0,0 0,0 27,1 28,9 31,3 33,8 =C109 =D109
119 Advance payment to suppliers 27,1 28,9 31,3 33,8 36,6 36,1 =+E110 =+F110
Total payments for purchases. Pago total de
120 compras 47,1 245,5 289,5 312,9 338,5 362,8 =+D118+D117+D119 =+E118+E117+E119
121

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 6
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
122 Cash Budget. Flujo de Tesorería
Module 1: Operating activities. Modulo 1:
123 Actividades operativas Year 0 1 2 3 4 5 0 1
124 Cash inflows. Ingresos de caja.
Total AR plus sales on cash. Total de
125 ingresos por ventas y cartera 37,9 363,2 410,3 445,5 482,0 521,2 =+D116 =+E116
126 Total inflows. Total de ingresos 37,9 363,2 410,3 445,5 482,0 521,2 =SUM(D125:D125) =SUM(E125:E125)
127 Cash outflows. Egresos
Total payments for purchases. Pago total de
128 compras 47,1 245,5 289,5 312,9 338,5 362,8 =+D120 =+E120
Administrative and selling expenses. Gastos
129 de administración y ventas 75,8 81,1 87,0 92,9 99,0 =+E100
130 Income Taxes. Impuesto de renta 6,0 7,6 8,6 8,9 12,9 =+E200
131 Total cash outflows. Egresos totales 47,1 327,3 378,1 408,5 440,4 474,8 =SUM(D128:D130) =SUM(E128:E130)
Net cash balance NCB before fixed assets
purchase. Saldo neto de caja antes de
132 compra de activos -9,1 35,9 32,2 37,0 41,6 46,4 =D126-D131 =E126-E131
Module 2: Investment in assets. Módulo 2:
133 Inversión en activos fijos
Purchase of fixed assets. Compra de activos
134 fijos 45,0 =+D6
Investment in fixed assets. Inversión en
135 activos fijos. 11,7 15,1 18,9 23,8 18,6 =+E76

NCB of investment in assets. Saldo neto

136 de caja SNC por compra de activos -45,0 -11,7 -15,1 -18,9 -23,8 -18,6 =-D134-D135 =-E135-E134
NCB after fixed assets investment. Saldo
neto de caja SNC después de compra de
137 activos. -54,1 24,2 17,1 18,1 17,8 27,8 =+D136+D132 =+E132+E136

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 7
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
Module 3: External financing. Módulo 3:
138 Financiación externa
139 Inflow of loans. Ingreso de préstamos
LT Loan 1 - 5 years. Préstamo de largo =IF((D136+D152)>0,0,-
140 plazo a 5 años 30,0 (D136+D152))
=IF((D163+E132-E146-E147-
=IF(D132-D$37>0,0,-(D132- E$50)>0,0,-(D163+E132-E146-
141 ST Loan 2. Préstamo a corto plazo 22,1 0,00 0,00 0,00 0,00 0,00 D$37)) E147-E$50))
=IF((D163+E137+E141-E144-
E145-E146-E147-E148-E149-
E153-E154+E158+E159-
E$50)>0,0,-(D163+E137+E141-
E144-E145-E146-E147-E148-
LT loan 3 10 years. Préstamo a largo E149-E153-E154+E158+E159-
142 plazo de 10 años 7,76 1,58 2,05 2,77 0,00 E$50))*$E$36
143 Payment of loans. Pago de préstamos
Principal LT loan 1. Abono a capital del
144 préstamo de LP a 5 años 6,0 6,0 6,0 6,0 6,0 =+E170
Interest LT loan 1. Intereses del
145 préstamo a LP 3,9 3,0 2,3 1,5 0,7 =+E169

146 Principal ST loan 2. Abono a capital CP 22,1 0,0 0,0 0,0 0,0 =+D141
Interest ST loan 2. Intereses de préstamo a
147 CP 2,9 0,0 0,0 0,0 0,0 =+E177
Principal LT loan 3. Abono de préstamo
148 a LP 0,0 0,8 0,9 1,1 1,4 =+E185
149 Interest LT loan 3. Intereses a LP 0,0 1,0 1,1 1,2 1,3 =+E184
NCB of financing actividies. SNC de la =SUM(E140:E142)-
150 financiación 52,1 -27,2 -9,2 -8,2 -7,0 -9,4 =SUM(D140:D149) SUM(E144:E149)

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 8
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
Module 4: Transactions with owners.
151 Módulo 4: transacciones con los dueños
152 Invested equity. Patrimonio invertido 15,0 5,2 1,1 1,4 1,8 0,0 =D8 =+E142*(1-$E$36)/$E$36
153 Dividends payment. Pago de dividendos 0,0 7,8 9,8 11,2 11,6 =D202

154 Repurchase of stock. Recompra de acciones 0,0 0,0 0,0 0,0 0,0 =E204
NCB of transactions with owners. SNC de
155 las transacciones con los dueños 15,0 5,2 -6,7 -8,5 -9,3 -11,6 =+D152-D153-D154 =E152-E153-E154

156 NCB for the year after previous transactions 13,0 2,2 1,2 1,4 1,4 6,8 =+D155+D150+D137 =E155+E150+E137
Module 5: Discretionary transactions.
157 Módulo 5: Transacciones discrecionales
Liquidation of short term ST investment.
Liquidaciòn o vencimiento de inversiones
158 temporales 0,0 0,0 0,0 0,0 0,0 =D160

Return from ST investments. Rendimiento

159 de las inversiones temporales 0,0 0,0 0,0 0,0 0,0 =E61*E158
=IF(C163+D156+D158+D159- =IF(D163+E156+E158+E159-
D37>0,C163+D156+D158+D159- E50>0,D163+E156+E158+E159-
160 ST investments. Inversiones temporales 0,00 0,00 0,00 0,00 0,00 5,20 D37,0) E50,0)
NCB of discretionary transactions. SNC de
161 transacciones discrecionales 0,0 0,0 0,0 0,0 0,0 -5,2 =+D158+D159-D160 =E158+E159-E160
=+D132+D136+D150+D155+D1 =+E161+E155+E150+E136+E13
162 Year NCB. SNC del año 13,0 2,2 1,2 1,4 1,4 1,6 61 2
163 Cumulated NCB. SNC acumulado 13,0 15,2 16,3 17,7 19,2 20,8 =+D162 =+D163+E162
164
165

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 9
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
LT Loan 1 schedule. Tabla de amortización
166 LP
167 Year 0 1 2 3 4 5 0 1
168 Beginning balance. Saldo inicial 30,0 24,0 18,0 12,0 6,0 =D172

169 Interest payment LT1. Pago de intereses 3,9 3,0 2,3 1,5 0,7 =E173*E168

170 Principal payments LT 1. Abono a capital 6,0 6,0 6,0 6,0 6,0 =+($D$172)/$D$14
171 Total payment LT1. Pago total 9,9 9,0 8,3 7,5 6,7 =E169+E170
172 Ending balance. Saldo final 30,0 24,0 18,0 12,0 6,0 0,0 =+D140 =E168-E170
173 Interest rate. Tasa de interés 13,12% 12,61% 12,61% 12,10% 11,59% =+E62
ST Loan 2 schedule. Tabla de amortización
174 CP
175 Year 0 1 2 3 4 5 0 1
176 Beginning balance. Saldo inicial

177 Interest payment ST Pago de intereses CP 2,9 0,0 0,0 0,0 0,0 =+D180*E181

178 Principal payments ST Abono a capital CP 22,1 0,0 0,0 0,0 0,0 =+D180/$D$16
179 Total payment ST Pago total CP 25,1 0,0 0,0 0,0 0,0 =SUM(E177:E178)
180 Ending balance. Saldo final 22,1 0,0 0,0 0,0 0,0 0,0 =+D141 =+D180-E178+E141
181 Interest rate. Tasa de interés 13,12% 12,61% 12,61% 12,10% 11,59% =+E173
182 Year 0 1 2 3 4 5 0 1
183 Beginning balance. Saldo inicial 0,0 7,8 8,6 9,7 11,3 =+D187

184 Interest payment LT3. Pago de intereses 0,0 1,0 1,1 1,2 1,3 =+E188*D187

185 Principal payments LT 3. Abono a capital 0,0 0,8 0,9 1,1 1,4 =+D185+D142/$D$15
186 Total payment LT3. Pago total 0,0 1,8 2,0 2,3 2,7 =E184+E185
187 Ending balance. Saldo final 0,0 7,8 8,6 9,7 11,3 9,9 =+D142 =+E183-E185+E142
188 Interest rate. Tasa de interés 13,12% 12,61% 12,61% 12,10% 11,59% =E173
189

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 10
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
190 Income Statement. Estado de resultados Year 0 1 2 3 4 5 1 2
191 Sales revenues. Ventas 379,3 408,2 443,6 479,9 519,1 =+E57 =+F57

192 Cost of goods sold, COGS. Costo de ventas 268,3 287,3 310,7 336,1 363,8 =+E94 =+F94
193 Gross Income. Utilidad bruta 111,0 120,9 132,9 143,7 155,4 =E191-E192 =F191-F192
Administrative and selling expenses. Gastos
194 de ventas y administrativos 75,8 81,1 87,0 92,9 99,0 =+E100 =+F100
195 Depreciation. Depreciación 11,3 14,2 17,9 22,7 17,4 =+E72 =+F72

Earnings Before Interest and Taxes

196 (EBIT). Utilidad operativa 24,0 25,6 27,9 28,1 39,0 =E193-E194-E195 =F193-F194-F195
Interest payments. Gastos financieros (pago
197 de intereses) 6,8 4,0 3,3 2,6 2,0 =+E169+E184+E177 =+F169+F184+F177
Return (interest) from ST investment.
198 Interés recibido 0,0 0,0 0,0 0,0 0,0 =+E61*D160 =+F61*E160
Earnings BeforeTaxes EBT, Utilidad antes
199 de impuestos 17,1 21,6 24,6 25,5 37,0 =E196+E198-E197 =F196+F198-F197
200 Income Taxes. Impuesto de renta 6,0 7,6 8,6 8,9 12,9 =IF(E199<=0,0,E199*$D$9) =IF(F199<=0,0,F199*$D$9)
201 Net Income. Utilidad neta 11,1 14,0 16,0 16,6 24,0 =E199-E200 =F199-F200
Dividends paid next year. Dividendos
202 pagados al año siguiente 7,8 9,8 11,2 11,6 16,8 =E201*$E$34 =F201*$E$34
Cumulated retained earnings. Utilidades
203 acumuladas 0,0 3,3 7,5 12,3 17,3 =+D203+D201-D202 =+E203+E201-E202
Repurchase of equity. Recompra de
204 acciones 0,0 0,0 0,0 0,0 0,0 =+E195*E44 =+F195*F44
205

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 11
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
206 Balance Sheet. Balance general
207 Assets. Activos Year 0 1 2 3 4 5 0 1
208 Cash. Caja y bancos CB 13,0 15,2 16,3 17,7 19,2 20,8 =D163 =E163
Accounts Receivable AR. Cuentas por
209 cobrar CxC IT 0,0 19,0 20,4 22,2 24,0 26,0 =D105 =E105
210 Inventory. Inventario IT 20,0 22,5 24,1 26,0 28,1 30,4 =+D93 =+E93
Advance payments to suppliers. Anticipo a
211 proveedores 27,1 28,9 31,3 33,8 36,6 36,1 =+D119 =+E119
212 ST investments. Inversiones temporales CB 0,0 0,0 0,0 0,0 0,0 5,2 =+D160 =+E160
213 Current assets. Activos corrientes 60,1 85,5 92,1 99,8 107,9 118,5 =SUM(D208:D212) =SUM(E208:E212)
Total net fixed assets. Total de activos fijos
214 netos IT 45,0 45,5 46,4 47,3 48,5 49,7 =+D77 =+E77
215 Total 105,07 130,94 138,42 147,05 156,41 168,18 =+D214+D213 =+E214+E213
Liabilities and equity. Pasivos y patrimonio
216 52,1 =+D219+D221
Accounts Payable AP. Cuentas por pagar,
217 CxP IT 0,0 27,1 28,9 31,3 33,8 36,6 =D109 =E109
Advance payments from customers.
218 Anticipo de ventas 37,9 40,8 44,4 48,0 51,9 55,9 =+D115 =+E115
219 Short term debt. Deuda a corto plazo CB 22,1 0,0 0,0 0,0 0,0 0,0 =+D180 =+E180
220 Current liabilities. Pasivos corrientes 60,1 67,9 73,3 79,3 85,7 92,5 =SUM(D217:D219) =SUM(E217:E219)
221 Long term debt. Deuda largo plazo CB 30,0 31,8 26,6 21,7 17,3 9,9 =+D172+D187 =+E172+E187
222 Total Liabilities. Pasivos totales 90,1 99,6 99,8 100,9 103,0 102,4 =++D221+D220 =+E221+E220
223 Equity investment. Inversión de capital ID 15,0 20,2 21,2 22,6 24,4 24,4 =+D8 =+D223+E152
224 Retained earnings. Utilidades retenidas IS 0,0 0,0 3,3 7,5 12,3 17,3 =D203 =E203
Current year Net Income. Utilidades del
225 ejercicio 11,1 14,0 16,0 16,6 24,0 =+E201
Repurchase of equity. Recompra de
226 acciones 0,0 0,0 0,0 0,0 0,0 =-E154
Total Liabilities and equity. Total pasivos y
227 patrimonio 105,07 130,94 138,42 147,05 156,41 168,18 =SUM(D217:D226)-D222-D220 =SUM(E217:E226)-E222-E220
228 Check 0,0 0,0 0,0 0,0 0,0 0,0 =D227-D215 =E227-E215

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 12
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
229 Year 0 1 2 3 4 5 6
230 Input data for Valuation purposes
Levered D/P Unlevered
Beta. Beta Beta. Beta
de la desapalanca
231 Damodaran accion. da
Food-
Confectionery
232 Inversiones Nacionales De Chocolates 0,8880 0,1188 0,7937065
Food-
Misc/Diversifie
233 Inversiones alimenticias Noel S.A. d 0,5840 0,0387 0,5622376
234 Carulla Vivero S.A. Food-Retail 0,5810 0,5880 0,3658783
Average
Unlevered Beta
235 Promedio u 0,573941
236 Inflation yr 0. Inflación año 0 5,01% <====
US Market Risk Premium MRP. Proma de
237 riesgo de mercado PRM USA 7,00%
238 US Inflation yr 0. Inflacion USA año 0 1,98%
Change in exchange rate. Cambio de precio
239 del USD 2,00%
240 Country risk. Riesgo país Rp 1,17%

Adjusted Market Risk Premium MRP.

241 Prima de riesgo de mercado PRM ajustada 7,2% =(D237)*(1+D236)/(1+D238)

242 Risk free rate, Rf. Tasa libre de riesgo, Rf 7,1%

Observed Ku, cost of unlevered equity. Ku
243 nominal observado en año 0 12,4% <===== =+D242+D235*D241+D240

244 Real Ku yr 0. Ku real observado en año 0 7,1% <==== Calcular =+(1+D243)/(1+D236)-1

Constant leverage in perpetuity.
245 Endeudamiento constante a perpetuidad a =====> 30%
Expected inlfation rate for perpetuity.
246 Inflación esperada año 6 y siguientes a =====> 0%
Real growth rate. crecimiento g real año 6
247 en adelante a =====> 0%
248
249

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 13
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
250 Year 0 1 2 3 4 5 6 0 1
Cash Flow to Debt CFD. Flujio de caja de la
251 deuda, FCD
252 Loan inflows. Ingreso de préstamos -52,1 -7,8 -1,6 -2,1 -2,8 0,0 =-SUM(D140:D142) =-SUM(E140:E142)
253 Principal payments. Pago de capital 0,0 28,1 6,8 6,9 7,1 7,4 =D144+D146+D148 =E144+E146+E148
254 Interest payments. Pago de intereses 0,0 6,8 4,0 3,3 2,6 2,0 =+D145+D147+D149 =+E145+E147+E149
255 CFD FCD -52,1 27,2 9,2 8,2 7,0 9,4 =SUM(D252:D254) =SUM(E252:E254)
256
257
Cash flow to equity, CFE Flujo de caja del
258 accionista, FCA

259 Equity investment. Aportes de patrimonio -15,0 -5,2 -1,1 -1,4 -1,8 0,0 =-D152 =-E152
260 Dividends. Uilidades o dividendos 0,0 0,0 7,8 9,8 11,2 11,6 =+D153 =+E153

261 Stock repurchases. Recompra de acciones 0,0 0,0 0,0 0,0 0,0 0,0 =+D154 =+E154
262 CFE FCA -15,0 -5,2 6,7 8,5 9,3 11,6 =SUM(D259:D261) =SUM(E259:E261)
263

Capital Cash Flow, CCF = CFE + CFD.

264 Flujo de caja de capital, FCC = FCA + FCD -67,1 22,1 15,9 16,7 16,3 21,0 =+D262+D255 =+E262+E255
265
266
267 Real Ku, Ku real, ku 7,05% 7,05% 7,05% 7,05% 7,05% 7,05% =+$D$244 =+$D$244
268 Inflation rate. Tasa de Inflacion 5,01% 6,0% 5,5% 5,5% 5,0% 4,5% =+D236 =+E18
269 Nominal Ku. Ku nominal 12,42% 13,48% 12,94% 12,94% 12,41% 11,87% =+(1+D267)*(1+D268)-1 =+(1+E267)*(1+E268)-1
Input Data for perpetuity. Datos de entrada
270 para perpetuidad Year 0 1 2 3 4 5 6 6
Endeudamiento constante a perpetuidad,
271 D% 30,00%
Inflation rate for perpetuity. Inflación año 6
272 en adelante 0,00%
273 Tax rate, T. Tasa de impuestos. 35,00%
274 Real growth, g. Crecimiento real g 0,00%
275 Real interest rate. Tasa real de interés 2,0%
Risk premium for debt. Prima de riesgo para
276 la deuda 5,00%
277 g nominal del año 6 en adelante 0,00% =+(1+J274)*(1+J272)-1
278 kd 7,00% =+J276+J275
279 Kd 7,00% =+(1+J278)*(1+J272)-1
280 ku para N+1 y siguientes 7,05% =+D244
281 Ku para N+1 y siguientes 7,05% =+(1+J280)*(1+J272)-1

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 14
 B C D E F G H I J K L
3 Year 0 1 2 3 4 5 6
4 check 0,0 0,0 0,0 0,0 0,0 0,0
282

WACC perpetuity real, wacc. CPPC real, =+J280-

283 cppc = ku-kdxTxD% 6,32% J273*J271*((1+J279)/(1+J272)-1)
WACC perpetuity. CPPCperp =Ku-
284 KdxTxD% 6,32% =+J281-J279*J271*J273
285 Year 0 1 2 3 4 5 6 6
NOPLAT = EBITx(1_T) UODI = Uox(1-
286 T) 25,3 25,3374 =+I196*(1-D9)
TV = NOPLATx(1+g)/cppc
287 VT=UODIx(1+gr)/cppc 401,0 401,0 =+I286*(1+J274)/J283
288
289 Cash Caja y bancos 20,8
AR. (discounted at cppc CxC (descontadas a
290 cppc perp) 24,4
291 Market securities Inversión temporales 5,2
AP (discounted with cppc) CxP
292 (descontadas a CPPCperp) -34,4
Realization of Current assets, net.
293 Liquidación neta de activos corrientes 15,9 15,9 =SUM(I289:I292)
294 Adjusted TV- VT ajustado 416,9 416,9 =+I293+I287
295 Year 0 1 2 3 4 5 6 6 1
296 CCF FCC 22,1 15,9 16,7 16,3 21,0 =+E264
297 V 294,0 311,6 336,0 362,8 391,5 416,9 =+(F296+F297)/(1+F269)
298
299 Equity. Patrimonio = V - D V - D Lt - D ST 241,9 279,9 309,5 341,1 374,2 407,0 =+D297-D219-D221 =+E297-E219-E221
Invested capital. Capital invertido= Act
300 total -pas corriente+ st debt 67,1 75,7 =+D215-D220+D219
NPV firm. VPN firma= Vr firma - Cap
301 invertido 226,9 =+D297-D300
302 NPV equity. VPN patrimonio 226,9 =+D299-D223

Electronic copy available at: https://ssrn.com/abstract=1138428

Pag 15