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Create a Financial Model

Training & Excel Templates

By former Deloitte Management Consultants

Objectives of this document

Learn how to create a Financial Model with PowerPoint

training and Excel templates created by former Deloitte
Management Consultants

Save time by using our fully editable PowerPoint slides and

Excel sheets
Aurelien Domont
Domont Consulting
Managing Director

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Table of Contents

1. What is Financial Modeling?

2. How do you plan and design an Excel Financial Model?

3. How do you build an Excel Financial Model?

4. What are the key formulas to use in your Financial Model?

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Table of Contents

1. What is Financial Modeling?

2. How do you plan and design an Excel Financial Model?

3. How do you build an Excel Financial Model?

4. What are the key formulas to use in your Financial Model?

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Financial modeling definition

Definition

• Financial modeling is the task of building an abstract representation of a real-world financial situation
• This abstract representation is called a financial model
• A financial model is designed to represent a simplified version of the performance of a financial asset, a
project or any other investment
• A financial model is generally built around financial statements such as the income statement, the balance
sheet and the cash flow statement
• The most common tool used to build a financial model is Excel

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Table of Contents

1. What is Financial Modeling?

2. How do you plan and design an Excel Financial Model?

3. How do you build an Excel Financial Model?

4. What are the key formulas to use in your Financial Model?

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Ensure that you are clear about your goal

 Switch off your computer

 Define the question your financial model needs to answer

 Identify the blank slides in your storyline that will have to be completed by your financial
model output sheet(s)

 Identify what will not be solved by your model

 Create and agree on a work plan

 Do a back of the envelope calculation to give you an idea of the final answer

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Draw out a driver tree

Example
Increase price
Increase revenues Increase volume

Increase Improve product mix

gross profit Improve process
Decrease manufacturing
Reduce cost of inputs
costs
Increase net Improve plant utilization
operating profit less Reduce selling Increase productivity
adjusted costs
taxes NOPLAT) Decrease staffing
Optimize scheduling

Reduce distribution Optimize physical network

Decrease operating costs
expenses Decrease staffing
Reduce administrative Use alternative distribution
Company Value
costs Lower customer service costs
Creation
Lower support functions costs
Reduce R&D costs

Improve capital investment

Capital Reduce inventories
deployment Reduce accounts receivable
Improve capital
allocation Increase accounts payable
Cost of
N/A
capital

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Identify what should be inputs, calculations and outputs

Outputs Calculations Inputs

Your text
Your text
Your text
Your text
Your text
Your text
Your text
Your text
Your text
Your text
Your text

Insert your text

Your text
Your text
Your text
Your text
Your text
Your text
Your text
Your text
Your text
Your text
Your text

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Draw out a schematic for how the spreadsheet will work

Inputs sheet Calculation sheets Outputs sheet

Inputs sheet #1 Calculation sheet #1

Calculation sheet #2 Outputs sheet #1

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Table of Contents

1. What is Financial Modeling?

2. How do you plan and design an Excel Financial Model?

3. How do you build an Excel Financial Model?

4. What are the key formulas to use in your Financial Model?

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Financial model structure

An effective Excel financial model should have the following structure:

1 2 3 4 5 6

Project Worksheet Worksheet Inputs Calculation Outputs

description sheet description flow sheet(s) sheet(s) sheet(s)

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1. The project description sheet should include:

 The project name

 The name of the scenario

 A brief description of the project

 The model version

 The file name

 The name of the people who prepared and reviewed the model

 The names of the project sponsor and project leader

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1. Project description sheet Excel template

Project X
Version 1
Project Description Double-click to
Scenario X access the
Project Description
editable Excel
Insert a brief description of the project spreadsheet

Project Details
Project Name: Project X
Project Category: Category X
Business Unit: Business Unit X
Model Version: Version 1
Date Prepared: 03-Jan-14
Model Prepared By: Mr Smith
Manager
Business Unit X
Project Sponsor: Michael Cant
Executive Manager
Business Unit X
Project Leader: Mr Smith
Manager
Business Unit X
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2.The worksheet description should include:

 The purpose of the financial model

 A worksheet overview with the name, type and description of each sheet

 If required, some guidance on how each sheet works

 The colour codes and formatting conventions used in the financial model

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2.Worksheet description Excel template

Project X
Version 1 The editable version
Worksheet Description
Scenario X
of this Excel
spreadsheet was
Financial Model Purpose part of your
Example: To calculate project X expenditure, net benefit and NPV
purchase

Worksheet Overview
Sheet Name Sheet Type Description
Assumptions Input Input your financial model assumptions for
up to 5 scenarios. Select the active
Sheet X Calulations
Sheet Y Output

Colour Codes
User Input cells $ 3,000,000
Formula amounts $ 3,000,000
Cells which you want to draw attention to $ 3,000,000
Conditional formatting showing Active Scenario

Formatting Conventions
Currency $ 4,000
Negative currency $ (300,000)
FTE figures (1dp) 1.5
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3.The worksheet flow should include:

 A visual representation of the inputs sheet, calculations sheet(s) and outputs sheet(s)

 The relationship between each sheet in the document

 Links towards each sheet in the document to facilitate navigation

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3.Worksheet flow Excel template

Project X
Version 1 The editable version
Worksheet Flow
Scenario X
of this Excel
spreadsheet was
part of your
Inputs sheet Calculation sheets Outputs sheet purchase

Project Resources
Cost

Assumptions Project P&L Financial Summary

Project Capex

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4.The Inputs sheet should include:

Your company’s standard assumptions:

 Assumptions that are used to assess all the company’s projects

Your static assumptions:

 Assumptions specific to your project and constant over the whole modeling period (e.g., tax rate)

Your dynamic assumptions:

 Assumptions specific to your project and that change over the whole modeling period (e.g., growth rate)

 Source and updated date of all assumptions

 Possibility of selecting your scenario

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4. Inputs sheet Excel template

Project X
Version 1
Assumptions
Scenario X The editable version
of this Excel
Scenarios spreadsheet was
Input Active Scenario Number 4 1 2 3 4 5 part of your
Active Scenario Name Scenario X Base Worst Best Scenario X Scenario Y
Base Scenario Flag 1 1
purchase

General Company Assumptions Base Worst Best Scenario X Scenario Y

Company Tax Rate 30% 30% x x x x
Cost of Capital 11% 11% 8% x x x
Discount Rate 11% 11% 10% x x x
CPI (Wage) 3% 3% x x x x
CPI (non wage) 3% 3% x x x x
Insert assumption x x x x x x
Insert assumption x x x x x x
Insert assumption x x x x x x

Project Static Assumptions Base Worst Best Scenario X Scenario Y

Project Start Date 1-Jan-14 1-Jan-14 x x x x
Inflation Start Date 16-Jan-14 16-Jan-14 x x x x
Benefit Ramp Up Start Date 16-Jan-14 16-Jan-14 x x x x
Benefit Ramp Up Duration (Months) 6 6 x x x x
Gross Profit Margin per product 40% 30% 40% 40% 40% 40%
Insert assumption x x x x x x
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5.The calculation sheet(s) should include information such as:

 Calculation of the revenue generated by the project

 Calculation of the cost savings generated by the project

 Calculation of the project operational expenditure (OPEX)

 Calculation of the project capital expenditure (CAPEX)

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5.Calculation sheet Excel template

Project X
Version 1 The editable version
Project P&L
of this Excel
Scenario X
spreadsheet was
FY1 FY2 FY3 FY4 FY5 part of your
Total
purchase
Volume: Number of products sold
Product A 10,000 20,000 30,000 50,000 100,000 210,000
Product B 50 100 200 500 1,000 1,850
Product C 10 20 30 50 100 210

Price: Average price per product

Product A $ 1,000 $ 1,050 $ 1,050 $ 1,050 $ 1,050 $ 5,200
Product B $ 100 $ 100 $ 105 $ 105 $ 105 $ 515
Product C $ 10,000 $ 10,500 $ 10,500 $ 10,500 $ 10,500 $ 52,000

Revenue: Product multiplied by price

Product A Revenue $ 10,000,000 $21,000,000 $31,500,000 $52,500,000 $105,000,000 $220,000,000
Product B Revenue $ 5,000 $ 10,000 $ 21,000 $ 52,500 $ 105,000 $ 193,500
Product C Revenue $ 100,000 $ 210,000 $ 315,000 $ 525,000 $ 1,050,000 $ 2,200,000
Total Revenue $ 10,105,000 $21,220,000 $31,836,000 $53,077,500 $106,155,000 $222,393,500

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6.The outputs sheet(s) should include information such as:

 Total plus revenue and cost savings

 Total plus operational expenditure

 Taxes and net income

 Change in WC, capital expenditures, operating free cash flow

 Present value, cumulative present value and net present value

 IRR, payback period, payback period discounted

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6.Outputs sheet template

The editable version

of this Excel
spreadsheet was
Project X part of your
Version 1 purchase
Financial Summary
Scenario X

FY1 FY2 FY3 FY4 FY5 Total

Economic Value Added (EVA)

Economic Value Added
Revenue $ 10,105,000 $21,220,000 $31,836,000 $53,077,500 $106,155,000 $222,393,500
$90,000,000
Cost of Goods Sold $ 6,063,000 $12,732,000 $19,101,600 $31,846,500 $ 63,693,000 $133,436,100
$80,000,000
Operating Expenses $ 783,000 $ 940,955 $ 1,107,630 $ 1,136,486 $ 1,028,202 $ 4,996,273
$70,000,000
Capitalized Expenditure $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 300,000
$60,000,000
Net Benefit $ 3,199,000 $ 7,487,045 $11,566,770 $20,034,514 $ 41,373,798 $ 83,661,127
$50,000,000
$40,000,000
Average Net Book Value $ 80,000 $ 140,000 $ 120,000 $ 100,000 $ 80,000 $30,000,000
Cost of Capital 11% 11% 11% 11% 11% $20,000,000
Capital Charges $ 8,800 $ 15,400 $ 13,200 $ 11,000 $ 8,800 $ 57,200 $10,000,000
FY1 FY2 FY3 FY4 FY5 Total $-
Economic Value Added (EVA) $ 3,190,200 $ 7,471,645 $11,553,570 $20,023,514 $ 41,364,998 $ 83,603,927 FY1 FY2 FY3 FY4 FY5
Net Present Value of EVAs $99,822,374.94

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Table of Contents

1. What is Financial Modeling?

2. How do you plan and design an Excel Financial Model?

3. How do you build an Excel Financial Model?

4. What are the key formulas to use in your Financial Model?

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A Financial Model essentially uses the following 12 formulas:

LEFT
LOWER ROUND
RIGHT
TRIM UPPER ROUNDUP
MID
PROPER ROUNDOWN
&

MATCH AND INDEX

MATCH INDEX SUMPRODUCT
COMBINED

IF SUMIF INDIRECT ADDRESS

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TRIM

• The TRIM function removes all spaces between words and numbers except for single spaces
Description
• It is used to clean up data and ensure consistency

Syntax • =TRIM(text)

Example

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LOWER / UPPER / PROPER

• These text functions change the capitalisation of text to either all lower case, all capitals, or first letter upper
Description
case and all other letters lower case

• =UPPER(Text)
Syntax • =LOWER(Text)
• =PROPER(Text)

Example

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LEFT / RIGHT / MID / &

Description • These functions are used to manipulate and combine text and numbers

• =LEFT(Text, Number of characters to be provided)

• =Right(Text, Number of characters to be provided)
Syntax
• =Mid(Text, Initial character to count from, Number of characters to be provided)
• =CellX&CellY

Example

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ROUND / ROUNDUP / ROUNDOWN

Description • These functions round your number according to the conditions you specify

• =ROUND(Number to be rounded, Number of digits)

Syntax • =ROUNDUP(Number to be rounded, Number of digits)
• =ROUNDDOWN(Number to be rounded, Number of digits)

Example

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MATCH

• The MATCH function looks for an item in a list and returns its position in the list
Description • It can be used for both text and numbers
• The function can look for an exact or approximate match

• =MATCH(WhatToLookFor,WhereToLook,TypeOfMatch)
 WhatToLookFor – The value to search for
 WhereToLook – The range of values to search in
Syntax  TypeOfMatch – Either 0, 1 or -1
 0 – Looks for an exact match
 1 – Looks for an exact match, or the next lowest number if no exact match exists
 -1 – Looks for an exact match, or the next highest number if no exact match exists

Example

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INDEX (1/2)

• The INDEX function picks a value from a range of data by looking down a specified number of rows, and then
Description across a specified number of columns
• It can be used with a single block of data, or non-continuous blocks

• =INDEX(RangeToLookIn,RowCoordinate,ColumnCoordinate)
 RangeToLookIn – The range of cells to look in
Syntax
 RowCoordinate – The row coordinate to look for
 ColumnCoordinate – The column coordinate to look for

Example

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INDEX (2/2)

• The INDEX function can also be used with 1 coordinate instead of 2. In that case the RangeToLookIn needs to
Description
be either a single column or row

Syntax • =INDEX(RangeToLookIn,Coordinate)

Example

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INDEX & MATCH combined

• INDEX and MATCH can be used together to look up a value from a table
Description  2 MATCH functions are used to return both the row and column coordinates of the value
 Then an INDEX function is used to look up the value from the table

• =INDEX(DataRange,MATCH(RowLookup,RowRange,0),MATCH(ColLookup,ColRange,0))
 DataRange – The data range to look in
 RowLookup – The row name to look up
Syntax
 RowRange – The data range containing row names
 ColLookup – The column name to look up
 ColRange – The data range containing column names

Example

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SUMPRODUCT

Description • Multiplies corresponding components in the given arrays, and returns the sum of those products

Syntax • =SUMPRODUCT(array1, array2,...)

Example

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IF

• This function tests a condition

• If the condition is met it is considered to be TRUE
Description
• If the condition is not met it is considered as FALSE
• Depending upon the result, one of two actions will be carried out

• =IF(Condition, Action If True, Action If False)

Syntax • The Condition is usually a test of two cells, such as A1=A2.
• The “Action If True” and “Action If False” can be numbers, text or calculations

• The formula “IF” indicates in column D who has reached their objective:

Example

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SUMIF

Description • This function sums the value of items which match the criteria set by the user

Syntax • =SUMIF(RangeOfThingsToBeExamined,CriteriaToBeMatched,RangeOfValuesToTotal)

• The formula “SUMIF” indicates

Example in cell D8 the total revenue
of all the t-shirts sold:

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INDIRECT

• This function returns the contents of a cell, given the cell reference
Description
• Be careful if a cell is moved or a new row is inserted, as the cell references will not automatically update

Syntax • =INDIRECT(CELLREF)

• The INDIRECT formula

Example returns in C6 the content
of cell B2

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ADDRESS

• The address function returns the reference of a cell, given numerical coordinates.
Description • This allows the cell reference to be modified by performing operations (i.e., add or subtract) in the numerical co-
ordinates

• =ADDRESS(x,y,z)
• x and y are integers that describe the co-ordinates of a cell (i.e., ADDRESS(1,1) will return “A1”)
• z is an integer between 1 and 4 which determines whether absolute or relative referencing is used, i.e.
Syntax Z Definition Example
1 Absolute $A$1
2 Relative column / Absolute row A$1
3 Absolute column / Relative row $A1
4 Relative A1

• The ADDRESS formula returns

the cell ref $B$2
Example
• The INDIRECT formula returns
the content of cell B2

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Thanks for your attention!

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