Corporate Finance Institute - Financial-Modeling-Guidelines

Financial Modeling
Guidelines
CORPORATE FINANCE INSTITUTE®

Financial Modeling Guidelines
Table of Contents
Introduction 03 Consistent Labeling 53

Design: Common Approach 08 Capitalization 54
Design: Preferred Approach 09 Transparency 58
Building Blocks 10 Positioning Precedents 59
Level of Detail 11 Corkscrews 62
Model Drivers 11 Waterfalls 65
Model Inputs 14 Debt & Equity Schedules 67
Layout & Printing 16 Financial Statements 68
Stacking Schedules 30 Circularity 70
Aligning Columns 31 Formatting 73
Freezing Panes 33 Font Types 75
Column & Row Consistency 34 Custom Number Formats 76
Periodicity 37 Font Colors 81
Modularity & Schedules 41 Marking Units 84
Navigational Columns 43 Naming 85
Row Grouping 46 Macros 88
Custom Views 48 Protection 88
Adding Indents 50 Resources 94
corporatefinanceinstitute.com 02
Introduction One of the first subjects we will cover in this

document is the importance of thoughtful model
Modeling guidelines help to establish design. Time invested upfront in the model design
standardization and consistency process will save considerable amounts of effort
on the model build and will lead to a better finan-
Financial modeling is a wonderful opportunity cial model. An example of a well-designed cover
to learn as much as possible about a business. page and dashboard is shown on the next page
Creating an electronic replica of a business forces in Fig 01 – 02. Model design will also consider how
us to understand all the nuances of that particular the model will be presented so that print layout
project or company. While it is an amazing learn- can be established early in the planning process.
ing opportunity, the person building the model
needs to remember that it must also serve a larg-
er group of stakeholders. These stakeholders will
vary depending on the model to help guide and
inform their decision-making processes.
Many of the models that we encounter today are

poorly designed, difficult to maintain, and hard
to follow. Given their central role in the financial
decision-making process, it is critical that these
models be built to the highest possible standards.
Implementing some detailed Financial Modeling
Guidelines is a logical step towards improving
these financial tools we are using.
Operational Modeling Strictly Confidential
Table of Contents Model Checks
Dashboard Sales Volume Within Capacity? Yes

Inputs Revolver Within Limit? No
Model Balance Sheet Balanced? Yes
Notes
This Excel model is for educational purposes only and should not be used for any other reason.
All content is Copyright material of CFI Education Inc.
https://corporatefinanceinstitute.com/
© 2022 CFI Education Inc.

All rights reserved. The contents of this publication, including but not limited to all written material, content layout, images, formulas, and code, are protected
under international copyright and trademark laws. No part of this publication may be modified, manipulated, reproduced, distributed, or transmitted in any
form by any means, including photocopying, recording, or other electronic or mechanical methods, without prior written permission of the publisher,
except in the case of certain noncommercial uses permitted by copyright law.
Fig 01: Well Designed Model Page
Dashboard: Perpetuity Growth Method
Model Drivers
Model Drivers Set To Base Case 2 All figures in USD thousands unless stated
Main Outputs Selected Inputs
Enterprise Equity Equity

Value Value Per Share Terminal Growth Rate 2.0%
101,288 WACC 13.5%
Best Case 1 136,880 118,238 3.46 Net Debt (End of 2022) 18,642
Base Case 2 101,288 82,646 2.42 Shares Outstanding (FD 000) 34,200
Worst Case 3 81,405 62,763 1.84 Current Stock Price (US$/sh) $2.05
Enterprise Value Equity Value per Share
Terminal Growth Rate Terminal Growth Rate

101,288 1.0% 1.5% 2.0% 2.5% 3.0% 1.0% 1.5% 2.0% 2.5% 3.0%
11.5% 113,075 116,241 119,740 123,628 127,973 11.5% 2.76 2.85 2.96 3.07 3.20
12.5% 104,358 106,882 109,647 112,688 116,049 12.5% 2.51 2.58 2.66 2.75 2.85
WACC
WACC
13.5% 97,019 99,064 101,288 103,714 106,370 13.5% 2.29 2.35 2.42 2.49 2.57
14.5% 90,751 92,432 94,247 96,214 98,352 14.5% 2.11 2.16 2.21 2.27 2.33
15.5% 85,335 86,732 88,233 89,850 91,595 15.5% 1.95 1.99 2.03 2.08 2.13
Equity Value Premium (Discount) to Stock Price

1.0% 1.5% 2.0% 2.5% 3.0% 1.0% 1.5% 2.0% 2.5% 3.0%
11.5% 94,433 97,599 101,098 104,986 109,331 11.5% 34.7% 39.2% 44.2% 49.7% 55.9%
12.5% 85,716 88,240 91,005 94,046 97,407 12.5% 22.3% 25.9% 29.8% 34.1% 38.9%
WACC
WACC
13.5% 78,377 80,422 82,646 85,072 87,728 13.5% 11.8% 14.7% 17.9% 21.3% 25.1%
14.5% 72,109 73,790 75,605 77,572 79,710 14.5% 2.9% 5.2% 7.8% 10.6% 13.7%
15.5% 66,693 68,090 69,591 71,208 72,953 15.5% (4.9%) (2.9%) (0.7%) 1.6% 4.1%
CF Valuation Modeling Page 1 of 2
We think about models in a modular appropriate level of detail. In fact, it is common

fashion as a series of building blocks that financial models are either too simplistic or
overly complex.
We will also discuss the use of building blocks like
dashboards, schedules, and financial statements Modeling guidelines help to promote
to design and assemble the model in a modular consistency and standardization
fashion. Using a modular process will enable us
to create a library of these building blocks for These guidelines may resonate with individuals
future use in other financial models. Also, divid- building their own models but also with corpo-
ing the model into these small modules or blocks rations and institutions. Larger institutions may
will make the model easier to interpret, print, and welcome more consistency and standardiza-
present once completed. tion with the models they are using across their
teams, mitigating the risk of human error. While
Our design process also helps us achieve the we don’t expect all of our suggestions will be ad-
right level of detail throughout the model. We opted, this document may serve as a catalyst to
begin with the model dashboard or outputs and stimulate discussions around this subject. Given
then solve back through the supporting sched- that financial models continue to be a central part
ules to the required inputs as illustrated below of the decision-making process, it is critically im-
in Fig 03. By only including the components that portant that they are built to the highest possible
support the dashboard, we ensure that the level standards. With this document, we are pleased to
of detail throughout the model is appropriate assist by communicating the Financial Modeling
to its end objective. This is incredibly important Guidelines that we’ve adopted over the years.
as many models miss the mark in terms of the
Fig 03: Preferred Model Design Process
About CFI About Macabacus
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assessments, and interactive exercises created and cial models and presentations like pitch books
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any size can upskill employees through turnkey or ment banks, Fortune 500 private equity firms,
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Macabacus is a wholly owned subsidiary of the
Corporate Finance Institute (CFI).
Design: Common Approach A common error is to start the model

design with the inputs
Upfront model design is a critical part of
the modeling process Another mistake that is often made is beginning
the design from the wrong starting point. It is
Model design is one of the most critical steps in quite common to start with the model inputs,
the model building process. In many ways, it is as shown below in Fig 04. Once the inputs have
the most important step between the initiation been selected, calculations are thought through
of the modeling process and final completion. sequentially until the designer progresses all the
Many model builders will rush through this step way through to the outputs. Although progress-
or skip it completely and begin the build before ing from inputs to outputs is quite common and
they have a clear vision of what they are creating. makes intuitive sense, we prefer to design our
models in the reverse order.
A proper design process will help set the
level of detail for the model We begin by defining exactly what we
need the model to do for us
The model design process sets the landscape for
the entire model and will clearly identify to the We begin the process by asking ourselves a
model builder how each piece fits into the larger number of questions. What is the model needed
picture. Also, this upfront process helps the team for? What decision are we trying to make that it
understand which elements are critical and which may help us with? What questions do we have
may be less important. If done properly, the pro- that it could answer? These types of questions
cess will provide the team with insights needed to define what we need the model to do and what
set the right level of detail for the model. This is it will ultimately provide for us. This helps to set
critically important since it is common for models the main goal and objective of the model.
to either be too simple or overly complex.
Fig 04: Common Model Design Process
We then progress to the dashboard and Design: Preferred Approach

decide what needs to be presented
We work backward through all the
Once clarity has been formed around what the components to arrive at the inputs
model needs to do, we turn our thoughts to
imagining how it will be presented. Would we So we essentially start the process with the
like to see a graph comparing our cash flow dashboard, as shown below in Fig 05. Designing
forecast with our budget? Or are we interested the dashboard can be as simple as sketching on
in the intrinsic valuation for an acquisition target paper or jotting down ideas on a whiteboard.
we are considering? Asking these questions Once the dashboard is clearly defined, we move
helps us envision the types of tables, charts, backward to solve for the outputs needed for the
graphs, and performance indicators that will exhibits in the dashboard. The process continues
be needed. Essentially, we start the process by backward through the model. Eventually, this
designing what we refer to as the dashboard of process leads us all the way back to the inputs
the model. The dashboard is a page or set of completing this initial stage of the design pro-
pages that shows the audience important model cess. This method allows us to start with a clear
variables. This includes important outputs but objective for the model. It also ensures that we
sometimes also critical inputs. Understanding only include the components that are absolutely
the final dashboard helps us back solve for what necessary for the completion of that objective.
is needed to get to that dashboard.
Fig 05: Preferred Model Design Process
Building Blocks
We’ve shown a more detailed diagram of a simple cash flow model
In the previous example in Fig 05, we shared a simplified schematic for a design
process. This was just meant to illustrate the importance of starting from the end
and solving backward. In Fig 06 to the right, we’ve shown a more detailed design
process that may be used for a simple cash flow model. The model is needed to
show a forecast of free cash flow for a business with annual proforma estimates.
Similar to the previous example in Fig 05, we begin with the model outputs and
solve back to the inputs. To be specific, we have started with the dashboard and
progressed back to the inputs and the drivers.
We often refer to the various components of a model as building blocks
As indicated by the title of Fig 06 on the right, we often refer to the various parts of
a model as building blocks. A building block could include many types of modules
like model schedules, financial statements, or dashboards. It is useful to think about
models in a modular fashion made up of a series of these building blocks. As we will
see in our discussions later, each one of these building blocks will have a defined
purpose within the model.
Using a modular system allows us to save building blocks to use again
There are a couple of advantages to designing and constructing using these build-
ing blocks. The first is that this modular type of building breaks the model up into
blocks of a reasonable size. This helps to focus on one block at a time and also
assists with model printing which we will discuss later. Another important advan-
tage to this modular system is that the blocks will likely be used in many types
of models. For instance, many models require a working capital schedule so this
building block can be reused again in those models.
Fig 06: Building Blocks
Level of Detail us to achieve the optimal level of detail for each

part of the model. We end up with a model that
Many models are either too simplistic has adequate complexity for the crucial elements
or overly complex but clean simplicity for the less important ones.
This backward design process also helps us

calibrate the right level of detail for the model. Model Drivers
Getting the right level of detail is one of the plac-
es where many model builders miss the mark. We need to evaluate the relative
Essentially, they either design a model which is importance of the model inputs
too simplistic or overly complex. Models which
are too complex are becoming more common The initial design process takes us from the
since data is so easily available today. The default dashboard and outputs all the way back to the
for many model builders is to include all available inputs. Through this initial step, we’ve been able
data in the model they are designing. This leads to to see which calculations are important or critical
models with too much detail making them hard to to the model output. This gives us insight into the
read and difficult to maintain. relative importance of the various inputs. This is
where we need to focus our attention next.
We add complexity only where needed to
get to the model outputs Model drivers are volatile and have a
significant impact on model outputs
By beginning with a clear vision of the dashboard
or end goal, we include only the details that While a model may have hundreds of inputs,
are needed to get to meet that objective. As we there may only be a few which are truly material
move back through the model, we focus on the to the model output. We often refer to these as
elements which will have a meaningful impact on drivers since their values really drive and influ-
the critical model outputs. There may be ele- ence the model output. There are a couple of
ments of the model which do not have a signif- common characteristics of a driver that makes
icant impact on the key model outputs. These them stand out from other inputs. First, they are
elements can often be replaced with rough inputs that have a significant impact on the mod-
estimates or simplifications. This helps keep the el output. And second, they are relatively volatile
model lean and maintains the focus on the most and have a wide range between their minimum
critical elements. In the end, this process helps and maximum values.
Tax rate may only be considered as Identifying the drivers requires

a driver in unstable jurisdictions detailed knowledge of the business
Let’s consider a couple of examples. Should a As illustrated by these examples, it may not be ob-
company’s tax rate be considered as a driver? It vious which inputs to consider as drivers. In many
may be obvious that the tax rate has a significant cases, sound knowledge of the business may be
impact on the model output. However, we would needed to determine the drivers for a project or
need to consider the likelihood of a significant company. This is an important part of the mod-
change in the tax rate. This may depend on the el design process. We need to remember that
jurisdiction where the company is operating. If modeling is not just an exercise in trying to get the
it is relatively stable, we may not consider this right numbers. It’s an opportunity to learn about
to be a driver since it is unlikely to change much. a business. By asking these questions early in the
However, we may consider the tax rate to be a design process, we enable ourselves to learn so
driver for a company in an area with a high de- much about the underlying business.
gree of political and fiscal uncertainty.
We isolate the drivers so that we can
Only the main commodity prices test how the model reacts to them
may be considered as drivers
The reason that we are identifying these driv-
Another interesting example may be the com- ers is so that we can test how the model reacts
modity price for a natural resource company. to changes in them. We know that their move-
Commodity prices are often volatile, so they may ments are material to the model outputs and
meet our second criterion. But, then we need that there is a reasonably good chance that
to consider whether it has a significant impact they may change. Thus, it makes sense to test
on the model’s outputs. The gold price may be a how the model will react to movements in these
driver for a mining company with revenue gener- drivers. After all, these drivers could make the
ated primarily from gold sales. But, if only a small difference between the success or failure of the
amount of its revenue was from silver sales, we project or company.
may not consider the silver price to be a driver.
Revenue
Financial52,185
Modeling
56,428
Guidelines
58,134 59,537 60,854 62,077
8 Fig 8: Income Statement

All figures in USD thousands unless stated 2022A 2023F 2024F 2025F 2026F 2027F
Inflation 3.0% 2.5% 2.0% 1.5% 1.5%
Start by considering the minimum and Having the ability to move these critical drivers
Revenue 52,185 56,428 58,134 59,537 60,854 62,077
maximum
COGS levels for drivers 29,236 between30,898
30,337 the best and worst-case
31,356 allows 32,177
31,783 us to see
Gross Profit 22,949 26,091 27,235 28,181 29,071 29,900
the range of possible outputs for the model. While
There are a few ways to test drivers in a financial we could test the range of all model inputs in this
model. One of the most common ways is to create manner, it is only critically important for these driv-
Revenue 13,046 13,046 13,046 13,046
a range of values for them. This may start with ers. Testing only the drivers in this manner allows
COGS about the base case (most likely) as well 7,842 7,842 7,842
thinking us to focus our attention on the7,842
most important
as the best case and worst case. We’ve shown this
9 Fig 9: Quarterly & Annual Calculations inputs that truly have a significant impact on the
below in Fig 07 using the examples of the gold model outputs. We always need to pay close atten-
All figures in USD thousands unless stated Q1 Q2 Q3 Q4 2022
price and the tax rate. This will allow us to evalu- tion to the right level of detail for a model. This will
ate the range of model outputs given a best-case help those using the model focus on the elements
Revenue 13,046 13,046 13,046 13,046 52,185
or worst-case
COGS scenario for these drivers. of the model
7,842 7,842that are the most 7,842
7,842 important. Other
31,368
Gross Profit 5,204 5,204 5,204 5,204 20,817
inputs may fluctuate, but over smaller ranges and
Only the model drivers need to be tested with less overall impact on the model outputs.
in this way with switches
DRIVERS
17 Fig 17: Model Drivers

All figures in USD thousands unless stated 2023F 2024F 2025F 2026F 2027F
Driver Switch Base Case

2
Gold Price (US$/oz) 1,800 1,700 1,600 1,500 1,500

Best Case (US$/oz) 2,000 1,900 1,800 1,700 1,700
Base Case (US$/oz) 1,800 1,700 1,600 1,500 1,500
Worst Case (US$/oz) 1,400 1,300 1,300 1,200 1,200
Tax Rate 25.0% 25.0% 25.0% 25.0% 25.0%

Best Case 20.0% 20.0% 20.0% 20.0% 20.0%
Base Case 25.0% 25.0% 25.0% 25.0% 25.0%
Worst Case 30.0% 30.0% 30.0% 30.0% 30.0%
45 Fig Fig 45: Drivers

07: Model Driver Status Indicator
Model Drivers Set To: Base Case
A driver status indicator is recommended Model Inputs

when all drivers are connected
Inputs should be grouped together so
In the previous image in Fig 07, we showed a they are easy to find and update
schedule that had all drivers connected to one
driver switch. This is quite common in financial We can certainly appreciate the importance of
modeling as it allows all the drivers
Worst Case to be quick-
(US$/oz)
discerning
1,400
between the drivers
1,300
and the other
1,300 1,200 1,20
ly moved in lock-step throughout the model. In inputs to a model. Drivers will need to be separat-
cases where the driver switches are connected, it ed and selected with switches so that we can test
Tax Rate
often makes sense to include an indicator show- how25.0% 25.0% react25.0%
the model outputs 25.0%
as they move. The 25.0
ingBest Case
‘Driver Status’ as shown below in Fig 08. This other inputs are 20.0%
20.0% less critical to the model 20.0%
20.0% out- 20.0
Base Case puts,25.0%
so they do 25.0%
not generally25.0%
need to be 25.0%
moved 25.0
Driver Status Indicator can be shown throughout
Worst Case 30.0% 30.0% 30.0% 30.0% 30.0
the model, so it is always clear to the audience with switches. However, they should be grouped
which set of drivers is active. together into a consolidated section of the model
so it is easy to locate and update them.
45 Fig 45: Driver Status Indicator
Each input should only ever be
Model Drivers Set To: Base Case entered into a model once
It may be obvious to note that inputs should only

Fig 08: Driver Status Indicator ever be entered once into a model. If we needed
to enter the tax rate into a model, we should only
have to do this in one place. All other locations
where the tax rate occurs should be connected
back to the original input. One topic that gets
Revenue 56,428relatively
debated 58,134
frequently59,537
in financial 60,854
modeling 62,07
COGS
circles is how to 30,898
30,337
connect the31,356
occurrences31,783
of tax 32,17
SG&A rate together
7,939 in the model.
8,138 8,300 8,425 8,55
Other 2,087 2,139 2,182 2,214 2,24

Depreciation 4,168 4,382 4,600 4,823 5,04
Interest 2,520 2,520 2,520 2,520 2,52
Current Tax – 132 2,353 2,586 2,79
Deferred Tax 2,344 2,382 291 186 9
18 Fig 18: Income Statement

All figures in USD thousands unless stated
corporatefinanceinstitute.com 2022A 2023F 2024F 2025F 2026F 14 202
There are two ways to connect multiple to audit, most of the instances of tax rate have
instances of the same variable dependencies that will make deletions difficult.
There are two schools of thought on this. One is We avoid linking multiple instances
to connect the occurrences in series as shown in series to avoid dependencies
below on the left in Fig 09. In this example, each
occurrence of tax rate is connected to the next For this reason, our preference would be to link
closest one. The other approach is to connect all all instances of tax rate directly to the original
occurrences back to the original source as shown entry at the top of the tab, as shown below on
below on the right in Fig 10. Connecting all the the right in Fig 10. In this example, the instance
instances of the tax rate in series, as shown of tax rate at the top is the input. However, this
below on the left in Fig 09 means that any one top entry could be linked over to another tab. In
connection is closer than it would have been if this case, we would link directly to the top entry
# # back
we had linked 9.57to the original
11.57 source. While
7.57 and then#9.57
9.57 link
# that top entry
9.57 over to another
9.5711.57 tab. 9.57
9.57 7.57 9.57
2022 CORKSCREWS
connecting in series may be marginally easier 2022 CORKSCREWS
This structure minimizes dependencies and the
amount of linking between tabs.
XX Fig XX: Connecting in Series XX Fig XX: Connecting in Series
Tax Rate 25.0% Tax Rate 25.0%
Fig 09: Connecting in Series Fig 10: Connecting to Source
XX Fig XX: Connecting to Source XX Fig XX: Connecting to Source

Layout & Printing senior leaders within organizations. These execu-

tives may not be spending as much time in Excel
Models should be properly set up and may prefer to see a printed copy of the model
to print or to be saved in PDF format or view it in a locked in format like PDF.
We’ve now discussed the model dashboard, All schedules within the model
the drivers, and the inputs. Before we continue should be included in the print
the dialogue into the other building blocks of a
model, we need to transition over to a discus- When configuring the print settings for a model,
sion around model printing. We believe that all it is important to think about the model in its
models should be set up properly for printing. entirety. It is very common to encounter models
Even if you or your team is striving to reduce the that are only configured to print a few key output
use of paper, the file should be configured to be pages. While this allows the reader to focus on
saved as a formatted file type such as a PDF. This the crucial model outputs, it does not provide
allows users to quickly open the file and save it full transparency into the calculations within the
with a locked in presentation format very quickly. entire model. In order to be comfortable using
In Fig 11 on next page we have shown an exam- the model to help with important decisions,
ple of a Print Preview for a formatted model. executives need to see and understand all of the
calculations in the model. While the most import-
Model printability is something ant components of the model may be prioritized
that often gets overlooked to the first pages of the print, all schedules and
modules should be included in the printout.
Model printability often gets overlooked. It is be-
coming more and more common to utilize models
mostly in Excel instead of on paper. However,
what is getting lost with the trend away from
printing is the model’s ability to present results to
its audience. We need to remember that models
are decision making tools that are often used by
DCF Valuation Modeling Strictly Confidential
Outputs Incorrect Date Set for Valuation? No

Inputs Incorrect Date Set for First Cash Flow? No
Model Terminal Growth Rate Greater Than or Equal To WACC? No
Model exceeding operational capacity? Yes
Unused Tax Losses Remaining? (Levered Schedule) No
Unused Tax Losses Remaining? (Unlevered Schedule) No
Two UFCF Methods Different? No
© 2015 to 2022 CFI Education Inc.

This Excel model is for educational purposes only and should not be used for any other reason. All content is Copyright material of CFI Education Inc.
Fig 11: Print Preview of a Formatted Model
We don’t recommend printing We make sure decision-makers

in order from inputs to outputs see all outputs and inputs first
In Fig 12 to the next page, you may recognize the As shown in Fig 12, we’ve given these elements
building blocks or elements from Fig 06 that were a very high priority in the print order. As indicat-
presented earlier. When presented previously, we ed, the first two tabs after the cover are outputs
had shown these building blocks organized into and inputs. Essentially, the audience first needs
a tall stack. Remember that our model design to know what is coming out of the model, then
process began with an understanding of the flow all the inputs that generated those outputs. To
of the model. This is where we solved from the be specific, we are presenting the cover page,
dashboard backward through the model to the dashboard, drivers, and inputs on the first few
inputs. This gave us an understanding of the linear pages of the model. This begins the print with the
flow through the model. Although this was a critical elements that are critical for most readers. The
step in the model design process, this does not cover page provides basic information about the
mean that we recommend printing the model in project or company. Then, the outputs are pre-
this order. Although it is relatively common to print sented on the dashboard. Next, the reader is able
financial models in an order that matches this flow, to see the main drivers and the remaining inputs.
we prefer to reorganize the model to prioritize the Within these first few pages, they have been able
elements from a presentation perspective. to see the outputs and all the inputs that led to
those outputs.
We prefer to prioritize the model
dashboard, drivers, and inputs
Our preference is to place a focus on the most

important elements necessary for the audience
to quickly understand the model. These are the
outputs and inputs. More specifically, the crit-
ical elements would be the model dashboard,
the drivers, and the inputs. While these build-
ing blocks only represent a small portion of the
model, they are the most important elements for
decision-makers to understand.
COVER OUTPUTS INPUTS MODEL
Cover Dashboard Drivers Revenue
Inputs Costs
Income Stmt
Working Capital
Depreciation
Assets
Income Tax
Free Cash Flow
DCF Valuation
Fig 12: Prioritizing a Model from a Presentation Perspective
It is important to include a cover page about the model, like the name of the underlying
at the beginning of every model project or company. As indicated below, it also in-
cludes a table of contents as well as legal disclaim-
Let’s look at some examples of the first few pages ers. Other common elements that can be included
of a model. The first page of a model should always are version numbers, dates, and times.
be a cover page, as shown in the example below in
Fig 13. The cover page conveys basic information
Operational Modeling Strictly Confidential
Dashboard Sales Volume Within Capacity? Yes

Inputs Revolver Within Limit? No
Model Balance Sheet Balanced? Yes
Notes
This Excel model is for educational purposes only and should not be used for any other reason.
All content is Copyright material of CFI Education Inc.
© 2022 CFI Education Inc.

We recommend including checks which We recommend printing the drivers

can be summarized on the cover immediately after the dashboard
As shown on the previous page in Fig 13, the The next most important item to print would be
cover page is also a great place to include a sum- the model drivers. Remember that these are the
mary of model checks. Since the cover is highly critical model inputs that have a large impact
visible, placing a summary of the checks here will on the outputs. On page 23 in Fig 15, we have
ensure that they are noticed. Later, we will dis- shown an example of a page showing the main
cuss how to add a summary of the alerts to each model drivers. As indicated, the drivers would be
model tab to ensure they are noticed immediate- presented on the third page in the model print.
ly if tripped. We have shown one of the checks So, immediately after seeing the dashboard or
previously just to illustrate how a bold format in outputs, the audience is able to see the main
a different color can bring attention to the read- drivers that contributed to those outputs. Below
er. Printing a model that has checks in place but the model drivers, we have also included some
none tripped will help to instill confidence in the other inputs, as shown below.
audience. They will be able to see that the model
designer has diligently included checks that are
all inside of their allowable limits.
Printing: Model outputs should be

presented near the front of the model
Although it is common to print an output page

or conclusion at the end of a presentation, we
believe this should be the first item presented
after the cover page. Executives are usually most
interested in the model outputs, which is why we
recommend positioning them right at the begin-
ning of the print. As shown on the next page in
Fig 14, we recommend printing the model dash-
board immediately after the cover page. This
starts the presentation with the conclusion and
aligns everyone to the model outputs.
Dashboard: Perpetuity Growth Method
Model Drivers
Model Drivers Set To Base Case 2 All figures in USD thousands unless stated
Main Outputs Selected Inputs
Enterprise Equity Equity

Value Value Per Share Terminal Growth Rate 2.0%
101,288 WACC 13.5%
Best Case 1 136,880 118,238 3.46 Net Debt (End of 2022) 18,642
Base Case 2 101,288 82,646 2.42 Shares Outstanding (FD 000) 34,200
Worst Case 3 81,405 62,763 1.84 Current Stock Price (US$/sh) $2.05
Enterprise Value Equity Value per Share

101,288 1.0% 1.5% 2.0% 2.5% 3.0% 1.0% 1.5% 2.0% 2.5% 3.0%
11.5% 113,075 116,241 119,740 123,628 127,973 11.5% 2.76 2.85 2.96 3.07 3.20
12.5% 104,358 106,882 109,647 112,688 116,049 12.5% 2.51 2.58 2.66 2.75 2.85
WACC
WACC
13.5% 97,019 99,064 101,288 103,714 106,370 13.5% 2.29 2.35 2.42 2.49 2.57
14.5% 90,751 92,432 94,247 96,214 98,352 14.5% 2.11 2.16 2.21 2.27 2.33
15.5% 85,335 86,732 88,233 89,850 91,595 15.5% 1.95 1.99 2.03 2.08 2.13
Equity Value Premium (Discount) to Stock Price

1.0% 1.5% 2.0% 2.5% 3.0% 1.0% 1.5% 2.0% 2.5% 3.0%
11.5% 94,433 97,599 101,098 104,986 109,331 11.5% 34.7% 39.2% 44.2% 49.7% 55.9%
12.5% 85,716 88,240 91,005 94,046 97,407 12.5% 22.3% 25.9% 29.8% 34.1% 38.9%
WACC
WACC
13.5% 78,377 80,422 82,646 85,072 87,728 13.5% 11.8% 14.7% 17.9% 21.3% 25.1%
14.5% 72,109 73,790 75,605 77,572 79,710 14.5% 2.9% 5.2% 7.8% 10.6% 13.7%
15.5% 66,693 68,090 69,591 71,208 72,953 15.5% (4.9%) (2.9%) (0.7%) 1.6% 4.1%
Fig 14: Example of a Dashboard
CF Valuation Modeling Page 1 of 2
Drivers
All figures in USD thousands unless stated 2023F 2024F 2025F 2026F 2027F Term
Driver Switch Base Case 2
Sales Volume Growth 2.0% 1.0% 1.0% 0.5% 0.5% 0.5%
Best Case 3.0% 2.0% 2.0% 1.5% 1.5% 1.0%

Base Case 2.0% 1.0% 1.0% 0.5% 0.5% 0.5%
Worst Case 1.0% 1.0% 0.5% 0.5% 0.5% 0.5%
Pricing Increases 3.0% 1.0% 1.0% 1.0% 0.5% 0.5%
Best Case 3.5% 2.0% 2.0% 2.0% 1.5% 0.8%

Base Case 3.0% 1.0% 1.0% 1.0% 0.5% 0.5%
Worst Case 1.0% 1.0% 0.5% 0.5% 0.5% 0.5%
Capital Expenditure 4,550 4,700 4,850 5,000 5,125 5,300
Best Case 4,000 4,300 4,400 4,600 4,800 4,900

Base Case 4,550 4,700 4,850 5,000 5,125 5,300
Worst Case 5,000 5,200 5,400 5,500 5,600 5,800
Inflation Rate 3.5% 3.0% 3.0% 2.5% 2.5% 1.5%
1
Working Capital
Accounts Receivable (Days) 45 45 45 45 45 45
Accounts Payable (Days) 25 25 25 25 25 25
Inventory (Days) 40 40 40 40 40 40
We have assumed working capital amounts per day in terminal year are equal to the previous year. ⁽¹⁾
Fig 15: Example of Model Drivers
on Modeling Page 1 of 3
Weighted Average Cost of Capital

Average Debt/ Debt/ Levered Unlevered

1
Name Region Debt Equity Tax Rate Equity Capital Beta 2 Beta 3
Surge Batteries Inc. North America 63,702 375,499 31.5% 17.0% 14.5% 0.85 0.76
Future Energy Co. North America 43,422 311,425 32.2% 13.9% 12.2% 1.01 0.92
Clean Green Ltd. Europe 26,211 131,996 31.9% 19.9% 16.6% 1.34 1.18
Full Power Solutions Ltd. Europe 15,109 95,746 33.0% 15.8% 13.6% 0.99 0.90
Earthcor Power Inc. North America 22,676 666,541 30.2% 3.4% 3.3% 0.88 0.86
Average 31.8% 14.0% 12.0% 1.01 0.92

Median 31.9% 15.8% 13.6% 0.99 0.90
Risk Premium for Equity Cost of Equity
Risk Premium (Levered) 4.5% Risk Free Rate 2.4%

Average Unlevered Beta 0.92 Risk Premium for Equity 4.7%
4
Levered Beta 1.06 Risk Premium for Country –
Risk Premium for Equity 4.7% Risk Premium for Company Specific 8.0%
Cost of Equity 15.1%
Capital Structure Cost of Debt
Current Target Pre-Tax Cost of Debt 5.2%

Total Debt 19,102 13.2% 15.0% Tax Rate 20.0%
Market Capitalization 126,120 86.8% 85.0% After-Tax Cost of Debt 4.2%
Total Capitalization 145,222 100.0% 100.0%
Debt / Equity 15.1% 17.6% Weighted Average Cost of Capital
Weight Cost
Tax Rate is a 5-Year Average. ⁽¹⁾ Debt Capital 15.0% 4.2%
Levered beta is based on 5-year monthly data. ⁽²⁾ Equity Capital 85.0% 15.1%
Unlevered Beta = Levered Beta / (1 + (1 - Tax Rate) × Debt-to-Equity) ⁽³⁾
Levered Beta = Unlevered Beta x (1 + (1 - Tax rate) x (Debt-to-Equity)) ⁽⁴⁾
Weighted Average Cost of Capital 13.5%
Fig 16: Example of Model Inputs
on Modeling Page 2 of 3
We present the remaining inputs The major model calculations are

after the model drivers contained in the remaining schedules
The next schedule that we recommend printing The remaining schedules contain all the major
would be the remaining model inputs, as shown calculations in the model. While these schedules
on the previous page in Fig 16. In this example, are arguably the most important part of the
we have shown the inputs used to calculate the model from a computation perspective, they are
weighted average cost of capital (WACC) for a com- not necessarily the most important elements to
pany. Essentially, these are all the remaining inputs present first to the audience. The audience first
to the model that didn’t meet our criteria of being needs to know the key insight coming out of the
drivers. So, we present the most critical inputs first, model and which variables contributed to that
which are the drivers, followed by the less import- insight. For those that need to dig deeper and un-
ant inputs. This means that the audience has now derstand the calculations, we always recommend
seen all the inputs required in the model. including all the remaining model schedules.
Many audience members will only need The remaining model schedules act
to see the outputs and the inputs like an appendix in many ways
At this point, we’ve now printed the most import- An example of one of these remaining model
ant parts of the model from a presentation per- schedules is shown on the next page in Fig 17.
spective. The audience has seen a cover page, the In this case, we’ve included a revenue schedule,
dashboard showing model outputs, the main driv- which is where the revenue estimates are be-
ers, and other model inputs. Effectively, everyone ing calculated in the model. Although it has not
has now seen the model outputs and every input been shown below, this may be followed by other
that led to those outputs. Many of the audience schedules dedicated to costs, working capital,
members would not require any more information or depreciation. In many ways, these remaining
at this point in time. They know what is flowing schedules are like an appendix. These are intend-
through the model and what it is saying to assist ed for those who are curious about the various
them with their decision. If they were comfortable methods used for the calculations in the model.
with the model building abilities of the team and
the internal model review process, then they likely
would not need to see the remaining schedules.
Revenue Schedule
All figures in USD thousands unless stated 2020A 2021A 2022A 2023F 2024F 2025F 2026F 2027F Term
Model Running: Base Case Drivers
Days in Period 365 365 365 365 365 365 365 365 365 365
Plant Capacity 1,500
OPERATIONS
Sales Volume Growth 2.0% 2.1% 2.0% 1.0% 1.0% 0.5% 0.5% 0.5%
Sales Volume (Units/Day) 1,374 1,401 1,430 1,459 1,473 1,488 1,495 1,503 1,510
Plant Capacity (Units/Day) 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Operational Efficiency 91.6% 93.4% 95.3% 97.2% 98.2% 99.2% 99.7% 100.2% 100.7%
VOLUME
Days in Period 365 365 365 365 365 365 365 365 365
Sales Volume (Units) 501,510 511,365 521,950 532,389 537,713 543,090 545,805 548,534 551,277
PRICING
Pricing Increases 1.7% 2.1% 3.0% 1.0% 1.0% 1.0% 0.5% 0.5%
Unit Price (USD/Unit) 102.86 104.61 106.81 110.01 111.11 112.23 113.35 113.91 114.48
REVENUE
Sales Price (USD/Unit) 102.86 104.61 106.81 110.01 111.11 112.23 113.35 113.91 114.48
Revenue 51,585 53,494 55,749 58,570 59,748 60,949 61,866 62,486 63,113
Operational Capacity Exceeded? No No No No No No No Yes Yes
Fig 17: Example of a Revenue Schedule
Valuation Modeling Page 1 of 12
A driver interacts more with the All pages should include a title at
dashboard of a car than the engine the top and clearly marked units
If we think about the first four pages printed as Now that we have positioned the high priority
being like the dashboard of an automobile, then pages to the front of the model, we should pause
these remaining schedules would be the en- to think about some important features to include
gine. It’s fair to say that people would regularly on each page of the printout. In Fig 18 on the next
interact with the dashboard of an automobile page, we have shown an example of a dashboard.
but would not look under the hood to check the As indicated, all pages should have clear titles
engine as often. In this sense, we need to make at the top indicating exactly what information is
sure that the first few pages of the dashboard being presented. We’ve also included a global units
have all the elements that the driver would marker at the top left, indicating that all figures are
need. The remaining schedules under the hood in USD millions.
are where the real work is done through de-
tailed calculations. Excel has very intuitive settings to include
many features as custom footers
The remaining schedules are often
printed to match the model flow Making use of Excel’s custom footer functionality
can also work really well. This feature was used in
These remaining schedules are often printed in Fig 18. As you can see, we are showing the model
an order that matches the flow of information name, number of pages, and a corporate logo in
in the model. This would be the default unless the footer. Other common elements to include in
there was a compelling reason to deviate from the footer would be the exact file name, file path,
this order matching the model flow. For instance, or the print date and time. The custom footer
a company’s financial statements may be a part settings are quite easy to use in Excel and also
of these remaining schedules. When we feel that update dynamically as changes are made to the
this should be prioritized ahead of the other workbook. These features can be found in the
schedules, we may move them to be positioned Page Setup dialog box by using the shortcut ALT
next in the print ahead of other schedules that PSP. Custom footer settings are in the Header/
may be showing revenue or costs. Footer tab.
Waterfall Chart: Impact on Enterprise Value

All figures in USD millions
Model Output Switch Waterfall 2
Model Output Description of Model Outputs

Dashboard Use this mode to run the charts on the Dashboard tab.
Waterfall Use this mode to run the Waterfall Chart below.
Initiative Description
1 Green House Gas Reduction Targeting net zero CO2 emissions within 10 years.
2 Preparing for Weather Events Invest in supply chain to reduce unplanned downtime due to weather events.
3 Labour Rights Issues Diversify hiring process and increase benefits to drive employee productivity.
4 Plant Based Meat Sales Aiming for $1.2bn in plant based meat sales by 2025.
5 Macro: Revenue Increase Forecasting marginally higher revenues from better ESG brand positioning.
6 Macro: WACC Decrease Favorable market perception after implementing risk mitigation measures.
8,425 118,820
5,386
5,164
100,072 1,809
(166) (1,870)
1 2 3 4 5 6
Status Quo GHG Reduction Prep for Weather Labour Issues Plant-Based Meat Revenue Increase WACC Decrease All Initiatives
Fig 18: Example of a Dashboard

SG Integration & Financial Analysis Page 1 of 1
It is important to understand how Using the Smart Print Area tool from
to print a tall stack of schedules Macabacus can save a lot of time
In the following section, we will be discussing This requires individually selecting each page
model structure. In particular, we will explain down through the stack, which can be quite
our preference for stacking the schedules on time consuming. Macabacus has a great fea-
top of one another within one tab or worksheet. ture that expedites this process called Smart
Knowing that this is where our discussion will Print Area, which is shown below in Fig 19. This
be heading, it may be important now to address feature can be executed quickly using the de-
how a tall stack of schedules might be printed. fault shortcut CTRL ALT SHIFT B. It allows us to
quickly define the first print area using ‘Set as
Individual pages should always print area.’ Then, as we progress down through
be separated by at least one row the model, we can select ‘Add to print area.’ This
intuitive function enables us to set up the print
Without going into all the details of print settings areas very quickly for our models and saves an
here, we should highlight the importance of incredible amount of time.
individually selecting each page in a tall stack of
schedules. An example of such a stack of sched-
ules is shown just ahead in Fig 21. If you look
closely, you can see a break of at least one row
between every page. Including these breaks is
critical to allow us to control the print settings
for each page or schedule.
Fig 19: Smart Print Area from Macabacus
Stacking Schedules find more linking errors in these types of models.

Second, these models are more difficult to follow
Models can be organized with and check. Often, more advanced model review
each schedule on a worksheet techniques are needed in order to follow links
across from one tab to another.
As we have discussed, financial models are made
up of schedules or building blocks. These sched- Navigation can become difficult
ules can be assembled together in two general with a large number of tabs
ways. The first way is shown below in Fig 20. As
indicated, the schedules can be placed side by Another reason why this structure is not pre-
side, with each one on its own tab or worksheet. ferred is that it leads to models with a very large
One reason many people like this structure is number of tabs or worksheets. This not only
that it is easy to see all the tabs at the bottom increases the amount of inter linking between
of the file. In fact, the tabs appear as a button tabs, but navigation also becomes more difficult.
and act like a table of contents which facilitates In many cases, all the tabs may not be visible
navigation. Essentially, a user can see all the tabs at the bottom of the Excel interface, and hori-
at the bottom of a file and easily click on one to zontal scrolling may be needed to see them. At
quickly navigate into that schedule. this point, the tabs no longer work very well as
a table of contents, leading to challenges with
model navigation.
Stack the schedules to link the

model quickly with fewer errors
Fig 20: Schedules Positioned Across Many Tabs
We prefer stacking the schedules on top of one

This structure often leads to another, as shown in Fig 21. In this diagram, we
errors and is difficult to check
are showing five pages or stacked schedules
within a single tab. A model with this structure
Although these models can be easy to navigate,
is preferred since it is much easier to connect
they have other more important disadvantag-
and check. Stacked schedules can be easily
es. First, their structure requires a lot of linking
connected by simply linking directly upwards or
between tabs or worksheets. One issue with this
downwards within the tab.
is that it is easier to make errors when connect-
ing from one tab to another. This is why we often
Profit Summary
Profit Summary
Revenue 48,318 50,380 53,034 56,428 58,134 59,537 60,854 62,077 62,700
Revenue 48,318 50,380 53,034 56,428 58,134 59,537 60,854 62,077 62,700
Gross Profit 19,834 20,569 20,817 26,091 27,235 28,181 29,071 29,900 30,323
Gross Profit Margin 41.0% 40.8% 39.3% 46.2% 46.8% 47.3% 47.8% 48.2% 48.4%
Gross Profit 19,834 20,569 20,817 26,091 27,235 28,181 29,071 29,900 30,323
Gross Profit Margin 41.0% 40.8% 39.3% 46.2% 46.8% 47.3% 47.8% 48.2% 48.4%
EBITDA 12,193 11,996 11,083 16,065 16,959 17,699 18,431 19,101 19,362
EBITDA Margin 25.2% 23.8% 20.9% 28.5% 29.2% 29.7% 30.3% 30.8% 30.9%
EBITDA 12,193 11,996 11,083 16,065 16,959 17,699 18,431 19,101 19,362
EBITDA Margin 25.2% 23.8% 20.9% 28.5% 29.2% 29.7% 30.3% 30.8% 30.9%
EBIT 9,233 9,193 8,176 11,897 12,577 13,098 13,609 14,052 14,062
EBIT Margin 19.1% 18.2% 15.4% 21.1% 21.6% 22.0% 22.4% 22.6% 22.4%
EBIT 9,233 9,193 8,176 11,897 12,577 13,098 13,609 14,052 14,062
EBIT Margin 19.1% 18.2% 15.4% 21.1% 21.6% 22.0% 22.4% 22.6% 22.4%
Revenue Schedule
Aligning Columns
Revenue Schedule
Days in Period 365 365 365 365 365 365 365 365 365
Days in Period 365 365 365 365 365 365 365 365 365
OPERATIONS
OPERATIONS
Plant Capacity (Units/Day) 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 -
Operational Efficiency 85.9% 88.0% 90.8% 93.8% 95.2% 96.3% 97.4% 98.4% -
Plant Capacity (Units/Day) 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 -
Operational Efficiency 85.9% 88.0% 90.8% 93.8% 95.2% 96.3% 97.4% 98.4% -
Stack schedules with their periods aligned

Page 1
VOLUME
VOLUME
Days in Period 365 365 365 365 365 365 365 365 365
Sales Volume 1,374 1,409 1,452 1,500 1,523 1,541 1,558 1,574 1,582
and use the keyboard

(Units/Day)
Days in Period 365 365 365 365 365 365 365 365 365
PRICING
PRICING
REVENUE
REVENUE
Sales Volume 501,490 514,139 530,136 547,630 555,845 562,515 568,703 574,390 577,262
It is also important to align the columns with schedule stacking.

(Units)
Revenue 48,318 50,380 53,034 56,428 58,134 59,537 60,854 62,077 62,700
Revenue 48,318 50,380 53,034 56,428 58,134 59,537 60,854 62,077 62,700
Capacity Exceeded? - - - - -
Capacity Exceeded? - - - - -
Each period should be in its own dedicated column, so schedules Cost Schedule
Cost Schedule
All figures in USD thousands unless stated 2020A 2021A 2022A 2023F 2024F 2025F 2026F 2027F Term Operat
are stacked with their respective periods aligned. This is illustrated

All figures in USD thousands unless stated 2020A 2021A 2022A 2023F 2024F 2025F 2026F 2027F Term Operat
Sales Volume 501,490 514,139 530,136 547,630 555,845 562,515 568,703 574,390 577,262
Inflation
Sales Volume 2.4%
501,490 2.2%
514,139 2.3%
530,136 3.0%
547,630 1.5%
555,845 1.2%
562,515 1.1%
568,703 1.0%
574,390 0.5%
577,262
Inflation 2.4% 2.2% 2.3% 3.0% 1.5% 1.2% 1.1% 1.0% 0.5%
VARIABLE COSTS
in Fig 22 and 23 on the next page, where 2023 data is in the same
VARIABLE COSTS
Materials (USD/Unit) 9.51 9.72 9.91 10.21 10.36 10.48 10.60 10.71 10.76
Packaging
Materials (USD/Unit) 0.82
9.51 0.84
9.72 0.86
9.91 0.89
10.21 0.90
10.36 0.91
10.48 0.92
10.60 0.93
10.71 0.93
10.76
Transportation
Packaging (USD/Unit) 1.54
0.82 1.58
0.84 1.62
0.86 1.67
0.89 1.69
0.90 1.71
0.91 1.73
0.92 1.75
0.93 1.76
0.93
Subtotal
Transportation (USD/Unit) 11.87
1.54 12.14
1.58 12.39
1.62 12.76
1.67 12.95
1.69 13.11
1.71 13.25
1.73 13.39
1.75 13.45
1.76
Subtotal 11.87 12.14 12.39 12.76 12.95 13.11 13.25 13.39 13.45
column for both figures. This ensures consistency and further facil-
Materials 4,769 4,997 5,254 5,590 5,759 5,898 6,028 6,149 6,211
Packaging
Materials 411
4,769 432
4,997 456
5,254 485
5,590 500
5,759 512
5,898 523
6,028 534
6,149 539
6,211
Transportation
Packaging 772
411 812
432 859
456 914
485 941
500 964
512 985
523 1,005
534 1,015
539
Subtotal
Transportation 5,953
772 6,242
812 6,568
859 6,989
914 7,200
941 7,374
964 7,537
985 7,688
1,005 7,765
1,015
Page 2
Subtotal 5,953 6,242 6,568 6,989 7,200 7,374 7,537 7,688 7,765
ities connecting the schedules. Using the keyboard, we can be sure

FIXED COSTS
FIXED COSTS
Labour (USD/Unit) 31.17 30.96 30.73 30.64 30.64 30.64 30.64 30.64 30.64
Insurance
Labour (USD/Unit) 7.28
31.17 7.25
30.96 7.15
30.73 7.13
30.64 7.13
30.64 7.13
30.64 7.13
30.64 7.13
30.64 7.13
30.64
Utilities
Insurance (USD/Unit) 4.91
7.28 4.87
7.25 4.87
7.15 4.86
7.13 4.86
7.13 4.86
7.13 4.86
7.13 4.86
7.13 4.86
7.13
Subtotal
Utilities 43.36
4.91 43.09
4.87 42.76
4.87 42.63
4.86 42.63
4.86 42.63
4.86 42.63
4.86 42.63
4.86 42.63
4.86
to stay in the same column by simply using the up or down arrows

(USD/Unit)
Subtotal 43.36 43.09 42.76 42.63 42.63 42.63 42.63 42.63 42.63
Labour 15,630 15,918 16,293 16,782 17,034 17,238 17,428 17,602 17,690
Utilities
Labour 3,651
15,630 3,729
15,918 3,792
16,293 3,906
16,782 3,964
17,034 4,012
17,238 4,056
17,428 4,097
17,602 4,117
17,690
Insurance
Utilities 2,463
3,651 2,505
3,729 2,583
3,792 2,660
3,906 2,700
3,964 2,733
4,012 2,763
4,056 2,790
4,097 2,804
4,117
Subtotal
Insurance 21,744
2,463 22,152
2,505 22,668
2,583 23,348
2,660 23,698
2,700 23,983
2,733 24,246
2,763 24,489
2,790 24,611
2,804
Subtotal 21,744 22,152 22,668 23,348 23,698 23,983 24,246 24,489 24,611
to avoid linking to the wrong period. This allows the schedules to SUMMARY
SUMMARY
Variable Costs (USD/Unit) 11.87 12.14 12.39 12.76 12.95 13.11 13.25 13.39 13.45
Fixed Costs
Variable Costs (USD/Unit) 43.36
11.87 43.09
12.14 42.76
12.39 42.63
12.76 42.63
12.95 42.63
13.11 42.63
13.25 42.63
13.39 42.63
13.45
be connected quickly with fewer linking errors.

Total Costs
Fixed (USD/Unit) 55.23
43.36 55.23
43.09 55.15
42.76 55.40
42.63 55.59
42.63 55.74
42.63 55.89
42.63 56.02
42.63 56.09
42.63
Total Costs (USD/Unit) 55.23 55.23 55.15 55.40 55.59 55.74 55.89 56.02 56.09
Variable Costs 5,953 6,242 6,568 6,989 7,200 7,374 7,537 7,688 7,765
Fixed Costs
Variable Costs 21,744
5,953 22,152
6,242 22,668
6,568 23,348
6,989 23,698
7,200 23,983
7,374 24,246
7,537 24,489
7,688 24,611
7,765
Total Costs
Fixed 27,697
21,744 28,394
22,152 29,236
22,668 30,337
23,348 30,898
23,698 31,356
23,983 31,783
24,246 32,177
24,489 32,377
24,611
Total Costs 27,697 28,394 29,236 30,337 30,898 31,356 31,783 32,177 32,377
Income Statement
Income Statement
Show All Precedents using Macabacus

Inflation 2.4% 2.2% 2.3% 3.0% 2.5% 2.0% 1.5% 1.5% 1.5%
Inflation 2.4% 2.2% 2.3% 3.0% 2.5% 2.0% 1.5% 1.5% 1.5%
Revenue 48,828 50,601 52,185 56,428 58,134 59,537 60,854 62,077 62,700
COGS
Revenue 28,994
48,828 30,032
50,601 31,368
52,185 30,337
56,428 30,898
58,134 31,356
59,537 31,783
60,854 32,177
62,077 32,377
62,700
Gross Profit
COGS 19,834
28,994 20,569
30,032 20,817
31,368 26,091
30,337 27,235
30,898 28,181
31,356 29,071
31,783 29,900
32,177 30,323
32,377
helps with model auditing

Gross Profit 19,834 20,569 20,817 26,091 27,235 28,181 29,071 29,900 30,323
SG&A 5,877 6,642 7,708 7,939 8,138 8,300 8,425 8,551 8,680
Page 3
Other
SG&A 1,764
5,877 1,931
6,642 2,026
7,708 2,087
7,939 2,139
8,138 2,182
8,300 2,214
8,425 2,248
8,551 2,281
8,680
EBITDA
Other 12,193
1,764 11,996
1,931 11,083
2,026 16,065
2,087 16,959
2,139 17,699
2,182 18,431
2,214 19,101
2,248 19,362
2,281
EBITDA 12,193 11,996 11,083 16,065 16,959 17,699 18,431 19,101 19,362
Depreciation 2,960 2,803 2,907 4,168 4,382 4,600 4,823 5,049 5,300
EBIT
Depreciation 9,233
2,960 9,193
2,803 8,176
2,907 11,897
4,168 12,577
4,382 13,098
4,600 13,609
4,823 14,052
5,049 14,062
5,300
Page 2 of 5 Operatio
EBIT 9,233 9,193 8,176 11,897 12,577 13,098 13,609 14,052 14,062
Page 2 of 5 Operatio
Interest 1,488 2,580 2,448 2,520 2,520 2,520 2,520 2,520 –
Interest
EBT 1,488
7,745 2,580
6,613 2,448
5,728 2,520
9,377 2,520
10,057 2,520
10,578 2,520
11,089 2,520
11,532 14,062–
The blue arrows on the next page show the precedents from the
EBT 7,745 6,613 5,728 9,377 10,057 10,578 11,089 11,532 14,062
Current Tax – – – – 132 2,353 2,586 2,793 3,515
Current Tax
Deferred Tax 1,972– 1,526– 1,577– 2,344– 132
2,382 2,353
291 2,586
186 2,793
90 3,515–
Deferred
Total TaxTax 1,972
1,972 1,526
1,526 1,577
1,577 2,344
2,344 2,382
2,514 291
2,645 186
2,772 90
2,883 3,515–
Total Tax 1,972 1,526 1,577 2,344 2,514 2,645 2,772 2,883 3,515
Net Income 5,773 5,087 4,151 7,033 7,543 7,934 8,316 8,649 10,546
COGS line in the Income Statement. A standard version of Excel

Net Income 5,773 5,087 4,151 7,033 7,543 7,934 8,316 8,649 10,546
Working Capital Schedule

Working Capital Schedule
can only trace one precedent at a time. We have used the Show
Days in Period 365 365 365 365 365 365 365 365 365
Days in Period
Revenue 365
48,318 365
50,380 365
53,034 365
56,428 365
58,134 365
59,537 365
60,854 365
62,077 365
62,700
Revenue
COGS 48,318
27,697 50,380
28,394 53,034
29,236 56,428
30,337 58,134
30,898 59,537
31,356 60,854
31,783 62,077
32,177 62,700
32,377
COGS 27,697 28,394 29,236 30,337 30,898 31,356 31,783 32,177 32,377
All Precedents feature below from Macabacus, which is very AMOUNTS PER DAY
AMOUNTS
Accounts PER
Accounts
DAY
Receivable
Inventory Receivable
(Days)
(Days)
(Days)
43
43
24
46
46
25
46
46
25
45
45
60
45
45
55
45
45
50
45
45
45
45
45
45
45
45
45
Page 4
Inventory Payable
Accounts (Days)
(Days)
24
40 25
41 25
41 60
40 55
40 50
40 45
40 45
40 45
40
Accounts Payable (Days) 40 41 41 40 40 40 40 40 40
helpful for formula auditing.

TOTAL AMOUNTS
TOTAL AMOUNTS
Accounts Receivable 5,708 6,333 6,624 6,957 7,167 7,340 7,503 7,653 7,730
Accounts Receivable
Inventory 5,708
1,792 6,333
1,923 6,624
2,009 6,957
4,987 7,167
4,656 7,340
4,295 7,503
3,918 7,653
3,967 7,730
3,992
Inventory
Accounts Payable 1,792
3,024 1,923
3,205 2,009
3,319 4,987
3,325 4,656
3,386 4,295
3,436 3,918
3,483 3,967
3,526 3,992
3,548
Accounts Payable 3,024 3,205 3,319 3,325 3,386 3,436 3,483 3,526 3,548
NET WORKING CAPITAL

NET WORKING
Current AssetsCAPITAL 7,500 8,256 8,633 11,944 11,823 11,636 11,421 11,620 11,722
Current Liabilities
Current Assets 7,500
3,024 8,256
3,205 8,633
3,319 11,944
3,325 11,823
3,386 11,636
3,436 11,421
3,483 11,620
3,526 11,722
3,548
Current
Net Liabilities
Working Capital 3,024
4,476 3,205
5,051 3,319
5,314 3,325
8,619 3,386
8,437 3,436
8,199 3,483
7,938 3,526
8,094 3,548
8,174
Net Working Capital 4,476 5,051 5,314 8,619 8,437 8,199 7,938 8,094 8,174
A model with stacked schedules is much easier to check Cash from Working Capital Items
Cash from Working Capital Items
(575)
(575)
(263)
(263)
(3,305)
(3,305)
182
182
238
238
261
261
(156)
(156)
(79)
(79)
Depreciation Schedule
Depreciation Schedule
All figures in USD thousands unless stated 2020A 2021A 2022A 2023F 2024F 2025F 2026F 2027F
Capital Expenditure 4,982 5,199 4,100 4,223 4,329 4,415 4,481 4,549
Capital Expenditure 4,982 5,199 4,100 4,223 4,329 4,415 4,481 4,549
A model with stacked schedules is also much easier to check

EXISTING ASSET DEPRECIATION Years Percent of Full Year
EXISTING
Useful Life:ASSET DEPRECIATION
Existing Assets Years
16.00 Yr 1 Percent
Yr 2 of Full
Yr 3Year Yr 4 Yr 5
UsefulatLife:
PP&E endExisting
of 2022Assets 16.00
65,000 Yr 1
100% Yr 2
100% Yr 3
100% Yr 4
100% Yr 5
100%
PP&E at end of 2022 65,000 100% 100% 100% 100% 100%
since most of the links are within the same worksheet. In Fig 23,
NEW ASSET DEPRECIATION Years Percent of Full Year
NEW ASSET
Useful DEPRECIATION
Life: New Assets Years
20.00 Yr 1 Percent
Yr 2 of Full
Yr 3Year Yr 4 Yr 5
Useful Life:Accounting
First Year New AssetsDepreciation 20.00
50% Yr 1
50% Yr 2
100% Yr 3
100% Yr 4
100% Yr 5
100%
First Year Accounting Depreciation 50% 50% 100% 100% 100% 100%
Page 5
Percent of Full Year
Page 3 of 5 Percent of Full Year Operati
Year Life Page 3 of 5 2023F 2024F 2025F 2026F 2027F Operati
we’ve shown the cost of goods sold (COGS) line on the Income
2023F 20.00 50.0% 100.0% 100.0% 100.0% 100.0%
2024F 20.00 – 50.0% 100.0% 100.0% 100.0%
2025F 20.00 – – 50.0% 100.0% 100.0%
2026F 20.00 – – – 50.0% 100.0%
2027F 20.00 – – – – 50.0%
Statement linked directly upwards to a Cost Summary in Fig 22.

Amounts for Depreciation
Year Capex Per Yr 2023F 2024F 2025F 2026F 2027F
2023F 4,223 211 106 211 211 211 211
2024F 4,329 216 - 108 216 216 216
2025F 4,415 221 - - 110 221 221
2026F 4,481 224 - - - 112 224
2027F 4,549 227 - - - - 114
This clearly illustrates the alignment in the model and the consis- TOTAL ASSET DEPRECIATION
Existing Assets
New Assets
4,063
106
4,063
319
4,063
538
4,063
760
4,063
986
Total Depreciation 4,168 4,382 4,600 4,823 5,049
tency between periods and columns. This makes it easy for us to Asset Schedule
All figures in USD thousands unless stated 2021A 2022A 2023F 2024F 2025F 2026F 2027F
check the model since we are expecting vertical arrows, as shown

Capital Expenditure 5,199 4,100 4,223 4,329 4,415 4,481 4,549
Fig 21: Stacking the Schedules

Blended Tax Depreciation Rate 15.0% 15.0% 15.0% 15.0% 15.0%
First Year Tax Depreciation 50%
in the example, when we trace precedents or dependents.

Property Plant & Equipment
Beginning 65,000 65,055 65,002 64,816 64,475
Capital Expenditure 4,223 4,329 4,415 4,481 4,549
Accounting Depreciation (4,168) (4,382) (4,600) (4,823) (5,049)
Ending 65,000 65,055 65,002 64,816 64,475 63,975
Tax Basis
Beginning 40,000 37,906 36,224 34,875 33,789
Tax Depreciation (6,317) (6,011) (5,765) (5,567) (5,409)
Ending 40,000 37,906 36,224 34,875 33,789 32,928
Income Tax Schedule

All figures in USD thousands unless stated 2022A 2023F 2024F 2025F 2026F 2027F Term
Earnings Before Tax (EBT) 9,377 10,057 10,578 11,089 11,532 14,062
Profitable Before Taxes? Yes Yes Yes Yes Yes Yes
Tax Rate 25.0%
Adjustment for Depreciation

EBT 9,377 10,057 10,578 11,089 11,532 14,062
Add: Accounting Depreciation 4,168 4,382 4,600 4,823 5,049 -
Less: Tax Depreciation (6,317) (6,011) (5,765) (5,567) (5,409) -
EBT After Adjustment 7,229 8,428 9,414 10,344 11,172 14,062
Adjustment for Tax Losses

Page 4 of 5 Operat
EBIT 8,176 11,897 12,577 13,098 13,609 14,052
Current Tax – – 132 2,353 2,586 2,793
Deferred
Interest Tax
1,577
2,448 2,344
2,520 2,382
2,520 291
2,520 186
2,520 90
2,520
Total Tax
EBT 1,577
5,728 2,344
9,377 2,514
10,057 2,645
10,578 2,772
11,089 2,883
11,532
Net Income
Current Tax 4,151– 7,033– 7,543
132 7,934
2,353 8,316
2,586 8,649
2,793
Deferred Tax 1,577 2,344 2,382 291 186 90
Total Tax 1,577 2,344 2,514 2,645 2,772 2,883
Net Income 4,151 7,033 7,543 7,934 8,316 8,649

19 Fig 19: Cost Summary
COST SUMMARY
AllVariable Costs
figures in USD thousands unless stated(USD/Unit) 12.39
2022A 12.76
2023F 12.95
2024F 13.11
2025F 13.25
2026F 13.39
2027F
Fixed Costs (USD/Unit) 42.76 42.63 42.63 42.63 42.63 42.63
Total
COST Costs
SUMMARY (USD/Unit) 55.15 55.40 55.59 55.74 55.89 56.02
Variable Costs
Variable Costs (USD/Unit) 6,568
12.39 6,989
12.76 7,200
12.95 7,374
13.11 7,537
13.25 7,688
13.39
Fixed Costs
Fixed Costs (USD/Unit) 22,668
42.76 23,348
42.63 23,698
42.63 23,983
42.63 24,246
42.63 24,489
42.63
Total
Total Costs
Costs (USD/Unit) 29,236
55.15 30,337
55.40 30,898
55.59 31,356
55.74 31,783
55.89 32,177
56.02
Variable Costs 6,568 6,989 7,200 7,374 7,537 7,688

20 Fig 20:Costs Selected Income Statement
Fixed
Fig 22: Cost Summary
22,668 Items
23,348 23,698 23,983 24,246 24,489
Total Costs 29,236 30,337 30,898 31,356 31,783 32,177
20 Fig 20:
Revenue Selected Income Statement
52,185 Items
56,428 58,134 59,537 60,854 62,077
AllCOGS
figures in USD thousands unless stated 29,236
2022A 30,337
2023F 30,898
2024F 31,356
2025F 31,783
2026F 32,177
2027F
Gross Profit 22,949 26,091 27,235 28,181 29,071 29,900
Revenue 52,185 56,428 58,134 59,537 60,854 62,077

COGS 29,236 30,337 30,898 31,356 31,783 32,177
FORMATTING
Gross Profit 22,949 26,091 27,235 28,181 29,071 29,900
21 Fig 21: Selected Income Statement Items

FORMATTING
Fig 23: Selected Income Statement Items
21 Fig 21: Selected Income Statement Items
Freezing Panes We prefer placing logos and model

checks into the frozen panes
It is common to use the freeze
panes option to display periods In Fig 24 to the left, we have shown how frozen
panes can be used for corporate logos for brand-
When using a model with a tall stack of schedules, ing purposes. More importantly, the frozen panes
it can be helpful to use the freeze panes option in are a perfect spot to place a summary of the mod-
the View section of the Excel ribbon. While many el checks so that they are always within view. The
model builders like to have the periods displayed frozen panes can have a ‘Check Model’ alert indi-
in the frozen panes, we prefer to display the peri- cating that at least one of the model checks has
ods at the top of each schedule. This allows us to been tripped. We would then know to move to the
use the frozen panes for other purposes. cover page to review the checks to see which one
had been tripped. In Fig 25 below, we have shown
a cover page with model checks summary.
Fig 24: Freezing Panes Showing Model Alerts
DCF Valuation Modeling DCF Valuation Modeling Strictly Confidential Strictly Confidential
Outputs
Table of Contents Incorrect Date Set for Valuation? No
Model Checks
Inputs Incorrect Date Set for First Cash Flow? No
Outputs Model exceeding operational capacity?

Unused Tax Losses Remaining? (Levered Schedule)
Yes
No
Incorrect Date Set for Valuation? No
Inputs Unused Tax Losses Remaining? (Unlevered Schedule)
Two UFCF Methods Different?
No
No
Incorrect Date Set for First Cash Flow? No
Model exceeding operational capacity? Yes
Unused Tax Losses Remaining? (Levered Schedule) No
Unused Tax Losses Remaining? (Unlevered Schedule) No
Two UFCF Methods Different? No
Fig 25: Example of a Cover Page

Column & Row Consistency Consistency across rows speeds

up the model build and review
A consistent column structure within each worksheet is imperative
A consistent column structure within
each worksheet is imperative
As we just discussed, we should always keepWe theshould
use ofalways strive to have consistent for-
columns consistent within
a single worksheet. For instance, if a certain column of arows
mulas across within our
worksheet is models.
used toBy this, we
As weshow
just discussed,
informationwe should always keep
for a specific period, then mean
that should
that thebe kept consistent
formulas should be identical in a
through
the use the worksheet
of columns fromatop
consistent within to bottom. Many
single given rowmodel
all thedesigners
way acrosswill
fromtake
left this a This
to right.
step further
worksheet. to make
For instance, the structure
if a certain column ofof all columns
makesacross thefaster
the model workbook
to buildor file
and also easier
consistent. This means that the
a worksheet is used to show information for ainformation for a certain period would always be
to check. Empty columns between periods should
found in the same column regardless of which worksheet it was located in. While
specific period, then that should be kept consis- also be
this is not as important as the consistency within a avoided.
worksheet,As shown
it caninhelp
Fig 26tobelow,
avoidthe
tent through the worksheet
linking errors and can from top to
speed upbottom. cells from the year 2022 to 2027 are all contigu-
a model review.
Many model designers will take this a step fur- ous. When we’re building the model, we only need
Consistency
ther to acrossofrows
make the structure speeds
all columns up the model
across build
to build andinreview
formulas for 2022 since we can easily
the workbook or file consistent. This means copy them from left to right. When it is time for a
We should always strive to have consistent formulas across rows within our
that the information for a certain period would team member to do a review, they also only need
models. By this, we mean that the formulas should be identical in a given row all
always be found in the same column regardless
the way across from left to right. This makesto review
the model onefaster
column.toOnce
buildthe column
and alsowith 2022
of which worksheet
easier to check.it was located
Empty in. While
columns this
between periods should
information also
has beenbereviewed,
avoided. Ascan check
they
is notshown in Fig as
as important XXthe
below, the cells
consistency from the year
within for2022 to 2027
consistency are the
across all contiguous.
rows. This can save
When we’re
a worksheet, it canbuilding the linking
help to avoid model,errors
we only need to buildamounts
enormous formulas in forenabling
of time, 2022 since
them to
we can easily copy them
and can speed up a model review. from left to right. When it is time for a team member to
focus on the structure of a single column instead
do a review, they also only need to review one column. Once the column with
of checking all columns of the model.
2022 information has been reviewed, they can check for consistency across the
rows. This can save enormous amounts of time, enabling them to focus on the
structure of a single column instead of checking all columns of the model.
Revenue 52,185 56,428 58,134 59,537 60,854 62,077

COGS 29,236 30,337 30,898 31,356 31,783 32,177
Gross Profit 22,949 26,091 27,235 28,181 29,071 29,900
Row differences can be checked very quickly using the CTRL \ shortcut
The previous diagram in Fig XX shows an area highlighted in blue. Let’s suppose
we have checked the 2023 formulas in the first column. We could select columns
across the blue area and check for row differences by selecting F5, Special, Row
Differences. If there were differences, then the cursor would move instantly to
the cells that were different. If there weren’t any differences, then we would see
the dialog box shown below in Fig XX. Row differences can also be checked with
Row differences can be checked very The visualization features in Excel can
quickly using the CTRL \ shortcut help to locate anomalies in a model
The previous diagram in Fig 26 shows an area Macabacus has a number of visualization features
highlighted in blue. Let’s suppose we have that can greatly assist with model reviews. In Fig
checked the 2022 formulas in the first column. 28 on the next page, we have shown an example
We could select columns across the blue area and of one of these visualizations called Formula Flow.
check for row differences by selecting F5, Special, To produce this effect, we selected all the cells on
Row Differences. If there were differences, then the income statement in the next page from 2023
the cursor would move instantly to the cells that to 2027 and ran the Formula Flow function. We
were different. If there weren’t any differences, can tell instantly from the uninterrupted horizon-
then we would see the dialog box shown below tal line patterns that there is perfect consistency
in Fig 27. Row differences can also be checked from left to right over this area. These visualiza-
with the keyboard using CTRL \. The shortcut for tion effects can really help to highlight areas of
column differences is CTRL SHIFT \. possible concern in a financial model.
Fig 27: Result With No Row Differences
model reviews. In Fig XX below, we have shown an example of one of these
visualizations called Financial
Formula Flow.Modeling
To produce this effect, we selected all the cells
Guidelines
on the income statement below from 2023 to 2027 and ran the Formula Flow
function. We can tell instantly from the uninterrupted horizontal line patterns that
there is perfect consistency from left to right over this area. These visualization
effects can really help to highlight areas of possible concern in a financial model.
Fig 18: Income Statement

Revenue 52,185 56,428 58,134 59,537 60,854 62,077

COGS 31,368 30,337 30,898 31,356 31,783 32,177
Gross Profit 20,817 26,091 27,235 28,181 29,071 29,900
SG&A 7,708 7,939 8,138 8,300 8,425 8,551

Other 2,026 2,087 2,139 2,182 2,214 2,248
EBITDA 11,083 16,065 16,959 17,699 18,431 19,101
Depreciation 2,907 4,168 4,382 4,600 4,823 5,049

EBIT 8,176 11,897 12,577 13,098 13,609 14,052
Interest 2,448 2,520 2,520 2,520 2,520 2,520

EBT 5,728 9,377 10,057 10,578 11,089 11,532
Current Tax – – 132 2,353 2,586 2,793

Deferred Tax 1,577 2,344 2,382 291 186 90
Total Tax 1,577 2,344 2,514 2,645 2,772 2,883
Net Income 4,151 7,033 7,543 7,934 8,316 8,649
Financial
Annual models are usually Modeling Guidelines
preferred for their simplicity
Another important attribute to consider when discussing model

structure is its periodicity. This refers to the frequency of the intervals
in the model. As a part of the design process, we need to consider
Periodicity
whether to build a monthly, quarterly,Avoid or annual
mixingmodel. Annual
the periodicity
across adjacent
models are the most simple and are preferred unless there is a columns
Annual models arereason
compelling usuallywhy a quarterly or monthly model is necessary. For
preferred for their
example, simplicity
quarterly models may be needed by public
As you can imagine,companies in to
some models need
order to publish financial results on a include quarterly
both basis. Similarly,
quarterly and annual estimates.
Another important
monthly attributemay
models to consider when
be required for budgeting and
In order to meet financial
these planning
needs, models are often
discussing model structure is its periodicity. This
purposes. designed with four quarters across adjacent col-
refers to the frequency of the intervals in the umns, summing annual results in a fifth column
Avoid
model. mixing
As a part the periodicity
of the design across as
process, we need adjacent columns
shown below in Fig 29. Although this struc-
to consider whether to build a monthly, quar- ture can be relatively common, it is not general-
Asannual
terly, or you can imagine,
model. somearemodels
Annual models the need to include both
ly recommended. quarterly
The issue with thisand
structure
annual
most simple andestimates.
are preferredIn order
unless toismeet
there a these needs,
is that models
the formulas are
in the often
fifth annual column
designed
compelling reason with
why a four quarters
quarterly across adjacent
or monthly columns,
will be different summing
than those in the preceding
modelannual results
is necessary. in a fifth
For example, column
quarterly mod- as shown below in
four columns. Figprevents
This XX. Although
formulas from
this
els may structure
be needed cancompanies
by public be relatively
in ordercommon, beingit copied
is notleft
generally
to right across all columns and
recommended.
to publish The
financial results on issue with
a quarterly basis.this structure
increasesisthe that
timethe formulas
required to buildin the
the mod-
fifth
Similarly, annual
monthly column
models may be will be different
required for than those
el. For in theit is
this reason, preceding
recommended fourto avoid
columns.
budgeting Thisplanning
and financial prevents formulas frommixing
purposes. beingthe copied leftintotabs.
periodicity right across
In the example
all columns and increases the time required below, we tohave
buildrunthe model.Flow
the Formula Forfeature
this reason, it is recommended to avoid frommixing the periodicity
Macabacus, which shows row in tabs.
consistency
In the example below, we have run theacross Formula Flow
the first featurefor
four columns from
revenue and
Macabacus, which shows row consistency across the first four
COGS, but an inconsistency in the fifth.
columns for revenue and COGS, but an inconsistency in the fifth
column.
Fig 9: Quarterly & Annual Calculations
All figures in USD thousands unless stated Q1 Q2 Q3 Q4 2022
Revenue 13,046 13,046 13,046 13,046 52,185

COGS 7,842 7,842 7,842 7,842 31,368
Gross Profit 5,204 5,204 5,204 5,204 20,817
Fig 29: Quarterly & Annual Calculations
Begin building the model with Another approach is to have one

the most granular periodicity quarterly and one annual tab
When quarterly and annual figures are needed, it Another approach that also works well involves
is best to place these figures in completely sepa- using a dedicated tab for quarterly figures and
rate areas of the model. This can be done inside another one for annual figures. The tab structure
one worksheet or tab, as shown below in Fig 30. for a model like this may look similar to what is
In this example, we have built the logic using the shown below in Fig 31. The first step would be to
most granular periodicity on the right, which is build the entire model on the Quarterly tab. This
quarterly. Then, on the left, we have aggregated follows our earlier guidance that we should always
the amounts up to show the annual figures. This begin the build with the most granular periodicity.
approach provides a clear separation between
the quarterly and annual
Begin building amounts,
the model withwhich is need-
the most granular periodicity
ed to avoid inadvertent copying of the formulas
When quarterly and annual figures are needed, it is best to place
across from one section to another.
these figures in completely separate areas of the model. This can be
done inside one worksheet or tab, as shown below in Fig XX. In this
example, we have built the logic using the most granular periodicity
Fig 31: Separate Quarterly and Annual Tabs
on the right, which is quarterly. Then, on the left, we have aggregated
the amounts up to show the annual figures. This approach provides a
clear separation between the quarterly and annual amounts, which is
needed to avoid inadvertent copying of the formulas across from one
section to another.
Fig 12: Annual & Quarterly Periodity
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2022 2023 2022 2022 2022 2022 2023 2023 2023 2023
Revenue 53,772 58,204 13,046 13,307 13,573 13,845 14,122 14,404 14,692 14,986
COGS 32,322 34,986 7,842 7,999 8,159 8,322 8,488 8,658 8,831 9,008
Gross Profit 21,450 23,218 5,204 5,308 5,415 5,523 5,633 5,746 5,861 5,978
Another approach is to have one quarterly and one annual tab
Another
Fig 30: Annualapproach that also
& Quarterly works well involves using a dedicated tab
Periodicity
for quarterly figures and another one for annual figures. The tab
structure for a model like this may look similar to what is shown below
in Fig XX. The first step would be to build the entire model on the
Quarterly tab. This follows our earlier guidance that we should always
begin the build with the most granular periodicity.
Fig 10. Separate Quarterly and Annual Tabs
A Quarterly tab can be copied to produce an Annual one

The Quarterly tab would only have A Quarterly tab can be copied
consecutive quarterly periods towould
produce an Annual
We’ve shown how such a Quarterly tab look below one
in Fig XX.
With only quarterly information, the formulas will be easy to copy
In this example,
from lefttheto
Quarterly
right totab would only
ensure We’ve
consistency. Onceshown how
the suchof
build a Quarterly
this tabtabis would
have consecutive
complete, quarters
then without
it can be any copied
annual to produce an32Annual
look in Fig tab,only
below. With as quarterly
shown in infor-
sums. This
Fig is
XX.where the majority of time will be mation, the formulas will be easy to copy from
spent on the model build. With only quarterly left to right to ensure consistency. Once the build
Theformulas
estimates, Annual tab
could behas
easilyonly
copiedformulas
across since it aggregates
of this tab information
is complete, then it can be copied to
from left to right, which saves time and ensures produce an Annual tab, as shown in Fig 33.
By copying
consistency. themodel
If a different Quarterly tab
required to produce
month- the Annual tab, we ensure
that the
ly estimates, then structure of each
the model would tabonis identical from top to bottom. One
be built
difference
a Monthly between
tab. As discussed, the two
the build shouldtabs in terms of structure is the
alwaysperiodicity.
be done in the The other
tab that difference
has the most is that the Annual tab should only
include
granular formulas that are aggregating figures from the Quarterly tab.
periodicity.
Using SUMIF or SUMIFS functions in the Annual tab for aggregation
generally works quite well. Below in Fig XX, we can see only black font
in the Annual tab, indicating that it only has formulas used for
aggregation of quarterly results.
Fig 10: Quarterly Periodity
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2022 2022 2022 2022 2023 2023 2023 2023
Revenue 13,046 13,307 13,573 13,845 14,122 14,404 14,692 14,986

COGS 7,842 7,999 8,159 8,322 8,488 8,658 8,831 9,008
Gross Profit 5,204 5,308 5,415 5,523 5,633 5,746 5,861 5,978
Fig
Fig 32: 11: Periodicity
Quarterly Annual Periodity
2022 2023 2024 2025
Revenue 53,772 58,204 63,002 68,195

COGS 32,322 34,986 37,870 40,992
Gross Profit 21,450 23,218 25,132 27,204
complete, then it can be copied to produce an Annual tab, as shown in
Fig XX. Financial Modeling Guidelines
The Annual tab has only formulas since it aggregates information
By copying the Quarterly tab to produce the Annual tab, we ensure

that the
The Annual tab structure of each tab is identical
has only formulas from top
Considering to bottom.
periodicity One
is a part
since itdifference
aggregatesbetween
information the two tabs in terms of structure
of getting is the
the right level of detail
periodicity. The other difference is that the Annual tab should only
include
By copying formulas
the Quarterly tab tothat are the
produce aggregatingSeparating
figuresQuarterly
from the andQuarterly tab.
Annual information
AnnualUsing
tab, we SUMIF or the
ensure that SUMIFS functions
structure of each in the
eitherAnnual
within onetabtabfor aggregation
or across two tabs is highly
generally
tab is identical fromworks quite One
top to bottom. well. Below in recommended.
differ- Fig XX, we can seebeing
Besides onlyeasier
blackandfont
faster
in the the
ence between Annual tab,
two tabs indicating
in terms that it only
of structure hasitformulas
to build, used
is also less likely to for
lead to issues with
aggregation
is the periodicity. of quarterly
The other difference isresults.
that the formula consistency. There is considerably more
Annual tab should only include formulas that are work involved with building a model that shows
Fig 10: Quarterly Periodity
aggregating figures from the Quarterly tab. Using more than one periodicity, like this example with
SUMIF or SUMIFS functions in
Q1
the Annual
Q2
tab for Q3 Quarterly
Q4
and Annual
Q1
figures.
Q2
So, careful
Q3
con-
Q4
aggregation generally works quite well.
2022 2022
On the 2022 sideration
2022
is recommended
2023 2023
to make
2023
sure that
2023
below in Fig 33, we can see only black font in the the quarterly information is absolutely needed.
Annual tab, indicating that it only has formulas Similarly, a team would want to make sure that
used Revenue 13,046
for aggregation of quarterly 13,307
results. 13,573 13,845 information
monthly 14,122 is14,404
needed 14,692 14,986
before begin-
COGS 7,842 7,999 8,159 8,322 8,488 8,658
ning the process of building a tab8,831 9,008
with monthly
Gross Profit 5,204 5,308 5,415 5,523 5,633 5,746 5,861 5,978
periodicity. Finding the right level of detail for a
All figures in USD thousands unless stated model is very important and thinking about the
periodicity is a part of this process.
Fig 11: Annual Periodity
2022 2023 2024 2025
Revenue 53,772 58,204 63,002 68,195

COGS 32,322 34,986 37,870 40,992
Gross Profit 21,450 23,218 25,132 27,204
Considering periodicity is a part of getting the right level of detail

Fig 33: Annual Periodicity
Separating Quarterly and Annual information either within one tab or
across two tabs is highly recommended. Besides being easier and
faster to build, it is also less likely to lead to issues with formula
consistency. There is considerably more work involved with building a
model that shows more than one periodicity, like this example with
Quarterly and Annual figures. So, careful consideration is
Modularity & Schedules

We frequently use borders to separate
All major calculations in a model the items entering and exiting
should be done inside of schedules
In Fig 34, we are using the Days in Period, Reve-
We have discussed the recommended design nue, and COGS in calculations to determine the
and structure for financial models in quite a bit line at the bottom labeled as Cash from Working
of detail already. As noted earlier in the design Capital Items. While it’s true that we also have
process, building blocks for models can include some inputs in the middle of this schedule, the
dashboards, financial statements, or model main function of the central section is to perform
schedules. While a financial model can include our calculations. As we can see below in Fig 34,
many types of building blocks, it is the model we frequently use borders to separate the top
schedules that truly make up the engine of a items which are entering and the bottom items
financial model. The schedules also typically which are exiting.
outnumber the dashboards and financial state-
ments by a large margin. In fact, schedules make Many builders attempt to make
financial models too compact
up the bulk of a typical model and contain all the
important calculations that take us from inputs
In the previous example, the Cash from Working
through to outputs.
Capital Items line at the bottom of the Working
All schedules should have three main Capital Schedule may flow into the company’s
sections to keep things organized Cash Flow Statement. In an effort to save space,
model builders may load all the calculations
In fact, the primary purpose of a schedule is to shown previously in the Working Capital Sched-
perform calculations. Schedules have three main ule into one line on the Cash Flow Statement.
parts, as shown on the next page in Fig 34, which While they may be making the model more com-
uses an example of a Working Capital Sched- pact by not including an entire Working Capital
ule. There is typically a section at the top where Schedule, they are creating a model that is less
figures enter the schedule, then a central section transparent and more difficult to understand.
where we calculate, followed by bottom items
that exit.
Financial
In fact, the primary purpose Modeling
of a schedule Guidelines
is to perform calculations. Schedules
have three main parts, as shown below in Fig XX, which uses an example of a
Working Capital Schedule. There is typically a section at the top where figures
enter the schedule, then a central section where we calculate, followed by
bottom items that exit.
Fig 18: Structure of a Schedule

All figures in USD thousands unless stated 2022A 2023F 2024F 2025F 2026F
Days in Period 365 365 365 365 365

Revenue 53,034 56,428 58,134 59,537 60,854 ENTER
COGS 29,236 30,337 30,898 31,356 31,783
AMOUNTS PER DAY

Accounts Receivable (Days) 46 45 45 45 45
Inventory (Days) 25 25 25 25 25
Accounts Payable (Days) 41 40 40 40 40
TOTAL AMOUNTS
Accounts Receivable 6,624 6,957 7,167 7,340 7,503
Inventory 2,009 2,078 2,116 2,148 2,177 CALCULATE
Accounts Payable 3,319 3,325 3,386 3,436 3,483
NET WORKING CAPITAL

Current Assets 8,633 9,035 9,283 9,488 9,680
Current Liabilities 3,319 3,325 3,386 3,436 3,483
Net Working Capital 5,314 5,710 5,897 6,052 6,196
Cash from Working Capital Items (396) (187) (154) (145) EXIT
We frequently use borders to separate the items entering and exiting
In Fig XX above, we are using the Days in Period, Revenue, and COGS in
Fig 34: Structure of a Schedule
calculations to determine the line at the bottom labeled as Cash from Working
Capital Items. While it’s true that we also have some inputs in the middle of this
schedule, the main function of the central section is to perform our calculations.
As we can see in the example above, we frequently use borders to separate the
top items which are entering and the bottom items which are exiting.
Although this type of stacking is preferred, nav-

Schedules provide the space needed to igation is one of the challenges that we will face
make calculations clear and simple
with this type of structure. Thankfully, there are
a few techniques that can help to ensure that us-
A better approach is to create a Working Cap-
ers can easily locate and navigate to the various
ital Schedule, as shown previously in Fig 34.
schedules within a tall stack.
This schedule is dedicated to performing all the
necessary calculations for the working capital Many model designers set up navigational
items. This approach gives the model builder the columns to locate schedules
required space to break calculations into small
formulas and simple steps that others can easily The first and most obvious technique which can
understand. Once all the steps have been shown be used to navigate a tall stack of schedules is the
to arrive at the Cash from Working Capital Items page up and page down buttons on a keyboard.
line at the bottom, this line can simply be linked This is generally where many modelers would
into the company’s Cash Flow Statement. This ap- start in terms of this type of navigation. We can
proach to spacing out calculations inside of sched- also set up a navigational column on the left side
ules is critically important in model building. of the model. On the next page in Fig 35 and 36,
we have included a navigational column on the
Navigational Columns left side. The stops for the navigational column
are shaded in blue and marked with a white X.
There are a few techniques to help This allows users to use the CTRL key with the up/
navigate a tall stack of schedules down arrows to travel and stop at each schedule
in the model. Setting the navigational column
We understand now that schedules play a critical up as Column A is very convenient since one can
and prominent role inside of financial models. It simply tap the Home button to jump to Column A
is also preferred to stack a number of schedules in order to begin navigating up or down.
on top of one another inside a single tab. As dis-
cussed previously, this allows for linking within Some model builders set up Custom
one tab and minimizes the amount of linking Views to navigate to each schedule
across from one tab to another. This makes the
model faster to build and also easier to check.
NAVIGATION

All figures in USD thousands 2022A 2023F 2024F 2025F 2026F 2027F
x COST SUMMARY
NAVIGATION
Variable Costs (USD/Unit) 12.39 12.76 12.95 13.11 13.25 13.39
12 Fig 12:Costs
Total Cost Summary
(USD/Unit) 55.15 55.40 55.59 55.74 55.89 56.02
Variable Costs 6,568 6,989 7,200 7,374 7,537 7,688
Fixed Costs 22,668 23,348 23,698 23,983 24,246 24,489
x COST SUMMARY
Total Costs 29,236 30,337 30,898 31,356 31,783 32,177

13 Fig 13:Costs Gross
Total Profit
(USD/Unit) 55.15 55.40 55.59 55.74 55.89 56.02
Variable Costs 6,568 6,989 7,200 7,374 7,537 7,688
Fig 35:x CostFixed
Summary
Revenue
Costs 22,668
52,185
23,348
56,428
23,698
58,134
23,983
59,537
24,246
60,854
24,489
62,077
Total Costs 29,236 30,337 30,898 31,356 31,783 32,177
COGS 31,368 30,337 30,898 31,356 31,783 32,177
Gross Profit 20,817 26,091 27,235 28,181 29,071 29,900
13 Fig 13: Gross Profit

x Revenue 52,185 56,428 58,134 59,537 60,854 62,077

COGS 31,368 30,337 30,898 31,356 31,783 32,177
Gross Profit 20,817 26,091 27,235 28,181 29,071 29,900
Fig 36: Gross Profit
There are a few issues with Custom Views to note.

Excel also has a feature called Custom Views which First, many users are not familiar with them and
can be set up in order to get to the various sched- may not realize that they have been set up in the
ules within a model. Custom Views can be found model. For this reason, this feature may go unno-
in the View menu or activated using the ALT WC or ticed by many people accessing the model. Al-
ALT VV shortcut. The Custom Views dialogue box is though Custom Views are quite fast and efficient
shown in Fig 37 below. As indicated below, we can to set up and use with the keyboard, they are not
add a view for one of the financial statements. as convenient or obvious for those using a mouse.
Many users are not familiar with Custom Custom Views do not adjust properly
Views and may not notice them to row insertions or deletions
Fig 37: Using Custom Views for Schedules
Another more concerning issue with Custom Row Grouping

Views is that they don’t adjust to row insertions
or deletions. Inserting rows at the top of a tab We prefer to use row grouping together
would move all Custom Views below to improper with a navigational column
locations. For this reason, Custom Views do not
work very well in a model that is still being built, Our preferred technique for navigation through a
where rows may be inserted or deleted. tall stack of schedules involves row grouping and
a navigational column. We have shown an ex-
Another issue with Custom Views is ample on the next page in Fig 38 with some row
that they always sort alphabetically grouping on the left hand side. We have placed
an ‘x’ in Column A to illustrate the stops in the
Another issue with using Custom Views for navigational column. In practice, we would use a
schedules is that they always list in alphabetical space in place of all the ‘x’ characters as it is in-
order instead of by their location in the stack. visible but still provides a stop in the navigational
Some users will get around this deficiency by column. With all the row grouping expanded, it is
preceding the name of the view with a number. easy to navigate up and down through the model
The number would be associated with the or- using the navigational column.
der that the schedule occurs in the stack. This
approach helps, but it also means adjusting the Collapsing the row groupings provides
numbering system when subsequent schedules us with a table of contents to use
are added to the stack.
In Fig 39 on page next page, we have shown the
model with the row groupings collapsed. The key
takeaway here is that the headings for each sched-
ule are now acting like a Table of Contents. With
the row groupings collapsed, we can see a clear list
of all the schedules in the tab, which is very helpful
for navigation. Also, with the spaces inserted in the
navigational column, we can quickly move to the
correct schedule using the CTRL key and the up
and down arrows. This allows for quick and effi-
cient navigation to the targeted schedule.
Gross Profit MarginGross Profit Margin 41.0% 40.8% 41.0% 39.3% 40.8% 46.2% 39.3% 46.8% 46.2% 47.3
EBITDA Financial
EBITDA Modeling Guidelines
12,193 11,99612,19311,08311,99616,06511,08316,95916,06517,6
EBITDA Margin EBITDA Margin 25.2% 23.8% 25.2% 20.9% 23.8% 28.5% 20.9% 29.2% 28.5% 29.7
EBIT EBIT 9,233 9,193 9,233 8,176 9,19311,897 8,17612,57711,89713,0

EBIT Margin EBIT Margin 19.1% 18.2% 19.1% 15.4% 18.2% 21.1% 15.4% 21.6% 21.1% 22.0
Sales
RevenueVolumeSchedule
Sales VolumeSchedule
Revenue 501,490 514,139
501,490530,136
514,139547,630
530,136555,845
547,6305
Inflation Inflation 2.4% 2.2% 2.4% 2.3% 2.2% 3.0% 2.3% 1.5% 3.0%
All figures in USD thousands
All figures
unlessinstated
USD thousands unless stated 2020A 2021A2020A 2022A2021A 2023F2022A 2024F 2023F 202
VARIABLE COSTS VARIABLE COSTS
X Days
Profit Summary
in Period Days in Period 365 365 365 365 365 365 365 365 365 3
Materials
All Materials
figures in USD thousands unless stated (USD/Unit) 2020A 9.51 2021A 9.72 2022A
(USD/Unit) 9.51 9.912023F 2024F
9.72 10.21 2025F
9.91 10.3610.21
Packaging Packaging (USD/Unit) 0.82
(USD/Unit) 0.84 0.82 0.86 0.84 0.89 0.86 0.90 0.89
OPERATIONS OPERATIONS
Revenue
Transportation Transportation (USD/Unit) 48,318 1.54 50,380 1.5853,034
(USD/Unit) 1.54 56,428
1.62 1.58 58,134
1.67 1.62 59,537
1.69 1.67
Subtotal Subtotal 11.87 12.1411.87 12.3912.14 12.7612.39 12.9512.76
Sales Volume Growth
Sales Volume Growth 2.5% 3.1% 2.5% 3.3% 3.1% 1.5% 3.3% 1.2
Gross Profit
Materials Materials 19,8344,769 20,569 4,99720,817
4,769 5,25426,091
4,997 27,235
5,590 5,254 28,181
Sales Volume Sales Volume (Units/Day) 1,374
(Units/Day) 1,409 1,374 1,452 1,409 1,500 1,452 1,5235,759
1,5005,590
1,5
Gross Profit Margin Packaging
Packaging 41.0% 411 40.8% 432 39.3%
411 45646.2%
432 46.8%
485 456 47.3%485
500
Plant Capacity Plant Capacity(Units/Day) 1,600
(Units/Day) 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,6
Transportation Transportation
Operational Efficiency
Operational Efficiency 85.9% 772 88.0%812
85.9%772
90.8%859
88.0%812 914 859
93.8% 90.8% 941 96.3
95.2% 93.8% 914
EBITDA 12,193 11,996
Subtotal Subtotal 5,953 6,24211,083
5,953 6,568 16,065 16,959
6,242 6,989 17,699
6,568 7,200 6,989
EBITDA Margin 25.2% 23.8% 20.9% 28.5% 29.2% 29.7%
EBIT 9,233 9,193 8,176 11,897 12,577 13,098

EBIT Margin 19.1% 18.2% 15.4% 21.1% 21.6% 22.0%
FIXED
VOLUME COSTS FIXED
VOLUMECOSTS
Days in Period
Labour Days in Period (USD/Unit)
Labour 365
31.17
(USD/Unit) 365
30.96365
31.17 365 365
30.7330.96365 365
30.64 30.7336530.64
365
30.643
X Revenue
Insurance
Schedule
Sales Volume Sales Volume
Insurance (Units/Day)
(USD/Unit) 1,3747.28
(Units/Day)
(USD/Unit) 1,409 1,374
7.25 1,4527.15
7.28 1,409 1,5007.13
7.25 1,4527.15
1,523 7.13
1,5007.13
1,5
Sales
figuresVolume
Utilities
All Sales
unlessVolume
Utilities
in USD thousands stated (Units)
(USD/Unit) 501,490
2020A
(USD/Unit) 514,139
(Units) 4.91 2021A 501,490530,136
4.87 2022A
4.91 514,139
547,630
4.87 530,136
4.872023F 4.86 555,845
4.87 547,630
2024F 4.86562,5
4.86
2025F
Profit
Days in PeriodSummary Profit Summary 365 365 365 365 365 365
PRICING
Labour PRICING
Labour 15,630 15,91815,630 16,29315,918 16,78216,293 17,03416,782
All figures
unlessinstated
Utilities Utilities 3,651 3,7293,651 3,7923,729 3,9063,792 3,9643,906
Pricing Increases Pricing Increases
OPERATIONS 1.7% 2.1% 1.7% 3.0% 2.1% 1.5% 3.0% 1.2
Insurance
Revenue Insurance
Revenue 2,463
48,318 2,5052,463
50,380 2,5832,505 2,660 2,583
58,1342,7002,660
Unit Price Unit Price (USD/Unit) 96.35
(USD/Unit) 97.9948,318 53,034
96.35100.04 50,380 56,428
97.99103.04 53,034
100.04 104.5956,428
103.0459,5
105.
Subtotal Subtotal 21,744 22,15221,744 22,668 22,152 23,348 22,668 23,698 23,348
Sales Volume Growth 2.5% 3.1% 3.3% 1.5% 1.2%
Fig 38: Expanded Row Grouping
Gross
REVENUE Profit Gross
REVENUE Profit 19,834 20,56919,83420,81720,56926,09120,81727,23526,09128,1
Sales Volume (Units/Day) 1,374 1,409 1,452 1,500 1,523 1,541
Plant Capacity (Units/Day) 1,600 1,600 1,600 1,600 1,600 1,600
SUMMARY
Sales SUMMARY
VolumeEfficiency Sales Volume (Units) 501,490
(Units) 514,139501,490530,136
514,139547,630
530,136555,845
547,630 562,5
Operational 85.9% 88.0% 90.8% 93.8% 95.2% 96.3%
EBITDA
Sales Price EBITDA
Sales Price (USD/Unit) 12,193
96.35
(USD/Unit) 11,996
97.9912,193 11,08311,996
96.35100.04 16,065100.04
97.99103.04 11,083104.59
16,959103.04
16,065105.
17,6
Variable
EBITDA
Revenue Costs EBITDA
Margin Variable
Revenue MarginCosts (USD/Unit) 11.87
25.2%
(USD/Unit)
48,318 12.14
23.8%
50,380 11.87
25.2%
48,318 12.39
20.9%
53,034 12.14
23.8%
50,380 12.76
28.5%
56,428 20.9%
53,03412.39
29.2%12.95
58,134 28.5%
56,428 12.76
29.7
59,5
Fixed Costs Fixed Costs (USD/Unit) 43.36
(USD/Unit) 43.0943.36 42.7643.09 42.6342.76 42.6342.63
EBIT
Total Costs EBIT
Total Costs (USD/Unit) 9,233
55.23
(USD/Unit) 9,193 9,233
55.23 8,176
55.23 9,193
55.15 11,897
55.23 8,176
55.40 12,57755.59
55.15 11,897 13,0
55.40
EBIT
CapacityMargin EBIT Margin 19.1% 18.2% 19.1% 15.4% 18.2% 21.1% 15.4% 21.6% 21.1% -22.0
VOLUME Exceeded?Capacity Exceeded? - -
Profit Summary
Variable Costs Profit Summary
Variable Costs 5,953 6,2425,953 6,5686,242 6,9896,568 7,2006,989
AllFixed
Days Costs
figuresininPeriod AllFixed
USD thousands figuresCosts
unlessinstated
USD thousands unless stated 21,744
2020A
365 36522,152
2021A 21,744
2020A 365 22,668
2022A 22,152
2021A 23,348
2023F
365 22,668
2022A 23,698
3652024F 23,348
2023F
365202
Revenue
Total CostsSchedule
Sales Volume Revenue
Total CostsSchedule (Units/Day)
27,697 1,40928,394
1,374 27,697
1,452 29,236
28,394
1,500 30,337 29,236 30,898
1,523 30,337
1,541
AllSales
figuresVolume
Revenue Revenue
in USD thousands
All figures
unlessinstated (Units) unless stated501,490
USD thousands 2020A 514,139
48,318 50,380
2021A 530,136
48,318
2020A 53,034
2022A 547,630
50,380
2021A 56,428
2023F 555,845
53,034
2022A58,134562,515
56,428
2024F 2023F59,5
202
Cost ScheduleCost Schedule
Days in Period
All figures Days
in USD thousands in Period
All figures
unless
instated
USD thousands unless stated 365
2020A 365 2020A
2021A 365 2022A
365 2021A
365 2023F
365 2022A
365 2024F
365 2023F
365 2023
Income Profit Statement
PRICING
Gross Income
Gross Profit Statement 19,834 20,56919,83420,81720,56926,09120,81727,23526,09128,1
AllPricing
figures in USD thousands
Increases All figures
unless
in USD
stated
thousands unless stated 2020A 1.7% 2021A 2020A
2.1% 2022A 2021A
3.0% 2023F 2022A 2024F
1.5% 2023F
1.2%
EBITDA
Unit Price EBITDA (USD/Unit) 12,193
96.35 11,99612,193
97.99 11,08311,996
100.04 16,06511,083
103.04 16,95916,065
104.59 17,6
105.84
Inflation
EBITDA Margin
Sales Volume Growth Inflation
EBITDA Margin
Sales Volume Growth 2.4%
25.2% 2.2%
23.8%
2.5% 2.4%
25.2% 2.3%
20.9% 2.2% 3.0% 2.3% 2.5%
3.1% 2.5% 3.3% 3.1% 1.5% 3.3% 29.7
23.8% 28.5% 20.9% 29.2% 28.5% 3.0%
1.2
Fig 39: CollapsedEBIT

Row
Sales Grouping
REVENUE Volume EBIT
Sales Volume (Units/Day) 9,233
1,374
(Units/Day) 9,193 1,374
1,409 9,233 1,452
8,176 1,409
9,19311,897 8,17612,577
1,500 1,452 1,52311,897
1,50013,0
1,5
Revenue
EBIT
Plant Capacity Revenue
Margin EBIT Margin
Plant Capacity(Units/Day) 48,828
19.1%
1,600
(Units/Day) 50,601
18.2%
1,600 48,828
19.1%
1,600 52,185
15.4%
1,600 50,601
18.2%
1,600 56,428
21.1%
1,600 52,185
15.4%
1,600 58,134
21.6%
1,600 56,428
21.1%
1,600 22.0
1,6
COGS
Operational COGS
Sales VolumeEfficiency (Units)
Operational Efficiency 28,994514,139
501,490
85.9% 30,032
88.0% 28,994
530,136
85.9% 31,368
90.8% 30,032
547,630
88.0% 30,337
93.8% 31,368
555,845
90.8% 30,898
95.2% 30,337
562,515
93.8% 96.3
SalesProfit
Gross Price Gross Profit (USD/Unit) 96.35
19,834 97.9920,569 100.04 20,817
19,834 103.04 104.59
20,569 26,091 105.84
20,817 27,23526,091
Revenue Schedule
Revenue Revenue Schedule 48,318 50,380 53,034 56,428 58,134 59,537

All figures
unlessinstated
SG&A
corporatefinanceinstitute.com SG&A 5,877 6,6425,877 7,7086,642 7,9397,708 47 8,1387,939
Capacity Exceeded?
VOLUME
Other VOLUME
Other 1,764 1,9311,764 2,0261,931- 2,0872,026- -
2,1392,087
Days in Period Days in Period 365 365 365 365 365 365 365 365 365 3
EBITDA EBITDA 12,193 11,996
12,193 11,083
11,996 16,065
11,083 16,959
16,065
EBITDA EBITDA 12,193 11,99612,19311,08311,99616,06511,08316,95916,06517,6
EBITDA Margin EBITDA Margin 25.2% 23.8% 25.2% 20.9% 23.8% 28.5% 20.9% 29.2% 28.5% 29.
EBIT EBIT 9,233 9,193 9,233 8,176 9,19311,897 8,17612,57711,89713,0
EBIT Margin EBIT Margin 19.1% 18.2% 19.1% 15.4% 18.2% 21.1% 15.4% 21.6% 21.1% 22.
Sales
RevenueVolumeSchedule
Sales VolumeSchedule
Revenue 501,490 514,139
501,490530,136
514,139547,630
530,136555,845
547,630
Inflation Inflation 2.4% 2.2% 2.4% 2.3% 2.2% 3.0% 2.3% 1.5% 3.0%
All figures
unlessinstated
Custom Views
VARIABLE COSTS VARIABLE COSTS
Days in Period Days in Period
We often use Custom Views to expand
365 365 365 365 365 365 365 365 365 3
or collapse all row groupings
Materials Materials (USD/Unit) 9.51
(USD/Unit) 9.72 9.51 9.91 9.72 10.21 9.91 10.3610.21
Row grouping can be expanded
Packaging or
Packaging (USD/Unit) 0.82
(USD/Unit) 0.84 0.82 0.86 0.84 0.89 0.86 0.90 0.89
collapsed with the mouse or keyboard (USD/Unit)
Transportation Transportation 1.54
This (USD/Unit)
is where we often make use of the Custom 1.69 1.67
1.58 1.54 1.62 1.58 1.67 1.62
Sales Volume Growth
Sales Volume Growth 2.5% 3.1% 2.5% 3.3% 3.1% 1.5% 3.3% 1.
Views feature, which we discussed earlier. As
Materials Materials 4,769 4,9974,769 5,254 4,997 5,590
Once we arrive at the
Salestargeted
Volume schedule, a row
Sales Volume (Units/Day) shown below in1,409
1,374
(Units/Day) Fig 40,
1,374we can
1,452 program
1,409 1,500 a 5,254
1,452 1,5235,7595,590
1,500 1,5
Packaging
Plant Capacity Packaging
Plant Capacity(Units/Day) 1,600411
(Units/Day) 1,600432 411
1,600 1,600 456
1,600432 485 456
1,600 1,600 500 485
1,600 1,600 1,6
grouping can be expanded with
Transportation the
mouse by
Transportation
Operational Efficiency ‘Collapse
85.9% Row Grouping’
772 88.0%812 772
85.9% in as859
90.8% a Custom
88.0%812 View.
914
93.8% 90.8%859 941 96.
95.2% 93.8% 914
using the -/+ icons Subtotal
shown down the Subtotal
left hand 5,953
First, we collapse6,242 5,953 6,5686,242 6,9896,568 7,2006,989
all the row groupings, navigate
side below in Fig 40. The row groupings can to cell A1, and set the Zoom to our preferred
also be collapsed or expanded by clicking on level. We set the Zoom level since Custom Views
FIXED
VOLUMECOSTS FIXED
VOLUMECOSTS
the 1 or 2 in the top left corner of Fig 40 below. record Zoom settings as well as positions. Next,
Days in Period
Labour Days in Period (USD/Unit)
Labour 365
31.17 365
30.96365
31.17 365
30.73365
30.96365 365
30.64 30.7336530.64
365
30.643
These numbers refer to the row grouping levels. (USD/Unit)
we (Units/Day)
open the Custom Views dialogue box (ALT
Sales Volume
Insurance Sales Volume (Units/Day)
Insurance (USD/Unit) 1,374 7.28
(USD/Unit) 1,409 1,374 1,452 1,409 1,500 1,452 1,523 1,500
7.25 7.28 7.15 7.25 7.13 7.15 1,5
7.13 7.13
Groupings can alsoUtilities
be expanded
Sales Volume or collapsed
Sales
Utilities by
Volume (USD/Unit)
(Units) WC or ALT
501,490
(Units) 4.91
(USD/Unit) VV) and501,490
514,139 program
4.87 530,136
4.91 the 547,630
514,139
4.87 view as
4.87 530,136
4.86 555,845
4.87 547,630
4.86562,5
4.86
selecting across Subtotal
them andusing Subtotal
the Show/Hide 43.36 43.0943.36 42.7643.09 42.6342.76 42.6342.63
‘Collapse Row Grouping.’
Profit Summary Profit Summary
Detail function inPRICING
the Data Menu
Labour (ALT AJ and ALT
PRICING
Labour 15,630 15,918
15,630 16,29315,918 16,782
16,293 17,03416,782
All figures
unlessinstated
USD thousands unless stated 2020A 2021A 2020A 2022A 2021A 2023F 2022A 2024F 2023F 20
AH). Although this Utilities
Pricing with theUtilities
worksIncreases keyboard,
Pricing it
Increases
3,651 3,7293,651 3,7923,729 3,9063,792 3,9643,906
1.7% 2.1% 1.7% 3.0% 2.1% 1.5% 3.0% 1.
Insurance
Revenue Insurance
Revenue 2,463
48,318 2,5052,463
50,380 2,5832,505 2,6602,583
58,1342,7002,660
Unit
involves a few keystrokesPrice Unit Price 96.35 97.9948,31853,034
96.35100.0450,38056,428
97.99103.0453,034
100.04104.5956,428
103.0459,5
105.
Subtotal and may involve more (USD/Unit) (USD/Unit)
Subtotal 21,744 22,152
21,744 22,66822,152 23,348
22,668 23,69823,348
keystrokes when multiple groupings are being
Gross Profit
REVENUE REVENUE Gross Profit 19,834 20,56919,83420,81720,56926,09120,81727,23526,09128,1
expanded or collapsed together.
Gross Profit MarginGross Profit Margin 41.0% 40.8% 41.0% 39.3% 40.8% 46.2% 39.3% 46.8% 46.2% 47.
SUMMARY
Sales Volume SUMMARY
Sales Volume (Units) 501,490
(Units) 514,139
501,490
530,136514,139
547,630
530,136
555,845
547,630
562,5
EBITDA
Sales Price EBITDA
Sales Price (USD/Unit) 12,193
96.35
(USD/Unit) 11,996
97.9912,193
96.3511,083
100.0411,996
97.9916,065
103.0411,083
100.0416,959
104.5916,065
103.0417,6
105.
Variable
EBITDA
Revenue Costs EBITDA
Margin Variable
Revenue Costs (USD/Unit)
Margin 11.87
25.2%
(USD/Unit)
48,318 12.14
23.8%
50,380 11.87
25.2%
48,318 12.39
20.9%
53,034 12.14
23.8%
50,380 12.76
28.5%
56,428 12.39
20.9%
53,034 29.2%12.95
58,134 12.76
28.5%
56,428 29.
59,5
Fixed Costs Fixed Costs (USD/Unit) 43.36
(USD/Unit) 43.0943.36 42.7643.09 42.6342.76 42.6342.63
EBIT
Total Costs EBIT
Total Costs (USD/Unit) 9,233
55.23
(USD/Unit) 9,193 9,233
55.23 8,176
55.23 9,193
55.15 11,897
55.23 8,176
55.40 12,57755.59
55.15 11,89713,0
55.40
EBIT Margin
Capacity Exceeded?EBIT Margin
Capacity Exceeded? 19.1% 18.2% 19.1% 15.4% 18.2% 21.1%-15.4% 21.6%-21.1%-22.
Profit Summary
Variable Costs Profit Summary
Variable Costs 5,953 6,2425,953 6,5686,242 6,9896,568 7,2006,989
AllFixed
figuresCosts AllFixed
in USD thousandsfiguresCosts
unless
instated
2020A 22,152
2021A 21,744
2020A 22,668
2022A 22,152
2021A 23,348
2023F 22,668
2022A 23,698
2024F 23,348
2023F 20
Revenue
Total CostsSchedule
Revenue
Total CostsSchedule 27,697 28,394
27,697 29,236
28,394 30,337
29,236 30,898
30,337
Revenue Revenue
All figures
unlessinstated
2020A 50,380
2021A48,318
2020A53,034
2022A50,380
2021A56,428
2023F53,034
2022A58,134
2024F56,428
2023F59,5
20
Cost ScheduleCost Schedule
Days in Period
All figures Days
in USD thousands in Period
All figures
unless
instated
USD thousands unless stated 365
2020A 365 2020A
2021A 365 2022A
365 2021A
365 2023F
365 2022A
365 2024F
365 2023F
365 203
Income
Gross Profit Statement
Income
Gross Profit Statement 19,834 20,56919,83420,81720,56926,09120,81727,23526,09128,1
Gross Profit MarginGross Profit Margin 41.0% 40.8% 41.0% 39.3% 40.8% 46.2% 39.3% 46.8% 46.2% 47.
All figures
unless
in USD
stated
thousands unless stated 2020A 2021A2020A 2022A 2021A 2023F 2022A 2024F2023
EBITDA EBITDA 12,193 11,99612,19311,08311,99616,06511,08316,95916,06517,6
Inflation
EBITDA
Sales Margin
Volume GrowthInflation
EBITDA
Sales Margin
Volume Growth 2.4%
25.2% 2.2%
23.8%
2.5% 2.4%
25.2% 2.3%
20.9%
3.1% 2.2%
23.8%
2.5% 3.3%3.0%
28.5% 2.3%
20.9%
3.1% 1.5% 2.5%
29.2% 3.3%3.0%
28.5% 29.
1.
EBIT
Sales Volume EBIT
Sales Volume (Units/Day) 9,233
1,374
(Units/Day) 9,193
1,409 9,233
1,374 8,176
1,452 9,193
1,40911,897
1,500 8,176
1,45212,577
1,52311,897
1,50013,0
1,5
Fig 40: CollapsedRevenue
Row
EBIT
PlantGrouping
Margin as
EBIT aMargin
Capacity Revenue
PlantCustom View
Capacity(Units/Day) 48,828
19.1%
1,600
(Units/Day) 50,601
18.2%
1,600 48,828
19.1%
1,600 52,185
15.4%
1,600 50,601
18.2%
1,600 56,428
21.1%
1,600 52,185
15.4%
1,600 58,134
21.6%
1,600 56,428
21.1%
1,600 22.
1,6
COGS COGS
Operational Efficiency 28,994
85.9% 30,032
88.0% 28,994
85.9% 31,368
90.8% 30,032
88.0% 30,337
93.8% 31,368
90.8% 30,898
95.2% 30,337
93.8% 96.
Gross Profit Gross Profit 19,834 20,569
19,834 20,81720,569 26,091
20,817 27,23526,091
Revenue Schedule
Revenue Schedule
All figures
unlessinstated
SG&A SG&A 5,877 6,6425,877 7,7086,642 7,9397,708 8,1387,939
VOLUME
Other VOLUME
Other 1,764 1,9311,764 2,0261,931 2,0872,026 2,1392,087
EBITDA
corporatefinanceinstitute.com EBITDA 12,193 11,996
12,193 11,08311,996 16,065
11,083 48
16,95916,065
Sales Volume Sales Volume (Units/Day) 1,374
(Units/Day) 1,409 1,374 1,452 1,409 1,500 1,452 1,523 1,500 1,5
More Custom Views may be needed for This is a very efficient way to expand and col-
other tabs in the model lapse all row groupings. One important point to
remember is that these Custom Views have only
Next, we could follow a similar procedure to been set for one tab, which is the Model tab in
program an ‘Expand Row Grouping’ Custom View this case. If similar Custom Views were needed in
as shown below in Fig 41. With these two Custom other tabs, then they would need to be set with
Views set, we can now quickly hit ALT WC or ALT VV appropriate names.
then use the arrows to select our preferred view.
Profit Summary
All figures in USD thousands unless stated 2020A 2021A 2022A 2023F 2024F 2025F
Revenue 48,318 50,380 53,034 56,428 58,134 59,537
Gross Profit 19,834 20,569 20,817 26,091 27,235 28,181

Gross Profit Margin 41.0% 40.8% 39.3% 46.2% 46.8% 47.3%
EBITDA 12,193 11,996 11,083 16,065 16,959 17,699

EBITDA Margin 25.2% 23.8% 20.9% 28.5% 29.2% 29.7%
EBIT 9,233 9,193 8,176 11,897 12,577 13,098

EBIT Margin 19.1% 18.2% 15.4% 21.1% 21.6% 22.0%
Revenue Schedule
Fig 41: CollapsedDays

RowinGrouping
Period as a Custom View 365 365 365 365 365 365
OPERATIONS
Sales Volume Growth 2.5% 3.1% 3.3% 1.5% 1.2%
Sales Volume (Units/Day) 1,374 1,409 1,452 1,500 1,523 1,541

Plant Capacity (Units/Day) 1,600 1,600 1,600 1,600 1,600 1,600
Operational Efficiency 85.9% 88.0% 90.8% 93.8% 95.2% 96.3%
VOLUME
Days in Period 365 365 365 365 365 365

corporatefinanceinstitute.com
Sales Volume (Units/Day) 1,374 1,409 1,452 1,500 1,523 49 1,541
Sales Volume (Units) 501,490 514,139 530,136 547,630 555,845 562,515
Adding Indents Adjusting formats to indent can be

time consuming without Macabacus
Further subcategorization within
each schedule is recommended This produces a result similar to what is shown
in Fig 42 on the next page. In this example, the
We just had a detailed discussion about some of indents have been applied to the ‘Total Amount’
the techniques used to locate schedules nested and ‘Margin’ labels in Column B. Macabacus can
in a tall stack. Given that schedules play such greatly expedite this process since it has a ded-
a dominant role in financial models, we should icated shortcut for the Left Indent Cycle (CTRL
make sure that they are divided into clear sec- SHIFT I). This enables us to quickly insert indents
tions that are easy to navigate to. Earlier, we using cell formatting. However, those who are
discussed the idea that every schedule should be not using Macabacus may find it difficult to nav-
divided into three main sections. Starting from igate to the settings required for these indents.
the top, we have a section to enter amounts, Even when using the keyboard, navigating to
then we calculate, and finally, the figures will these settings can be difficult.
exit. All schedules should follow this general
structure from top to bottom. However, it is We can also use little columns
useful to have some further subcategorization to produce indents in models
within each schedule.
As discussed, the settings for adding indents into
The format of cells can be changed the format of cells can be difficult to get to. While
to produce visual indents using this approach produces a visual indent, it
does not help us physically navigate to the var-
One way to achieve this additional subcategori- ious headings shown on page 52 in Fig 43, like
zation is by creating visual indents. There are two Gross Profit or EBITDA. To solve this, we can use a
common ways to do this. The first technique is to different approach using little columns. In Fig 43,
change the format of the cells containing the la- we’ve placed the bold headings like Gross Profit,
bels to include indents. This can be done by going EBITDA, and EBIT in Column B. The secondary
into the Alignment Tab in the Format Cells dia- labels like Total Amount and Margin have been
logue box (CTRL 1) and changing the default Text placed in Column C.
Alignment Indent from zero to a higher number.
Profit Summary
Revenue 48,318 50,380 53,034 56,428 58,134 59,537
Gross Profit
Total Amount 19,834 20,569 20,817 26,091 27,235 28,181
Margin 41.0% 40.8% 39.3% 46.2% 46.8% 47.3%
EBITDA
Total Amount 12,193 11,996 11,083 16,065 16,959 17,699
Margin 25.2% 23.8% 20.9% 28.5% 29.2% 29.7%
EBIT
Total Amount 9,233 9,193 8,176 11,897 12,577 13,098
Margin 19.1% 18.2% 15.4% 21.1% 21.6% 22.0%
Fig 42: Indents using the Format Cells dialogue box
This type of indenting is quick and Also, an added benefit to the approach shown on
provides another navigational column the next page is that we have turned Column B
into a second navigational column. This allows us
When we compare the diagram above in Fig 42 to navigate quickly to the Profit Summary using
to the one on the next page in Fig 43, the visual Column A, then navigate to the subsections of the
result is almost identical. However, the approach Profit Summary using Column B.
shown on Fig 43 can be really quick to key in since
no modification to formatting is required.
Profit Summary
Revenue 48,318 50,380 53,034 56,428 58,134 59,537
Gross Profit
Total Amount 19,834 20,569 20,817 26,091 27,235 28,181
Margin 41.0% 40.8% 39.3% 46.2% 46.8% 47.3%
EBITDA
Total Amount 12,193 11,996 11,083 16,065 16,959 17,699
Margin 25.2% 23.8% 20.9% 28.5% 29.2% 29.7%
EBIT
Total Amount 9,233 9,193 8,176 11,897 12,577 13,098
Margin 19.1% 18.2% 15.4% 21.1% 21.6% 22.0%
Fig 43: Indents using little columns
Indenting with little columns can be little columns. This technique is fast and simple
preferred for speed and simplicity and does not introduce formatting that may not
be understood by others. By keeping things sim-
Although either of these indenting techniques can ple, we can ensure that our models can be built
work in a model, some have a slight preference quickly and are easy to understand.
for the technique we just discussed, which uses
Page 1 of 1
Consistent Labeling highlighted Total Costs in blue. We have also

Clear labeling is necessary for every row in shaded COGS in model
a financial blue in Fig 45. In a perfect
Clear labeling is necessary for world, these labels would be identical since they
everyWe’ve
row in a financial
now discussedmodel
how indents can help to
aredivide
linked schedules upword
together. The into‘Total’
clearisand
needed
defined sections. If we elect to use mini columns for indenting, then we get the
in the first instance below to indicate that the
added benefit of a navigation
We’ve now discussed how indents can helpcolumn within our schedules. Another important
Total Costs are the sum of the Variable and Fixed
topic that often gets overlooked is the importance of clear labeling for the various
to divide schedules up into clear and defined Costs. In the second instance below, we have
rows within a schedule.
sections. If we elect to use mini columns for used the label Cost of Goods Sold, or COGS, as
It is not always practical to use identical labels
indenting, then we get the added benefit of a for all linked
this nomenclature figures
is common on an income
navigation column within our schedules. Another statement. While it may seem prudent to use
Let’s topic
important now that
turnoften
our gets
attention to the
overlooked two diagrams below. In Fig XX, we have
is the identical labels for all linked figures, we recognize
highlighted Total Costs in blue. We have also shaded COGS in blue in Fig XX. In a
importance of clear labeling for the various rows that this is not always practical in all places in a
perfect world, these labels would be identical since they are linked together. The
within a schedule.
word ‘Total’ is needed in the first instance below to indicate
financial model. Forthat
thisthe Totalwe
reason, Costs
recommend
are the sum of the Variable and Fixed Costs.giving In thethe
second
model instance below,
designer some we with
flexibility
It is not
havealways
used thepractical to use
label Cost of Goods Sold, or COGS, as this nomenclature is
regards to labeling, provided it is clear and easy
identical labels
common onfor
anall linkedstatement.
income figures While it may seem prudent to use identical
for others to understand.
labels for all linked figures, we recognize that this is not always practical in all
places
Let’s now turninour
a financial model.
attention to the twoFor this reason, we recommend giving the model
diagrams
designer some flexibility with regards to labeling, provided it is clear and easy for
below and on the next page. In Fig 44, we have
others to understand.

COST SUMMARY

Total Costs (USD/Unit) 55.15 55.40 55.59 55.74 55.89 56.02
Variable Costs 6,568 6,989 7,200 7,374 7,537 7,688

Fixed Costs 22,668 23,348 23,698 23,983 24,246 24,489
Total Costs 29,236 30,337 30,898 31,356 31,783 32,177

Revenue 52,185 56,428 58,134 59,537 60,854 62,077

COGS 29,236 30,337 30,898 31,356 31,783 32,177
Gross Profit 22,949 26,091 27,235 28,181 29,071 29,900
Variable Costs 6,568 6,989 7,200 7,374 7,537 7,688
Fixed Costs 22,668 23,348 23,698 23,983 24,246 24,489
Total Costs 29,236 30,337 30,898 31,356 31,783 32,177

Revenue 52,185 56,428 58,134 59,537 60,854 62,077

COGS 29,236 30,337 30,898 31,356 31,783 32,177
Gross Profit 22,949 26,091 27,235 28,181 29,071 29,900
Capitalization Our view on model formatting is that small dis-

crepancies can make a big difference in financial
Capitalization seems trivial, but it can models. Even small inconsistencies on something
have a big impact on the formatting like capitalization can multiply over hundreds of
cells to produce a result that is visually unappeal-
Another aspect of labeling, which seems trivial ing. For this reason, we feel that some consider-
but warrants a discussion, is that of capitalization. ation on this subject is warranted.
Fig 46: Capitalization Formats
Another aspect of labeling, which seems trivial but warrants a discussion, is that
of capitalization. Our view on model formatting is that small discrepancies can
make a big difference Financial Modeling
in financial models. Guidelines
Even small inconsistencies on
something like capitalization can multiply over hundreds of cells to produce a
result that is visually unappealing. For this reason, we feel that some
consideration on this subject is warranted.
There are four types of capital conventions to consider for models

There are four types of capital completed or reviewed. In many ways, it looks in-
conventions
There aretofour
consider
types of forcapitalization
models complete
conventions and unprofessional.
to consider, as listed For these
below inreasons,
Fig XX. The screenshot below was taken fromwe thealways
Macabacus section
avoid lower of the Excel
case formatting in models.
Thereribbon showing
are four types ofthe Case Cycle
capitalization function. We will discuss this function later. But,
conven-
for now let’s consider each of these four types of capitalization
Using upper case to that are listed.
separate sections
tions to consider, as listed in the previous image
of a schedule can be quite effective
Fig 46.
FigThe screenshot
XX: in Fig 46Formats
Capitalization was taken from
the Macabacus section of the Excel ribbon show-
The next example on the following page in Fig
ing the Case Cycle function. We will discuss this
48 of a Working Capital Schedule shows a couple
function later. But, for now let’s consider each of
types of capitalization. First, we have used upper
these four types of capitalization that are listed.
case and bold to clearly define three sections
Lower case formatting looks within the schedule. This makes it obvious to a
incomplete and unprofessional reader that there are clear differences between
each of these three sections. We find that using
We would not advise using lower case format in upper case to highlight parts of a schedule like
Lower case formatting looks incomplete and unprofessional
financial models. An example of some income this can be quite effective.
statement items not
We would withadvise
lower case format
using is shown
lower case format in financial models. An example of
belowsome
in Figincome statement
47. This format makesitems with lower case format is shown below in Fig XX.
the model
This
appear asformat makes
though the the model
formatting appear
has not been as though the formatting has been
completed or reviewed. In many ways, it looks incomplete and unprofessional.
For these reasons, we always avoid lower case formatting in models.

revenue 52,185 56,428 58,134 59,537 60,854 62,077

cost of goods sold 29,236 30,337 30,898 31,356 31,783 32,177
gross profit 22,949 26,091 27,235 28,181 29,071 29,900
Using upper case to separate sections of a schedule can be quite effective
The next example in Fig XX below of a Working Capital Schedule shows a couple
types of capitalization. First, we have used upper case and bold to clearly define
three sections within the schedule. This makes it obvious to a reader that there
are clear differences between each of these three sections. We find that using
upper case to highlight parts of a schedule like this can be quite effective.
Fig 22: Working Capital Schedule

Days in Period 365 365 365 365 365 365

Revenue 52,185 56,428 58,134 59,537 60,854 62,077
COGS 29,236 30,337 30,898 31,356 31,783 32,177
AMOUNTS PER DAY

Accounts Receivable (Days) 46 45 45 45 45 45
Inventory (Days) 25 25 25 25 25 25
TOTAL AMOUNTS
Accounts Receivable 6,624 6,957 7,167 7,340 7,503 7,653
Inventory 2,009 2,078 2,116 2,148 2,177 2,204
Accounts Payable 3,319 3,325 3,386 3,436 3,483 3,526
NET WORKING CAPITAL

Current Assets 8,633 9,035 9,283 9,488 9,680 9,857
Current Liabilities 3,319 3,325 3,386 3,436 3,483 3,526
Net Working Capital 5,314 5,710 5,897 6,052 6,196 6,331
Cash From Working Capital Items (396) (187) (154) (145) (135)
Decide between sentence case and title case and avoid mixing them
Fig 48: In Fig XXCapital

Working above,Schedule
we are also using title case, which puts a capital letter at the
beginning of every word in each label. Alternatively, we could have used sentence
case, which only places a capital letter on the first word of each text string. Our
view on title case and sentence case is that either of them work well in financial
models. However, it is quite common for model builders to mix these two formats
since they are quite similar. Although this is easy to overlook, it is something that
we feel should be kept consistent in financial models.
Decide between sentence case and Even when differences are identified, it can be
title case and avoid mixing them quite tedious to make these types of formatting
changes in models. This is where we find the Case
In Fig 48, we are also using title case, which puts Cycle feature in Macabacus to be very helpful.
a capital letter at the beginning of every word
in each label. Alternatively, we could have used The Case Cycle function in Macabacus
sentence case, which only places a capital letter can save enormous amounts of time
on the first word of each text string. Our view on
title case and sentence case is that either of them As shown again below in Fig 49, the Case Cycle
work well in financial models. However, it is quite function in Macabacus rotates through sentence,
common for model builders to mix these two title, upper and lower case using the ALT SHIFT C
formats since they are quite similar. Although this shortcut. This allows us to select large portions of a
is easy to overlook, it is something that we feel financial model and quickly change the format with
should be kept consistent in financial models. regard to capitalization. Without this function, we
would be forced to make changes manually or by
It is difficult to spot the differences using text functions like UPPER, LOWER and PROP-
between sentence and title case ER which are more time consuming. Also, we are
not aware of a function in Excel that converts text
It is very easy to identify lower case and upper strings to sentence case. Overall, this Macabacus
case formats in financial models. However, it can function saves enormous amounts of time and
be difficult to spot the differences between helps to ensure our models are consistent.
sentence and title case since they are so similar.
Fig 49: Macabacus Case Cycle Function
Transparency Components left inside cells will not

be visible when the model is printed
Always break large formulas up into
a series of small, simple steps Let’s look at the Revolver Schedule below in Fig
50 as an example. There is a relatively complex
As we’ve
Cash discussed, we recommend that calcula-
From Operations formula in
7,732 the
8,741 Additions
10,210 (Repayments
11,417 )13,678
line,
tions should be done inside schedules in a finan- which is not easy to understand. We can see that
cial model. What is wonderful about using sched- there are a few components being added togeth-
ules for detailed calculations is that they provide er inside the MIN function below, but we would
the room required
Cash From to complete these computa-
Investing need
(18,264) to navigate
(3,725) to(3,024)
all these rows
(5,326)to check them.
(5,645)
tions, which are often quite complex. Many mod- Also, if we printed this model, we would not be
el builders make the error of trying to construct able to see the components inside this cell to
Issuance
financial Of Long-Term
models Debttoo
which are compact. In an - - - - (20,000)
understand it. This type of structure may be
attempt to use fewer rows in the worksheet, they compact, but it is not very transparent.
Change In Common Stock - - - 30,000 -
end up building long, complex formulas. The
problem with this approach is that the models
Dividends (3,796) (3,924) (4,694) (5,348) (6,687)
become difficult for others to understand.
23 Fig 23: Revolver Schedule

Revolver
Beginning - - 3,134 2,042 - -
Additions (Repayments) =-MIN(J271+J280+J286+J290+J293+J296,J308)
3,134 (1,092) (2,042) - -
Ending - 3,134 2,042 - - -
Interest Rate 7.8% 7.8% 7.8% 7.8% 7.8%

Interest Expense 122 202 80 - -

Fig 50: Revolver
All figures Schedule
in USD thousands unless stated 2022A 2023F 2024F 2025F 2026F 2027F
Cash Available For Revolver

Beginning Cash Balance 11,195 - - 449 31,193
Cash From Operations 7,732 8,741 10,210 11,417 13,678
Cash From Investing (18,264) (3,725) (3,024) (5,326) (5,645)
Issuance Of Long-Term Debt - - - - (20,000)
Dividends (3,796) (3,924) (4,694) (5,348) (6,687) 58
Change In Common Stock
Financial Modeling- Guidelines
- - 30,000 -
Dividends (3,796) (3,924) (4,694) (5,348) (6,687)
Positioning Precedents of the model. We need to remember that models

23 Fig 23: Revolver Schedule are decision making tools. In order to have
We All
should prioritize
figures in USD transparency
thousands unless stated over
2022A 2023F 2024F
confidence that the2025F
model can2026F
help with2027F
an
many other design characteristics important decision, the audience must be able
Revolver to see into its working components. This is why
Beginning
Instead of aiming for the model to be compact, - 3,134 2,042 - -
Additions (Repayments) transparency
3,134 (1,092) must(2,042)
be prioritized over
- other -
model builders should prioritize the transparency-
Ending model design
3,134 2,042 characteristics.
- - -
Interest Rate 7.8% 7.8% 7.8% 7.8% 7.8%


Cash Available For Revolver

Beginning Cash Balance 11,195 - - 449 31,193
Cash From Operations 7,732 8,741 10,210 11,417 13,678
Cash From Investing (18,264) (3,725) (3,024) (5,326) (5,645)
Issuance Of Long-Term Debt - - - - (20,000)
Dividends (3,796) (3,924) (4,694) (5,348) (6,687)
Subtotal (3,134) 1,092 2,491 31,193
31,193 12,539
Revolver
Beginning - 3,134 2,042 -- -
Additions (Repayments) 3,134 (1,092) (2,042) =-MIN(L328,L332)
- -
Ending - 3,134 2,042 - - -
Interest Rate 7.8% 7.8% 7.8% 7.8% 7.8%

CIRCULARITY
Fig 51: Revolver Schedule

27 Fig 27: Condensed Model Showing Two Common Circular Paths
CASH REVOLVER
INCOME STATEMENT
Net Interest Expense 27 202 76 70 117
Net Income 7,033 7,543 7,934 8,316 8,649
CASH FLOW STATEMENT

Net Income 7,033 7,543 7,934 8,316 8,649
Change in Cash (11,195) – 449 2,510 (1,254)
Change in Cash Excluding Revolver
corporatefinanceinstitute.com (3,134) 1,092 2,491 (2,541) 1,059 59
Model Transparency: Why is it important above, we are showing all the precedent cells
for all to see adding to a subtotal which then feeds into the
revolver line labeled as Additions (Repayments).
In order to ensure that everyone can see into all
parts of a model, large formulas should be bro- Our team should be comfortable
using the model to make decisions
ken down into small components. Please refer to
Fig 51 on the previous page to see the Revolver
Given the importance of model transparency,
Schedule from the last example with an improved
we have also provided Fig 52 on the next page.
structure. In the top section of this schedule in
As you can see, we have navigated into one cell
Fig 51, labeled as Cash Available for Revolver, we
and hit the F2 key to display the formula . We are
have shown all the figures and how they add to a
printing the precedents since we can clearly see
subtotal. Each one of these line items will show up
every cell which is contributing to the accounts
clearly in a print. This layout is much easier to un-
receivable balance in 2023. Following our guide-
derstand since we can see that the deficit of $3.1
lines for printing precedents will use more rows
million in fiscal 2023 will be drawn as an addition
in your financial models. But, the advantage to
to the revolver. Similarly, the excess of $1.1 mil-
pursuing this approach is that you will produce
lion in the fiscal 2024 can repay a portion of the
models that are truly transparent and easier
revolver balance.
for others to understand. We should always be
We should try to print the precedents on striving to create an environment that makes our
every page of the financial model team more comfortable with using the model to
inform their decisions.
A great way to make sure that a model has good
transparency is to always print the precedents.
When we review a model and look at each page,
we ideally would want to be able to see all the
precedent cells in print. Having them printed in
close proximity makes the model so much easier
to understand. Also, positioning precedent cells
close by will help others understand the model
during a peer-review process. In the example
revenue
Financial 52,185
Modeling
56,428
Guidelines
58,134 59,537 60,854 62,077
cost of goods sold 29,236 30,337 30,898 31,356 31,783 32,177
gross profit 22,949 26,091 27,235 28,181 29,071 29,900
22 Fig 22: Working Capital Schedule

Days in Period 365 365

365 365 365 365 365
Revenue 52,185 56,428
56,428 58,134 59,537 60,854 62,077
COGS 29,236 30,337 30,898 31,356 31,783 32,177
AMOUNTS PER DAY

Accounts Receivable (Days) 46 45
45 45 45 45 45
Inventory (Days) 25 25 25 25 25 25
TOTAL AMOUNTS
Accounts Receivable 6,624 =(I250/I$244)*1245
6,957 7,167 7,340 7,503 7,653
Inventory 2,009 2,078 2,116 2,148 2,177 2,204
Accounts Payable 3,319 3,325 3,386 3,436 3,483 3,526
NET WORKING CAPITAL

Current Assets 8,633 9,035 9,283 9,488 9,680 9,857
Current Liabilities 3,319 3,325 3,386 3,436 3,483 3,526
Net Working Capital 5,314 5,710 5,897 6,052 6,196 6,331
Cash From Working Capital Items (396) (187) (154) (145) (135)
Fig 52:Beginning
Working Capital
Cash Schedule
Balance 11,195 - - 449 31,193
Corkscrews depreciation, then sum all the components to

arrive at the ending PP&E balance.
Corkscrews are great structures to
track balances changes over time A sum function is often used at
the bottom of a corkscrew
Within model schedules, there are a few com-
mon structures that work really well and should A number of additions or subtractions may be
be used as standard practice. One such struc- performed within the period to arrive at an end-
ture is a corkscrew, as shown in Fig 53 below ing balance. However, one common consistency
using Corkscrews
an example ofare greatplant
property, structures
& equip-to track is
balances changes
that the ending overis time
balance usually just the sum
ment (PP&E). These structures are typically re- of the additions or subtractions above it. In the
Within model schedules, there are a few common structures
below example, thethat work
ending reallythen
balance wellflows
ferred to as corkscrews (or roll-forwards) since
and should be used as standard practice. One such structure is a corkscrew, as
information directly into the beginning balance of the next
shownflows
in Figfrom left to right
XX below usingfollowing a
an example of property, plant & equipment (PP&E).
These
corkscrew structures
pattern. They are typically
generally startreferred period. As the(or
on the to as corkscrews information flows top-to-bottom
roll-forwards) since
information
left side of a model flows
with anfrom leftbalance.
ending to rightThe and left-to-right, it follows a corkscrew
following a corkscrew pattern. They generally pattern.
ending start on the

balance from left side
this of a model
starting with an ending balance. The ending balance from
period then
this starting period then flows directly into the beginning balance for the next
flows directly into the beginning balance for the
period. Looking below, we start with beginning PP&E, add capital expenditure,
next period.
subtractLooking below, wethen
depreciation, startsum
with all
be-the components to arrive at the ending PP&E
ginningbalance.
PP&E, add capital expenditure, subtract
Make sure the corkscrew stays aligned properly with the figure below.
Fig 1: Property, Plant & Equipment Corkscrew


Beginning 65,231 65,286 65,191 64,933 64,504
Accounting Depreciation (4,168) (4,381) (4,596) (4,814) (5,035)
Ending 65,231 65,286 65,191 64,933 64,504 63,898
A sum function is often used at the bottom of a corkscrew
Fig 53:AProperty,
numberPlant
of additions or subtractions
& Equipment Corkscrew may be performed within the period to
arrive at an ending balance. However, one common consistency is that the ending
balance is usually just the sum of the additions or subtractions above it. In the
example above, the ending balance then flows directly into the beginning balance
of the next period. As the information flows top-to-bottom and left-to-right, it
follows a corkscrew pattern.
Corkscrews are regularly used to model and track debt balances
Make sure the corkscrew stays aligned properly with the figure below.
Fig 1: Property, Plant & Equipment Corkscrew

Beginning 65,231 65,286 65,191 64,933 64,504
Corkscrews are regularly used to
Capital Expenditure Corkscrews
4,223 4,286 are often
4,338 used to
4,385 4,429
model and track
Accounting debt balances
Depreciation track changes
(4,168) (4,381) in(4,596)
equity as well
(4,814) (5,035)
Ending 65,231 65,286 65,191 64,933 64,504 63,898
Corkscrews are a great way to track any balance Equity schedules also use corkscrews to track
that isAchanging
sum function is from
over time often used
one at into
period the bottom ofbalances.
their a corkscrew
A company with two types of equi-
the next. Debt schedules in financial models are ty may actually use three corkscrews in its equity
A number of additions or subtractions may be performed within the period to
often built using corkscrews. In Fig 54 below, schedules. There could be one corkscrew for
arrive at an ending balance. However, one common consistency is that the ending
we’vebalance
shown anisexample of a Long Term Debt preferred equity, one for
usually just the sum of the additions or subtractions the common
above it. In theequity, and
example
corkscrew. above,
Generally, thecorkscrew
one ending balance
would then flows directly
a third one tointo the
track beginning
retained balance
earnings. In Fig 55 on
of the next period. As the information
be used for each piece of debt in a model. For flows top-to-bottom and left-to-right, it
the next page, we have shown an example of a
follows a corkscrew pattern.
instance, a company with long-term debt, mez- retained earnings corkscrew. This example starts
zanine debt, and a revolver would likely havewith the beginning retained earnings balance; we
Corkscrews are regularly used to model and track debt balances
three separate corkscrews to track the balances add net income and subtract dividends to arrive
Corkscrews
for each are a great way to track any balance
piece of debt. at thethat is changing
ending balance forover timeearnings.
retained from Lay-
one period into the next. Debt schedules in financial
ing out all models are often
the components intobuilt using like
a corkscrew
corkscrews. In Fig XX below, we’ve shown anthis
example of a Long Term Debt
makes the model easy to follow on the com-
corkscrew. Generally, one corkscrew would be used for each piece of debt in a
puter and in printed format.
model. For instance, a company with long-term debt, mezzanine debt, and a
revolver would likely have three separate corkscrews to track the balances for
each piece of debt.
Fig 2: Long Term Debt Corkscrew
Long Term Debt

Beginning 110,000 100,000 90,000 80,000 70,000
Additions (Repayments) (10,000) (10,000) (10,000) (10,000) (10,000)
Ending 110,000 100,000 90,000 80,000 70,000 60,000
Interest Rate 6.2% 6.2% 6.2% 6.2% 6.2%

Interest Expense 6,510 5,890 5,270 4,650 4,030
Corkscrews are often used to track changes in equity as well
Equity schedules also use corkscrews to track their balances. A company with two
types
Corkscrews of equity aremay
oftenactually
useduse three changes
to track corkscrews in in its equity
equity schedules. There
as well
could be one corkscrew for preferred equity, one for the common equity, and a
Thesethird one
formations
Equity to track
schedules retained
are used
also in many
use earnings. IntoFig
corkscrews XX
track below,
will often
their we have
use
balances. Ashown
corkscrews to an
company keepexample
tracktwo
with of their
otheroftypes a retained
places ofin earnings
financial
equity may models corkscrew.
actually This corkscrews
use three example starts
reservesin or with
its the schedules.
beginning
resources.
equity retained
We have shownTherean ex-
earnings balance; we add net income
could be one corkscrew for preferred equity,ample and subtract
one fordividends
of athe to
common
Reserve arrive at
equity,
Corkscrew the
and
in Fig 56abelow.
ending
third balance
one to for retained earnings. Laying out all the components into a
Another example of track retained
a schedule earnings.
that often uses In Fig XX below,
This we have
schedule showsshown an example
consistent depletion over
corkscrew
of a retained like this makes
earnings the
corkscrew. model easy
This to
example follow on
starts the
with computer
the and
beginning in
retained
corkscrews
printed is aformat.
tax schedule where a pool of time due to production as well as some expected
earnings balance; we add net income and subtract dividends to arrive at the
tax losses may need to be tracked over time as
ending balance for retained earnings. Layingreserve out alladditions over the next
the components intotwoa years.
Fig
changes 3:
occur. Also, Retained
natural Earnings Corkscrew
corkscrew like this resource
makes the companies
model easy to follow on the computer and in
printed format.
Fig 3:
Retained Earnings
Retained Earnings Corkscrew
AllBeginning
figures in USD thousands unless stated 2022A 79,120
2023F 85,654
2024F 92,938
2025F 97,277
2026F 101,762
2027F
Net Income 8,167 9,106 5,423 5,606 6,706
Dividends
Retained Earnings (1,633) (1,821) (1,085) (1,121) (1,341)
Ending
Beginning 79,120 85,654
79,120 92,938
85,654 97,277
92,938 101,762
97,277 107,126
101,762
Net Income 8,167 9,106 5,423 5,606 6,706
These formations are used in many other
Dividends places(1,821)
(1,633) in financial
(1,085)models
(1,121) (1,341)
Ending 79,120 85,654 92,938 97,277 101,762 107,126
Another example of a schedule that often uses corkscrews is a tax schedule
where a pool of tax are
These formations losses may
used inneed
manytoother
be tracked
placesover time as changes
in financial modelsoccur.
Also, natural resource companies will often use corkscrews to keep track of their
reserves
Fig 55:Another
or resources.
Retainedexample
We have that
of a schedule
Earnings Corkscrew
shown an uses
often example of a Reserve
corkscrews Corkscrew
is a tax schedulein Fig
XX below.
where Thisofschedule
a pool shows
tax losses may consistent
need to bedepletion overtime
tracked over timeasdue to production
changes occur.
as well as some expected reserve additions over the next two years.
Also, natural resource companies will often use corkscrews to keep track of their
reserves or resources. We have shown an example of a Reserve Corkscrew in Fig
XX 4:
Fig below. This schedule
Mineral showsCorkscrew
Reserve consistent depletion over time due to production
as well as some expected reserve additions over the next two years.
Fig 4:
Mineral Reserves
Mineral Reserve Corkscrew
AllBeginning
figures in USD thousands unless(000 t)
stated 2022A 204,561
2023F 226,683
2024F 248,742
2025F 230,216
2026F 212,530
2027F
Additions (000 t) 40,000 40,000 - - -
Production
Mineral Reserves (000 t) (17,878) (17,941) (18,526) (17,686) (17,486)
Ending
Beginning (000 t) 204,561 226,683
204,561 248,742
226,683 230,216
248,742 212,530
230,216 195,044
212,530
Additions (000 t) 40,000 40,000 - - -
Production (000 t) (17,878) (17,941) (18,526) (17,686) (17,486)
Ending (000 t) 204,561 226,683 248,742 230,216 212,530 195,044
Fig 56: Mineral Reserve Corkscrew
Waterfalls Each time period is given its own

dedicated row in a waterfall
Waterfall formations are often
used in depreciation schedules Waterfalls are helpful in this case as they allow
us to calculate the depreciation for new assets
Another common formation that is used in fi- that are expected to go into service in future
nancial modeling is a waterfall. These are easy to periods. In the first row in Fig 57, we are showing
spot in models as they are organized in a triangu- the depreciation for new assets expected to go
lar structure. In Fig 57 on the next page, it is easy into service in 2023. In the subsequent row, we
to spot the triangular formation since we have show depreciation for assets beginning service
shaded it in grey. These formations are often in 2024. And so on, as we progress downwards
used in depreciation schedules as shown in this through the waterfall.
example.
Waterfalls use more space but
Time periods are shown on both make the model easier to follow
a horizontal and vertical axis
This structure is helpful since it clearly shows
Without stating the obvious, financial models when a group of assets goes into service. It
usually have time periods shown from left to also shows how much depreciation is expected
right across columns. In a waterfall schedule, for that group of assets in every future period.
the time periods are shown from left to right Essentially, each period of capital investment is
and also from top to bottom. We can see this given its own dedicated row in the model. One
below in the grey shaded waterfall with years disadvantage of using a waterfall structure is
extending down the left side and also years that they can use a lot of rows in a model that
across the top. In this sense, the waterfall forms extends for many periods. However, a big advan-
a matrix with periods on both the horizontal tage of waterfall formations is that they are well
and the vertical axis. This matrix is then divided spaced out and very clear. Essentially, they make
into two triangles, with the top triangle in grey the model easier to understand and follow.
being used for calculated values. These values,
which are in a triangular formation, are often
referred to as a waterfall.
the grey shaded waterfall with years extending down the left side and also years
across the top. In this sense, the waterfall forms a matrix with periods on both
the horizontal and the vertical axis. This matrix is then divided into two triangles,
with the top triangle in grey being used for calculated values. These values, which
are in a triangular formation, are often referred to as a waterfall.
Fig 5: Depreciation Waterfall

Corkscrews are used extensively when modeling debt and equity

NEW ASSET DEPRECIATION
Some
UsefulofLifethese
in Yearsstructures we’ve discussed, like corkscrews and waterfalls, are
20.00
common in model
First Year Depreciation schedules.
50% In fact, corkscrews are used extensively in debt and
equity schedules. If a company only has equity in its capital structure, then the
debt
Yearschedules CapexcouldPer
beYr omitted unless the company
2023F was considering
2024F 2025F debt 2027F
2026F
financing
2023F in the
4,223future.211 106 211 211 211 211
2024F 4,286 214 - 107 214 214 214
The capital structure
2025F 4,338 is one of the most difficult
217 - parts
- of the
108 model to build
217 217
2026F 4,385 219 - - - 110 219
The models for
2027F 4,429mature 221companies with more complex - capital
- structures
- can
- have
111
multiple schedules for the company’s debt and its equity. Levered buyout (LBO)
models
New Asset canDepreciation
have even more complex capital106 structures.
318 In fact,
534the capital
752 972
structure can be one of the most difficult parts of a financial model to build. Using
schedules that provide the space necessary for detailed debt and equity
Each time period
calculations is highlyis given its own dedicated
recommended in all cases.row in athese
Within waterfall
schedules, it is best
to use a corkscrew to track each piece of capital individually. As a reminder, an
Fig 57: Depreciation Waterfall
Waterfalls
example ofare helpful in this
a Long-Term Debt case as they allow
corkscrew us to
is shown calculate
below in Figthe
XX.depreciation
Using a for
new assetsstructure
consistent that are expected to go into
with corkscrews willservice
help toinsimplify
future periods.
and track Inthe
the various
first row
in Fig XX above, we are showing
pieces of debt and equity for the company. the depreciation for new assets expected to go
into service in 2023. In the subsequent row, we show depreciation for assets
Fig 2:
beginning Long Term
service in 2024. DebtAndCorkscrew
so on, as we progress downwards through the
waterfall.
Waterfalls use more space but make the model easier to follow
Long Term Debt
Beginning 110,000
This structure is helpful since it clearly shows when100,000
a group of 90,000 80,000
assets goes into 70,000
Additions (Repayments)
service. It also shows how much depreciation (10,000) (10,000) for(10,000)
is expected (10,000)
that group (10,000)
of assets
Ending
in every future period. Essentially, 110,000 100,000of capital
each period 90,000 investment
80,000 is70,000
given its60,000
own dedicated row in the model. One disadvantage of using a waterfall structure
is that Rate
Interest they can use a lot of rows in a model that
6.2% extends6.2% for many
6.2% periods.
6.2% 6.2%
However, a big advantage of waterfall formations
Interest Expense 6,510 is that
5,890 they 5,270
are well spaced
4,650 out4,030
and very clear. Essentially, they make the model easier to understand and follow.
The financial statements should just link to schedules or to each other

Keeping the complex calculations limited to the schedules means that we should
not need to perform calculations within the financial statements. For example, we
would not calculate the company’s revenue on the top line of the income
statement. We would build a Revenue Schedule and then link the resulting
revenue into the income statement. This limits the calculations to the schedules
and means that the company’s financial statements are primarily just links.
Debt & Equity Schedules The financial statements should just

link to schedules or to each other
Corkscrews are used extensively
when modeling debt and equity Keeping the complex calculations limited to the
schedules means that we should not need to
Some of these structures we’ve discussed, like perform calculations within the financial state-
corkscrews and waterfalls, are common in model ments. For example, we would not calculate the
schedules. In fact, corkscrews are used extensive- company’s revenue on the top line of the income
ly in debt and equity schedules. If a company only statement. We would build a Revenue Sched-
has equity in its capital structure, then the debt ule and then link the resulting revenue into the
schedules could be omitted unless the company income statement. This limits the calculations
was considering debt financing in the future. to the schedules and means that the company’s
financial statements are primarily just links.
The capital structure is one of the most
difficult parts of the model to build Balancing the financial statements
is easier if they are just links
The models for mature companies with more
complex capital structures can have multiple Only putting links in the financial statements
schedules for the company’s debt and its equity. makes them easier to connect and balance. Any-
Levered buyout (LBO) models can have even more one that has had the experience of trying to link
complex capital structures. In fact, the capital and balance a company’s financial statements
structure can be one of the most difficult parts of might agree that it is not always easy. Adding
a financial model to build. Using schedules that complex calculations into the financial state-
provide the space necessary for detailed debt and ments will make this process even more difficult.
equity calculations is highly recommended in all Limiting the statements to just links will greatly
cases. Within these schedules, it is best to use a simplify this process.
corkscrew to track each piece of capital individual-
ly. As a reminder, an example of a Long-Term Debt
corkscrew is shown on the previously in Fig 58.
Using a consistent structure with corkscrews will
help to simplify and track the various pieces of
debt and equity for the company.
Financial Statements Many model designers will match the order in

which the statements have been presented by
Companies often have flexibility to the company, which can be the best solution in
present their statements in any order many cases. However, one downside to this ap-
proach may be that the model components don’t
A company’s financial statements include the always flow from top-to-bottom.
income statement, cash flow statement, and the
balance sheet. Companies do not always present The blue arrows below show the top
these statements in the same order. In fact, the to bottom flow with the statements
governing bodies in many jurisdictions around
the world often give the companies the flexibility When prioritizing top to bottom flow in a financial
to present the financial statements in any order, model, it may be best to start with the income
provided that all the statements are included. statement, then the cash flow statement, followed
by the balance sheet. This order is shown in Fig 59
They will often lead with a statement on the next page. The blue arrows illustrate how
that highlights a valuable attribute this order provides a good flow from the top to
bottom. The income statement always ends with
We often find that companies may follow an or- net income, which flows directly to the beginning
der that highlights their most valuable attributes. of the cash flow statement. The bottom of the
For example, a company with high quality assets cash flow statement will show the company’s end
may present its balance sheet first. Similarly, a of period cash balance, which flows directly down
company with an impressive level of profitability into the top of the balance sheet.
may lead with its income statement.
This order is sometimes preferred to
Selecting the best order involves prioritize the top to bottom flow
balancing model flow and presentation
While this order does not achieve perfect top
When planning the structure of a financial mod- to bottom flow in all places, it is often preferred
el, a decision will need to be made regarding the unless there is a compelling reason to change
order of the financial statements. When plan- from this order. As discussed earlier, matching
ning this order, we may need to balance what is the order in which a company presents its finan-
best from a presentation perspective with what cial statements may be a good reason to deviate
makes sense in terms of flow for the model. from this order.
Even a small error in the statements Following our recommendations can

can prevent them from balancing help to balance a financial model
Having the financial statements in an order for To help with this process, we recommend avoid-
smooth top-to-bottom flow provides a good ing calculations on the financial statements as
structure for a financial model. However, even discussed earlier. This limits the statements to
with this structure, linking and balancing the only links and will facilitate the process of con-
financial statements can prove to be quite diffi- necting and balancing them. This, together with
cult. In fact, many people struggle to correctly a structure that provides sound top-to-bottom
balance a company’s financial statements. Even flow, will help professionals through this more
just one small error in the statements can easily difficult part of the model building process.
Interest Income 95 - 4 29 40
preventNet
the balance sheet
Interest Expense
from balancing. 27 202 76 70 117
24 Fig 24: Simplified Financial Statements to Illustrate Flow

INCOME STATEMENT
Net Income 7,033 7,907 7,934 8,316 8,649
CASH FLOW STATEMENT

Net Income 7,033 7,907 7,934 8,316 8,649
Ending Cash Balance 1,846 4,422 1,380 4,504 1,571
BALANCE SHEET
Cash 1,846 4,422 1,380 4,504 1,571
Liabilities & Shareholders' Equity 65,753 69,878 72,468 75,309 77,695
30 Fig 59:
Fig Simplified
30: Example with Currency
Financial Statements Format
to Illustrate Flow
All figures in thousands unless stated 2022A 2023F 2024F 2025F 2026F 2027F
Retained Earnings
Beginning $61,014 $67,548 $74,832 $79,171 $83,656
Net Income $8,167 $9,106 $5,423 $5,606 $6,706
Dividends ($1,633) ($1,821) ($1,085) ($1,121) ($1,341)
Ending $61,014 $67,548 $74,832 $79,171 $83,656 $89,020
31 Fig 31: Example with Number Format

Circularity In Fig 60 on the next page, we have shown the

two most common circular paths that occur in
Modeling community members often financial models. As indicated, there can be a cir-
have polarized views on circularity cular loop that flows through a company’s cash
schedule and another loop through the revolver.
Another element that can make financial state- Let’s start by walking through the loop that flows
ments difficult to connect and balance is that through the cash schedule.
they are often circular. Circularity is a subject
in financial modeling that is quite complex and We have used grey shading to highlight
often debated. Members of the modeling com- the nodes on the cash loop
munity often have polarized views with respect
to circularity. Some avoid circularity since it re- In Fig 60, we have highlighted the loop through
quires more advanced modeling and Excel skills the cash schedule in the column showing the
and can lead to errors. Others will advocate that information for 2024. We have also highlighted
it is necessary in order to make the models as the nodes or stops along the circular loop with
accurate as possible. grey shading to make its path clear. A company
that has a cash balance will earn interest in-
We prefer to discuss possible circularity come, which lowers its net interest expense and
issues and how to address them has a positive effect on net income. Net income
flows into the cash flow statement, increases
We like to take a more balanced approach and the change in cash, and leads to a higher ending
understand the benefits as well as the risks cash balance. The higher ending cash balance
associated with model circularity. We strive to has a positive impact on the interest income
provide our learners with a clear understanding calculation. This is due to the fact that interest
of how circular models work. We also discuss the income is calculated based on the average of the
issues that can arise and how to address them if beginning and ending balance multiplied by the
they occur. Before we dive into a discussion on interest rate. The higher interest income lowers
circularity, it is important to understand where it net interest expense, which flows back up to the
often occurs in financial models. income statement to begin the loop again. In this
example, cash leads to incrementally more cash
The most common circular loops as the model cycles through the iterations.
are from cash balances and revolvers
calculated based on the average of the beginning and ending balance multiplied
by the interest rate. The higher interest expense increases the net interest
Financial
expense and circles back up to the Modeling Guidelines
income statement. Thus, as the company
draws on its revolver, it causes the need to draw more on the revolver. The
process is thus circular or depends on itself.
Fig 27: Condensed Model Showing Two Common Circular Paths

CASH REVOLVER
INCOME STATEMENT
Net Income 7,033 7,543 7,934 8,316 8,649
CASH FLOW STATEMENT

Net Income 7,033 7,543 7,934 8,316 8,649
Change in Cash (11,195) – 449 2,510 (1,254)
Change in Cash Excluding Revolver (3,134) 1,092 2,491 (2,541) 1,059
REVOLVER SCHEDULE
Beginning - 3,134 2,042 - 2,541
Additions (Repayments) 3,134 (1,092) (2,042) 2,541 (1,059)
Ending - 3,134 2,042 - 2,541 1,482
Interest Rate 7.8% 7.8% 7.8% 7.8% 7.8%

Interest Expense 122 202 80 99 157
CASH SCHEDULE
Beginning 11,195 – – 449 2,959
Change in Cash (11,195) – 449 2,510 (1,254)
Ending 11,195 – – 449 2,959 1,705
Interest Rate 1.7% 1.7% 1.7% 1.7% 1.7%

Interest Income 95 – 4 29 40
NET INTEREST EXPENSE

Interest Expense 122 202 80 99 157
Fig 60: Condensed Model Showing Two Common Circular Paths
Drawing on the revolver leads to that the model is using an average of begin-
incrementally more need to draw ning and end balances to calculate the interest
amounts. The reason model builders prefer to
Let’s bring up Fig 60 again to now walk through use an average of beginning and ending balances
the circular loop involving the revolver. A compa- is that this makes financial models more accu-
ny that is drawing on its revolver will be paying rate. So, in order for our models to be as accu-
incrementally more net interest expense. The rate as possible, they will need to be circular.
higher net interest expense will result in lower net
income, which flows into the cash flow statement. We discuss circularity topics in detail
As it progresses through the cash flow statement, in our financial modeling courses
it will change the line labeled as Change in Cash
Excluding Revolver. The Change in Cash Exclud- Managing model circularity is something that
ing Revolver line then dictates how much may be we discuss in detail in our courses on financial
added or repaid on the revolver and influences modeling. In this document, we have covered
the ending revolver balance. This impacts the two of the most common circular loops that
interest expense since it is calculated based on appear in financial models. However, there are
the average of the beginning and ending balance other circular paths that are required in more
multiplied by the interest rate. The higher interest advanced financial models. Also, it is important
expense increases the net interest expense and to understand how to properly manage circulari-
circles back up to the income statement. Thus, as ty through the use of circuit breakers or formulas
the company draws on its revolver, it causes the that allow the model to self-correct in the event
need to draw more on the revolver. The process is that an error is introduced into one of the cir-
thus circular or depends on itself. cular paths. Finally, an understanding of some
common techniques for finding circular loops
Circularity is needed in models to is helpful. This allows us to be confident when
make them as accurate as possible working with a circular model that someone else
has designed. These are all topics that we discuss
This means that a model with a schedule for cash in detail in our courses.
and another schedule for its revolver will have
two circular loops. This will hold true provided
Formatting the model. A clean and professional format will

instill confidence in the audience and make them
Models should be well structured with comfortable with the idea of using the model to
clean and professional formats inform their decisions.
Let’s turn our attention now from model cir- Great formatting is from the combined
cularity over to formatting. While circularity is impact of many individual factors
needed for model accuracy, formatting is criti-
cally important in financial models for a number In order to achieve the best possible format for a
of reasons. When considering formatting, we financial model, a number of attributes will need to
need to remember that financial models are be considered. Taken individually, these attributes
decision-making tools. In order for someone may seem insignificant. But, together, they can
to be comfortable using the model to make an have a very large impact on the overall look and
important decision, they must have confidence feel of the model. Model formatting is something
in the model and be comfortable with it. One of that is often overlooked or rushed in the process
the primary ways that we can instill confidence of model design. However, it can be the difference
in others is by having a format that is well struc- between a model that gains significant traction and
tured, clean, and professional. trust and one that is discarded by the team.
A well-formatted model helps to

instill confidence in the audience
The format of a model is often the first thing that

readers notice. An example of a well-formatted
Income Statement is shown on the next page in
Fig 61. Before someone considers the amount or
magnitude of the figures in the model, they often
make an unconscious judgment about the overall
look of the model. This is the moment when the
formatting matters the most. It helps to ensure
that everyone has a good first impression of
attributes will need to be considered. Taken individually, these attributes may
seem insignificant. But, together, they can have a very large impact on the overall
look and feel of the model. Model formatting is something that is often
overlooked or rushed in the process of model design. However, it can be the
difference between a model that gains significant traction and trust and one that
is discarded by the team.

Revenue 52,185 56,428 58,134 59,537 60,854 62,077

COGS 31,368 30,337 30,898 31,356 31,783 32,177
Gross Profit 20,817 26,091 27,235 28,181 29,071 29,900
SG&A 7,708 7,939 8,138 8,300 8,425 8,551

Other 2,026 2,087 2,139 2,182 2,214 2,248
EBITDA 11,083 16,065 16,959 17,699 18,431 19,101
Depreciation 2,907 4,168 4,382 4,600 4,823 5,049

EBIT 8,176 11,897 12,577 13,098 13,609 14,052
Interest 2,448 2,520 2,520 2,520 2,520 2,520

EBT 5,728 9,377 10,057 10,578 11,089 11,532
Current Tax – – 132 2,353 2,586 2,793

Deferred Tax 1,577 2,344 2,382 291 186 90
Total Tax 1,577 2,344 2,514 2,645 2,772 2,883
Net Income 4,151 7,033 7,543 7,934 8,316 8,649
Font Types All workbooks and building blocks should have

the same font type throughout the model. The
A clear and professional font type font colors and sizes can be adjusted in the mod-
should be used in financial models el to highlight sections or convey key metrics.
However, the type of font used should always be
One of the formatting choices that model design- kept consistent throughout the model.
ers often consider early in the process is the font
type. The font type can have a significant impact A change to the font type should
on the look of the model. There are thousands of be considered for an entire schedule
font types available, and model designers have
plenty of choices here. Generally, a font should In the font section in the home menu in Excel,
be selected that has a clean and professional there are samples that provide an overview of
look. We need to remember that the model the various fonts. Although these are helpful,
needs to be clear and instill confidence in the they are often not sufficient to gauge the overall
reader. The selection of font type can help in this impact of a font type change on the look and
regard. It is one of the primary formatting choic- feel of the model. It can be helpful to select one
es that can establish the overall aesthetic of the schedule of the model to view the impact of a
financial model. change to the font type. For instance, making
multiple copies of a particular schedule or page
Many companies may have brand in a model and setting each copy to a different
standards that define the font type font type can be quite helpful.
If the model is being designed for a particular

company with established branding standards,
then the font used in the model should be con-
sistent with those standards. Also, only one font
type should ever be used in the model.
Custom Number Formats We recommend avoiding currency

symbols to avoid a busy looking model
Branding standards often do not
specify the detailed number formats A decision that will need to be made regarding
Custom Number Formatting is whether or not to
Once the font type has been selected, the num- display currency symbols in the number for-
ber formats should be considered. Again, it is mats. In the examples on page 78 in Fig 63 and
important to check whether the model should 64, we have shown two options. The first one is
adhere to defined corporate branding standards. a currency format, which places a dollar sign at
While standards will often set the required font the beginning of each number. The only differ-
type, they don’t always define all aspects of the ence with the second format is that it omits the
number formats. dollar sign. As you can see, the second option
looks cleaner with more white space since it
We can define how positives, negatives, omits the repetitive dollar signs. To make up for
zeroes, and text are displayed
the missing dollar signs in Fig 64, the note at the
top left has been adjusted to ‘All figures in USD
In Fig 62 on the next page, we have shown the
thousands unless stated.’ This note provides ad-
Format Cells dialogue box, which can be ac-
equate information to the reader about the units
cessed using the CTRL 1 shortcut. As shown in
without the need to repeat the dollar signs.
Fig 62, we have navigated down the left-hand
side to the Custom Category. There is a long syn-
tax that has been keyed into the Type box. This is
where we can control the formatting that Excel is
using for numbers. With these settings, we can
define the way Excel displays positives, nega-
tives, zeroes, and text. Setting this syntax up is
referred to as Custom Number Formatting.
Fig 62: Custom Number Formatting
only difference with the second format is that it omits the dollar sign. As you can
We recommend
see, the second option avoiding lookscurrency symbols
cleaner with moreto avoid
white a busy
space sincelooking
it omits model
the
repetitive dollar signs. To make up for the missing dollar signs in Fig XX, the note
A decision
at the top left thathas
willbeen
needadjusted
to be made regarding
to ‘All figures in Custom Number Formatting
USD thousands unless stated.’is
whether
This noteor not to display
provides adequate currency symbols
information to in
thethe number
reader aboutformats.
the unitsIn the
without
examples below in Fig
the need to repeat the dollar signs.XX and XX, we have shown two options. The first one is a
currency format, which places a dollar sign at the beginning of each number. The
only difference with the second format is that it omits the dollar sign. As you can
Fig 30: Example with Currency Format
see, the second option looks cleaner with more white space since it omits the
repetitive
All dollarunless
figures in thousands signs. To make up2022A
stated for the missing
2023F dollar
2024F signs in Fig XX,
2025F the note
2026F 2027F
at the top left has been adjusted to ‘All figures in USD thousands unless stated.’
This note
Retained provides adequate information to the reader about the units without
Earnings
the need
Beginning to repeat the dollar signs. $61,014 $67,548 $74,832 $79,171 $83,656
Net Income $8,167 $9,106 $5,423 $5,606 $6,706
Fig 30:
Dividends Example with Currency Format
($1,633) ($1,821) ($1,085) ($1,121) ($1,341)
Ending $61,014 $67,548 $74,832 $79,171 $83,656 $89,020
Retained Earnings
Fig 31:
Beginning
Example with Number Format
$61,014 $67,548 $74,832 $79,171 $83,656
Fig 63: Example
AllNet Income
figures with
in USD Currency
thousands unless Format
stated 2022A $8,167
2023F $9,106
2024F $5,423
2025F $5,606
2026F $6,706
2027F
Dividends ($1,633) ($1,821) ($1,085) ($1,121) ($1,341)
Ending Earnings
Retained $61,014 $67,548 $74,832 $79,171 $83,656 $89,020
Beginning 61,014 67,548 74,832 79,171 83,656
Net Income 8,167 9,106 5,423 5,606 6,706
Fig 31:
Dividends Example with Number Format
(1,633) (1,821) (1,085) (1,121) (1,341)
Ending 61,014 67,548 74,832 79,171 83,656 89,020
Retained Earnings
Beginning 61,014 67,548 74,832 79,171 83,656
Net Income 8,167 9,106 5,423 5,606 6,706
Dividends (1,633) (1,821) (1,085) (1,121) (1,341)
Ending 61,014 67,548 74,832 79,171 83,656 89,020
Fig 64: Example with Number Format
Some model designers use red for We prefer to use brackets for negatives
Sometomodel
negatives makedesigners
them standuse red
out for negatives
more andto makedashes
simple them stand out more
for zeroes
We also have the ability to control the way negative numbers and zeroes are
We also have the ability to control the way nega- The third example in Fig 67 shows our prefer-
displayed with custom formats. In Fig XX-XX below, we have shown a few
tive numbers and The
examples. zeroes areexample
first displayedinwith XX shows ence
Figcus- for formatting
negatives formattedfor negative numbers and
using a minus
tom formats. In Fig
sign. This 65-67,not
would webehave
ourshown a few as the
preference zeroes. As shown,
negatives we tend
are easy to usewith
to miss brackets
only for
a minus
examples. sign.example
The first The formatting in theneg-
in Fig 65 shows second example
negativesin Fig XXchanging
without is slightly
thebetter,
colour to red.
with the negatives formatted using
atives formatted using a minus sign. This would brackets which are much easier to spot.
Using brackets for negatives is the preference for
Although some designers prefer using a red color for negatives, we tend not to
not be our preference as the negatives are easy financial model designers in many jurisdictions
do this as we reserve colors to indicate other attributes about the numbers, as we
to miss with
will only a shortly.
discuss minus sign. The formatting and is also very common in the accounting field.
in the second example in Fig 66 is slightly bet- We also like using a dash for zeroes as this makes
Wethe
ter, with prefer to use
negatives brackets
formatted usingfor negatives and
brackets simpleformatting
the model dashes for
lookzeroes
cleaner and also
which are much easier to spot. Although some makes the zeroes easy to spot.
The third example below in Fig XX shows our preference for formatting for
designers prefer using a red color for negatives,
negative numbers and zeroes. As shown, we tend to use brackets for negatives
we tend not to do
without this as we
changing thereserve
colourcolors to Using brackets for negatives is the preference
to red.
indicate
forother attributes
financial model about the numbers,
designers as jurisdictions and is also very common in
in many
we willthe accounting
discuss shortly. field. We also like using a dash for zeroes as this makes the model
formatting look cleaner and also makes the zeroes easy to spot.
Fig 32: Negatives With a Minus Sign

Retained Earnings
Beginning 61,014 52,847 46,741 48,797 54,403
Net Income -8,167 -6,106 2,056 5,606 6,706
Dividends 0 0 0 0 0
Ending 61,014 52,847 46,741 48,797 54,403 61,109
Fig 33: Negatives With Red Colour and Brackets

Fig 65:
All Negatives
figures in USDWith a Minus
thousands unless Sign
stated 2022A 2023F 2024F 2025F 2026F 2027F
Retained Earnings
Beginning 61,014 52,847 46,741 48,797 54,403
Net Income (8,167) (6,106) 2,056 5,606 6,706
Dividends 0 0 0 0 0
Ending 61,014 52,847 46,741 48,797 54,403 61,109
the accounting field. We also like using a dash for zeroes as this makes the model
formatting
Retained look cleaner and also makes the zeroes easy to spot.
Earnings
Beginning
Financial Modeling
61,014
Guidelines
52,847 46,741 48,797 54,403
Net Income -8,167 -6,106 2,056 5,606 6,706
Fig 32:
Dividends Negatives With a Minus Sign 0 0 0 0 0
Ending 61,014 52,847 46,741 48,797 54,403 61,109
Fig 33: Earnings

Retained Negatives With Red Colour and Brackets
Beginning 61,014 52,847 46,741 48,797 54,403
Net Income -8,167 -6,106 2,056 5,606 6,706
Dividends 0 0 0 0 0
Retained Earnings
Ending 61,014 52,847 46,741 48,797 54,403 61,109
Beginning 61,014 52,847 46,741 48,797 54,403
Net Income (8,167) (6,106) 2,056 5,606 6,706
Fig 33:
Dividends Negatives With Red Colour and0 Brackets
0 0 0 0
Ending 61,014 52,847 46,741 48,797 54,403 61,109
Fig 34: Earnings

Retained Negatives with Brackets & Dashes for Zeroes
Beginning 61,014 52,847 46,741 48,797 54,403
2022A 2023F 2024F 2025F 2026F 2027F
Fig 66: Net
Negatives
Income With Red Colour and Brackets (8,167) (6,106) 2,056 5,606 6,706
Dividends 0 0 0 0 0
Retained
Ending Earnings 61,014 52,847 46,741 48,797 54,403 61,109
Beginning 61,014 52,847 46,741 48,797 54,403
Net Income (8,167) (6,106) 2,056 5,606 6,706
Fig 34:
Dividends Negatives with Brackets & Dashes
– for –Zeroes – – –
Ending 61,014 52,847 46,741 48,797 54,403 61,109
Retained Earnings
Beginning 61,014 52,847 46,741 48,797 54,403
Net Income (8,167) (6,106) 2,056 5,606 6,706
Dividends – – – – –
Ending 61,014 52,847 46,741 48,797 54,403 61,109
Fig 67: Negatives with Brackets & Dashes for Zeroes
Font Colors Other types of links include workbook

links, hyperlinks, and external data
We recommend using blue font for
inputs and black for formulas or links There are other categories of links which can
be marked with a different font color. Some
Font colors are often used to communicate of these types of links are listed on page 83 in
information about the contents of a cell. It has Fig 68, which shows the Macabacus AutoColor
become common in most jurisdictions around settings. Apart from using green for worksheet
the world to use blue font for inputs and black links as discussed, there doesn’t seem to be
font for formulas or links. A model designer that a clear convention for the colors of the other
is striving to keep the number of font colors to types of links. These additional categories of
a minimum should use at least these two colors links include workbook links, hyperlinks, and
to help users locate inputs. In order to be consis- external data. Workbook links are connections
tent with the global financial modeling communi- to other workbooks or Excel files. A hyperlink
ty, we recommend blue font for inputs and black could include a link to an external website or a
font for formulas or links. link to another location within the same work-
book. There are also links to external data to
It is becoming more common to use consider. Examples of external data providers
green font for links to other tabs
include Capital IQ, Bloomberg, Factset, and
PitchBook. Microsoft has also recently added
Some model designers extend beyond the use
external data types to Excel, which allows users
of blue and black font and utilize other colors to
to access a number of different data sources.
signify cells with other types of data. It is starting
to become more common to use green font to
indicate a link to another worksheet. When this
is deployed, it means that links within one work-
sheet are in black font, and links to other work-
sheets are in green font. This can help show users
where data is entering from another worksheet.
Macabacus can AutoColor a selection, Partial inputs should always be avoided

sheet, or an entire workbook when building financial models
It is worth highlighting the Macabacus AutoColor Partial inputs should be avoided when building
settings, which were shown in Fig 68. Macabacus financial models since they are difficult for oth-
has the ability to AutoColor a selection, sheet, ers to locate and will not show up when printed.
or an entire workbook using the settings shown When models are first built, they often don’t
on the next page. This is particularly helpful for contain any partial inputs. These are often added
models that were not colored correctly when over time by users who are rushed and looking
built. It is also very valuable for models that were for ways to make quick modifications to a model.
constructed by another team and may not be up This can present problems as these partial inputs
to the standards that you are accustomed to. It are often left behind and can accumulate over
can also AutoColor on Entry, which is particularly time. The AutoColor tool from Macabacus can
useful when loading actual numbers in as inputs locate these quickly so that they can be repaired.
over formulas. One of the most valuable features
in the AutoColor list is its ability to locate partial
inputs, which we will discuss next.
Partial inputs are very difficult to

find using standard Excel tools
Another category of inputs worth mentioning is

partial inputs. An example of a partial input is
shown on the next page in Fig 69, where we have
added 45 to the Net Income in 2024. Examples
like these are considered to be inputs, but they
are quite difficult to find in models. This is be-
cause Excel categorizes anything starting with an
equals sign as a formula. Hence these show up as
formulas in a search using standard Excel tools.
24 Fig 24: Simplified Financial Statements to Illustrate Flow

INCOME STATEMENT
Net Income 7,033 7,907 7,934 8,316 8,649
CASH FLOW STATEMENT

Net Income 7,033 7,907 7,934 8,316 8,649
Ending Cash Balance 1,846 4,422 1,380 4,504 1,571
Fig 68: Macabacus

BALANCE SHEET AutoColor Settings
Cash 1,846 4,422 1,380 4,504 1,571
Liabilities & Shareholders' Equity 65,753 69,878 72,468 75,309 77,695
30 Fig 30: Example with Currency Format

Retained Earnings
Beginning $61,014 $67,548 $74,832 $79,171 $83,656
Net Income $8,167 =J454+45
$9,106 $5,423 $5,606 $6,706
Dividends ($1,633) ($1,821) ($1,085) ($1,121) ($1,341)
Ending $61,014 $67,548 $74,832 $79,171 $83,656 $89,020
31 Fig 31: Example with Number Format

Fig 69: Example of a Partial Input
Retained Earnings
Beginning 61,014 67,548 74,832 79,171 83,656
Net Income 8,167 9,106 5,423 5,606 6,706
Dividends (1,633) (1,821) (1,085) (1,121) (1,341)
Ending 61,014 67,548 74,832 79,171 83,656 89,020
Marking Units We prefer using a global units marker

to avoid marking units for each row
It is a prudent idea to dedicate one
column specifically for marking units In the example below in Fig 70, we marked all
units individually for each row. While this makes
Always marking units clearly is very important things very clear, it can also make the model look
in financial models. When thinking about the cluttered and busy. If most of the rows in this
structure of a model, it is prudent to consider model are expected to be in units of (USD 000),
whether a units column may be appropriate. An then we would use a global units marker, which
example of a units column is shown below in Fig is preferred in most cases. An example of this
70, where we have marked (USD/Unit) for some is shown on the next page in Fig 71, where we
of the It is aAprudent
costs. ideaisto
units column dedicate
a single one column
column specifically
have included thefor marking
following units
marker in the top left
dedicated for the purpose of marking the units corner ‘All figures in USD thousands unless indi-
Always
for each row. Itmarking
is usuallyunits clearly
a prudent ideaisto
very important in financial models. When thinking
have cated.’ With this marker in place, we only need
about the structure of a model, it is prudent to consider whether a units column
a units column in any financial model. The units to use the
may be appropriate. An example of a units column is units
shown column when
below theXX,
in Fig units deviate
column shouldwe
where also be kept
have consistent
marked from top
(USD/Unit) for somefrom
of the
thecosts.
globalAmarker.
units column is a
single
to bottom column
within dedicated
a worksheet and for thealso
should purpose
be of marking the units for each row. It is
usually aacross
kept consistent prudent idea totabs
the various haveinaa units
file. column in any financial model. The units
column should also be kept consistent from top to bottom within a worksheet
and should also be kept consistent across the various tabs in a file.
Fig 36: Using a Units Column

2022A 2023F 2024F 2025F 2026F 2027F
COST SUMMARY

Variable Costs (USD 000) 6,568 6,989 7,200 7,374 7,537 7,688
Fixed Costs (USD 000) 22,668 23,348 23,698 23,983 24,246 24,489
Total Costs (USD 000) 29,236 30,337 30,898 31,356 31,783 32,177
We prefer using a global units marker to avoid marking units for each row
Fig 70: Using a Units Column
In the previous example in Fig XX, we marked all units individually for each row.
While this makes things very clear, it can also make the model look cluttered and
busy. If most of the rows in this model are expected to be in units of (USD 000),
then we would use a global units marker, which is preferred in most cases. An
example of this is shown below in Fig XX, where we have included the following 84
marker in the top left corner ‘All figures in USD thousands unless indicated.’ With
busy. If most of the rows in this model are expected to be in units of (USD 000),
then we would use aFinancial
global units marker,
ModelingwhichGuidelines
is preferred in most cases. An
example of this is shown below in Fig XX, where we have included the following
marker in the top left corner ‘All figures in USD thousands unless indicated.’ With
this marker in place, we only need to use the units column when the units deviate
from the global marker.
Fig 37: Using a Global Units Marker

COST SUMMARY

Variable Costs 6,568 6,989 7,200 7,374 7,537 7,688

Fixed Costs 22,668 23,348 23,698 23,983 24,246 24,489
Total Costs 29,236 30,337 30,898 31,356 31,783 32,177
Fig 71: Using a Global Units Marker
Naming It is much more common to find static names in

financial models. For this reason, we will focus our
Excel supports both static discussion here on static naming.
naming and dynamic naming
The most common type of static naming
There are two types of naming that can be done involves renaming individual cells
in Excel: static naming and dynamic naming. Static
naming involves modifying the default name of a Every cell in a spreadsheet has a default name
cell or an array. It is referred to as ‘static’ since the assigned that is made up of its column and row
location of the cell or array is fixed and does not number. For instance, the cell located in Column
move. By contrast, a dynamic name has at least A and Row 1 is assigned the name A1. This de-
one component that moves. Dynamic naming fault naming system works really well as it is easy
can be useful when charting to produce a graph for someone to locate any cell by referring to the
of an expanding range of data. This is a skill that appropriate column and row.
we cover in some of our advanced Excel courses.
Cells names can be changed from locating cell C2 in the correct worksheet. However,
their default column/row format the downside to using static names in this way is
that the model becomes more difficult to audit. A
The names of cells and even the names of person checking the model may not know where
arrays can be changed in Excel. As mentioned TaxRate is physically located or how to navigate
earlier, this is referred to as static naming. We there to check the figure. This is why static nam-
have shown an example of static naming below ing can expedite the model build process, but it
in Fig 72. In this example, we have loaded the can make a model review more difficult.
tax rate of 35% into cell C2. Then, we changed
the default name of this cell from C2 to TaxRate Deleting a defined name can lead to
by typing ‘TaxRate’ into the Name Box in the top a litany of errors throughout the file
left corner. Many model designers use static
naming like this when building a model. The other issue is that if the name TaxRate is
deleted from the file, the formulas that were de-
Static naming makes models easier pendent on it do not revert back to their default
to build but more difficult to audit cell names. This could result in a litany of errors
showing up throughout the model. This is anoth-
In Fig 73 below, we have shown how the name er potential issue that supports the idea of avoid-
TaxRate can now be used in a formula. This ing cell naming in financial models. Our approach
can make formulas faster to build since we can to this subject in most cases would be to simply
simply type TaxRate into a formula instead of use standard cell references.
EBT $3,441
Taxes =C6*TaxRate
Fig 73: Using Static Names in Formulas
Fig 72: Defining Static Cell Names
The Name Scrubber lists name hidden. More importantly, it lists any dependent
dependencies and can unapply names cells in the bottom window. In the example below,
we can see that cell C7 is dependent on the cell
In the event that someone finds themselves in a named TaxRate. The Name Scrubber gives us the
model that has a lot of defined names, the Name option to unapply names, which reverts formulas
Scrubber from Macabacus can be very helpful. back to their native cell locations. This can be a
As shown below in Fig 74, it can locate all names very helpful first step towards removing names
in a model regardless of whether or not they are from a model as a part of a clean-up process.
Fig 74: Macabacus Name Scrubber
Macros Excel is evolving more quickly, and

many new features have been added
Macros can often be avoided by under-
standing everything that Excel can do So, we believe that there are some legitimate use
cases for macros. And for this reason, we don’t
A document on modeling guidelines would not categorically discourage them. We do encourage
be complete without a discussion on the use of model designers to explore everything that is
macros. In many cases, we find that model build- available in a modern version of Excel. Often,
ers use macros for things that can be done using the functionality that they are looking for exists
standard features that already exist in Excel or with a standard version of the software or by
in a robust add-in like Macabacus. In this sense, installing an add-in like Macabacus. Also, Excel
macros can sometimes be indicative of a model has been evolving in recent years, and there are
builder that doesn’t know about all the tools and many features that some users wouldn’t yet be
features that are available without writing code. aware of.
There are times when macros are needed

to go beyond what is possible
However, there are times when we are truly Protection

limited by the functionality of the software. In
these cases, we may need to add some code to There are many ways to protect
complete something beyond the abilities of the
the integrity of a financial model
software. This is where we are open to the use
Designing, building, and reviewing a financial
of macros if they are well written and properly
model requires a considerable investment of
documented. For example, we have built mac-
time and effort. Once the model has been com-
ro-enabled M&A models that contemplate the
pleted and reviewed, it is very important to
acquisition of multiple targets. With the click of a
protect its integrity. There are a number of ways
button, the model iterates through various sce-
to add protection to a financial model, which we
narios and updates an analysis showing outputs
will discuss.
like IRR and accretion/dilution for each scenario.
The entire workbook can be protected to access this functionality is shown below in Fig
with a required password 75. From the Excel interface, the user would click
File, Info, Protect Workbook, then Encrypt with
The first way to add protection in Excel is by Password. This setting can also be accessed with
protecting the entire file or workbook with a the keyboard by clicking ALT FIP to get into File
password. This means that the file can not be Information.
opened at all without the password. The setting
Fig 75: Protecting the Workbook
It is more common to control file A protected file structure prevents users

access with shared drive settings from deleting tabs or worksheets
While protecting the workbook may seem at- This type of protection can be particularly use-
tractive, it is becoming less common these days ful since it protects the structure of a workbook.
for a couple of reasons. First, file access can now This means that a user without the password
be easily controlled with cloud storage. Files can cannot delete, rename, or move existing tabs
be moved into certain folders that have restrict- or worksheets in the model. This can be seen
ed access. The access to these folders can be clearly in Fig 77 on the next page, where many
controlled through shared drive settings. This is of the tab options are disabled or greyed out.
quite convenient as it is relatively easy to man- With this type of protection in place, users are
age who has access to those folders and remove also not able to insert any new sheets. Without
access to certain individuals if necessary. The the ability to create or delete worksheets, the
other reason that workbook protection is not as structure of the model is protected. This can
common is that passwords can get lost. Once a be particularly useful for Cover pages, which
password is lost, even company administrators often contain legal disclaimers. With the model
will not be able to open the file. structure protected, users would not be able to
delete the Cover page and its important legal
The structure of a financial model can disclaimers without the password.
also be protected with a password
The next level of protection that could be applied

is to the structure of a workbook. The settings
for this type of protection can be found in the
Review section of the Excel ribbon, as shown
in the first image on the right in Fig 76. By click-
ing the ‘Protect Workbook’ icon, we are able to
protect the structure of the workbook. The user
will then be prompted for a password to protect
the structure of the file, as shown in the second
image in Fig 76.
Fig 76: Protecting File Structure
Protecting cells with formulas

or links can be particularly useful
The final level of protection that could be consid-

ered is protection to individual cells. This can be
particularly useful but requires more consideration
and time to set up. Below in Fig 78, we have shown
an excerpt from a revenue schedule. As discussed
earlier in this document, the inputs are shown in
blue font with black font indicating a formula or
a link within the worksheet. Once this model has
been thoroughly reviewed, it may be prudent to
limit access to only the inputs that have blue font.
A couple of steps are required

for this typecells
Protecting of protection
with formulas or links can be particularly useful
The final level of protection that could be considered is protection to individual

Incells.
orderThis
to docanthis,
beaparticularly
couple of steps arebut
useful required.
requires more consideration and time to
First, we need
set up. BelowtoinlockFigthe
XX,appropriate cells in
we have shown anthe
excerpt from a revenue schedule. As
discussed earlier in this document,
worksheet. We can do this in the Format Cellsthe inputs are shown in blue font with black
font indicating a formula or a link within the worksheet. OnceFig this
77:model has Worksheet Options
Disabled
dialogue box (CTRL 1) as shown on the next page in
been thoroughly reviewed, it may be prudent to limit access to only the inputs
that
Fig 79.have blue
This is font.
where we can control the protection
attributes for a given cell.
Fig XX: Revenue Schedule with Inputs Shown in Blue Font
Revenue Schedule
OPERATIONS
Sales Volume Growth 2.0% 2.1% 2.0% 2.0% 2.0% 2.0% 2.0%
Sales Volume (Units/Day) 1,374 1,401 1,430 1,459 1,488 1,518 1,548 1,579
Plant Capacity (Units/Day) 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500
Operational Efficiency 91.6% 93.4% 95.3% 97.2% 99.2% 101.2% 103.2% 105.3%
A couple of steps are required for this type of protection

Fig 78: Revenue Schedule with Inputs Shown in Blue Font
In order to do this, a couple of steps are required. First, we need to lock the
appropriate cells in the worksheet. We can do this in the Format Cells dialogue
box (CTRL 1) as shown below in Fig XX. This is where we can control the
protection attributes for a given cell.
Fig 79: Locking Cells in the Protection tab
With the cell attributes set, we can

now select a password to lock them
Now that locked or unlocked attributes have been

set for the appropriate cells, we can activate the
protection and select a password. This can be done
by clicking into the Review section of the Excel
ribbon and selecting Protect Sheet, as shown in the
first image on the right in Fig 80. This brings up the
dialogue box shown in the second image below,
where we can select a password to complete the
protection of the cells.
We protect the logic of the model by only

unlocking cells with inputs
As indicated in the second image in Fig 80, there

are many options available. As shown in this ex-
ample, we have unchecked most of the options,
only allowing the user to select cells without
a password. In this case, all other options will
require the user to have a password. This means
that a user that does not have the password
will only be able to modify model inputs. This
will prevent them from changing any cells with Fig 80: Protecting Sheet Structure
formulas or links. This effectively will protect the
logic and functionality of the financial model by
only allowing them to modify its inputs.
More Resources
Check out more of our resources to take you Financial Modeling skills to the next level:
CFI YouTube channel: https://www.youtube.com/c/Corporatefinanceinstitute-CFI

Macabacus YouTube channel: https://www.youtube.com/c/Macabacus-by-CFI
Macabacus Help Center: https://macabacus.com/help
Certifications and pre-designed curriculums
If you’d rather select a pre-designed curriculum, a CFI certification may be for you. Our prestigious
certifications are globally-recognized and designed to provide students with practical skills that
seamlessly transfer to real-world scenarios.
The FMVA® program The CBCA™ will enhance The CMSA® program will The BIDA™ program will
covers all of the skills your team’s knowledge teach your team vital trad- upskill your team across
required to turn your team across the entire lending ing strategies, as well as various programming and
into world-class financial process and ready them to market conventions and analytics tools, enabling
analysts and Excel power excel as a credit analyst in the tools used in capital them to analyze data like
users. Learn more. banking. Learn more. markets. Learn more. a pro. Learn more.
For more information or to register
for our courses please contact us at:
learning@corporatefinanceinstitute.com
https://macabacus.com/
CORPORATE FINANCE INSTITUTE®

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Financial Modeling

CORPORATE FINANCE INSTITUTE®

Introduction 03 Consistent Labeling 53

Introduction One of the first subjects we will cover in this

Many of the models that we encounter today are

Operational Modeling Strictly Confidential

Table of Contents Model Checks

Dashboard Sales Volume Within Capacity? Yes

© 2022 CFI Education Inc.

Fig 01: Well Designed Model Page

Dashboard: Perpetuity Growth Method

Main Outputs Selected Inputs

Enterprise Equity Equity

Enterprise Value Equity Value per Share

Terminal Growth Rate Terminal Growth Rate

Equity Value Premium (Discount) to Stock Price

Terminal Growth Rate Terminal Growth Rate

Fig 02: Well Designed Model Page

CF Valuation Modeling Page 1 of 2

We think about models in a modular appropriate level of detail. In fact, it is common

Fig 03: Preferred Model Design Process

About CFI About Macabacus

Design: Common Approach A common error is to start the model

Fig 04: Common Model Design Process

We then progress to the dashboard and Design: Preferred Approach

Fig 05: Preferred Model Design Process

We often refer to the various components of a model as building blocks

Using a modular system allows us to save building blocks to use again

Fig 06: Building Blocks

Level of Detail us to achieve the optimal level of detail for each

This backward design process also helps us

Tax rate may only be considered as Identifying the drivers requires

8 Fig 8: Income Statement

Inflation 3.0% 2.5% 2.0% 1.5% 1.5%

17 Fig 17: Model Drivers

Driver Switch Base Case

Gold Price (US$/oz) 1,800 1,700 1,600 1,500 1,500

Tax Rate 25.0% 25.0% 25.0% 25.0% 25.0%

45 Fig Fig 45: Drivers

Model Drivers Set To: Base Case

A driver status indicator is recommended Model Inputs

It may be obvious to note that inputs should only

Other 2,087 2,139 2,182 2,214 2,24

Deferred Tax 2,344 2,382 291 186 9

18 Fig 18: Income Statement

XX Fig XX: Connecting in Series XX Fig XX: Connecting in Series

Tax Rate 25.0% Tax Rate 25.0%

Tax Rate 25.0% Tax Rate 25.0%

Tax Rate 25.0% Tax Rate 25.0%

Tax Rate 25.0% Tax Rate 25.0%

Tax Rate 25.0% Tax Rate 25.0%

Fig 09: Connecting in Series Fig 10: Connecting to Source

XX Fig XX: Connecting to Source XX Fig XX: Connecting to Source

Layout & Printing senior leaders within organizations. These execu-

DCF Valuation Modeling Strictly Confidential

Table of Contents Model Checks

Outputs Incorrect Date Set for Valuation? No

© 2015 to 2022 CFI Education Inc.

Fig 11: Print Preview of a Formatted Model

We don’t recommend printing We make sure decision-makers

Our preference is to place a focus on the most

COVER OUTPUTS INPUTS MODEL

Cover Dashboard Drivers Revenue

Free Cash Flow