10

FINANCE
TERMS
EXPLAINED TO KIDS
Financial Modeling

Financial Modeling is like

building a big lego castle!

You have lots of little pieces, like the money you make
and the money you spend, and you have to put them
all together in a special way to make a big picture.

It is like building a big picture of how much money a

company will make and spend in the future, using all
the little pieces of information they have today.

This big picture can help the company plan what to do

with their money and make sure they have enough for the
future. People use financial models to make smart deci-
sions about things like saving, spending, and investing.

Follow Financial Modeling World Cup on LinkedIn

 Balance Sheet
Think of a balance
sheet as a picture
of your money.

It shows all the things

you own (like toys or
buildings) and all the
money you owe to
your parents for the
things you broke.

It’s like a scale that helps to balance your life and

make sure you have enough money for the things
you need. It helps us see if we have more money
coming in than going out.

Follow Financial Modeling World Cup on LinkedIn

 Depreciation
Imagine you have a special toy that
you really like, but over time, it might
not work as well or be as popular
anymore.

That's kind of like what

happens with things
like cars or machines.
Depreciation is when
their value goes down
because they're getting
older or used.

A company takes that loss of value into account

when they are making a plan for their money.

Follow Financial Modeling World Cup on LinkedIn

 EBITDA
Full name: Earnings
Before Interest, Tax,
Depreciation, and
Amortization

EBITDA sounds like a fancy robot's name, but it's

really a way to know how well a business is doing.

It's a way for grown-ups to check how much money a

company is making before thinking about paying
back loans, giving some money to the government,
or even fixing things.

It helps them see how much money they have to spend

on other things.

Follow Financial Modeling World Cup on LinkedIn

 NPV

Full name: Net Present Value

NPV is like a treasure

map for grown-ups. It
helps them figure out
if something that
costs money now will
be worth more money
in the future.

If the treasure they find is more than what

they spent, then it's a good deal! It’s like
looking at all the money you will make and
spend over a longer period of time.

Follow Financial Modeling World Cup on LinkedIn

 IRR
Full name: Internal Rate of Return

Imagine you're planting magic

seeds that grow into treasure trees.
Each seed you plant will give you
more and more treasure over time.

The IRR is like a special number that

helps you figure out how fast those
treasure trees are growing.

If the trees are growing really fast and giving you lots of
treasure, that's a great thing! It's like knowing how much
your magic seeds are worth when they turn into trea-
sure. Grown-ups use IRR to decide if a project or an in-
vestment is a good idea. If the IRR is high, it means the
project will make lots of treasure over time.

So, they can use IRR to choose the best ways to spend
their money and make sure it grows like magic!

Follow Financial Modeling World Cup on LinkedIn

 WACC
Full name: Weighted Average
Cost of Capital

Imagine you're planning a big party

and you need to borrow some money
to make it extra fun. WACC is like
making sure you don't spend too much
money on the party that you won't
have enough left for other things.

Some money might be easy to borrow, like asking a friend.

Other money might be a bit harder to get, like asking your
parents, and they might want you to do some extra chores.

WACC helps companies know how much they should pay for all
the money they borrow and use to make their business better.

It's like finding a fair balance between the different kinds of

money they use, so they can keep growing and doing well.

Follow Financial Modeling World Cup on LinkedIn

 LTV
Full name: Lifetime Value
Imagine you have a friendly pet dragon that you love
spending time with. LTV is a bit like measuring how much
joy your dragon brings you throughout its whole life. In
the grown-up world, companies have special customers
who keep coming back to buy things from them.

LTV helps companies understand how much those

special customers are worth over a long time. It's
like counting all the times they come back to buy
more things.

Companies use LTV to figure

out how much they should do
nice things for their customers,
like giving them special dis-
counts or making sure they're
really happy.

Follow Financial Modeling World Cup on LinkedIn

 ROI
Full name: Return on Investment

Imagine you have a magical piggy

bank that you put your allowance
into. Over time, that piggy bank
grows bigger because of the
money you save.

ROI is like a special way to see how

much bigger your piggy bank got
compared to how much you put in.

Grown-ups use ROI to know if the money they spent

on something is making them more money.

It helps them choose the best ways to use their

money and make sure it grows.

Follow Financial Modeling World Cup on LinkedIn

 ARR
Full name: Annual Recurring
Revenue
Imagine you have a lemonade stand that you set up in your
neighborhood. Every month, your friends and neighbors
come by to buy your delicious lemonade. But here's the
cool part: they don't just buy lemonade once – they keep
coming back for more every month!

Now, ARR is like using your math skills to figure out how
much money you can expect to get from them every year.

You add up all the money they'll pay you for lemonade,
and find out how much money keeps coming in regularly.

Grown-ups use ARR to know how much

steady money they'll have, which helps
them plan for things like buying more
lemons.

Follow Financial Modeling World Cup on LinkedIn

 Las Vegas | December 7-9, 2023

Learn more

Have you ever wanted to learn amazing things

from World Champions and Excel MVPs?
Well, get ready for an incredible adventure at The Active Cell training camp!
You'll dive into the awesome world of Excel and Financial Modeling – that's
like making super smart plans with numbers.

Learn the coolest Excel tricks and secrets, and even watch these
champions compete LIVE! Imagine being a part of all the fun and ex-
citement too! Plus, you'll discover how to think about big projects
and businesses to predict the future and even get certified by the in-
credible Excel MVPs Oz du Soleil and Jon Acampora.

And guess what? You can join the FMWC award ceremony in Las Vegas

It's like going to a super cool party where they celebrate amazing
achievements! So, are you ready to be an Excel superhero? The Active
Cell is waiting for you!

Follow Financial Modeling World Cup on LinkedIn