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Financial Model linking the 3

Financial Statements - Tutorial
By former Deloitte Management Consultants
Step 1 - Use our Excel Income Statement template and adjust the actual
years, projected years and line items when necessary

Consolidated Income Statement

Adjust the actual and In US$ millions except per share amounts
Period Ending June 30
projected years. Taking 3
Actuals Estimates
historical years and 5
2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
projected years is usually a Revenue
good trade-off between being Net Sales
% Growth
comprehensive and effective Other Income
% Growth
Total revenue
Y/Y revenue growth (%)
Cost of goods sold
Cost of goods sold
COGS as a % of revenue
Gross profit
Gross profit margin (%)
The line items in percentages Operating expenses

have been added to facilitate Selling, general and administrative

SG&A as a % of revenue
the projection that we will do EBITDA
EBITDA margin (%)
later Depreciation and amortization
EBIT
EBIT margin (%)
Interest
Interest expense
Interest income
Net interest expense

Add or remove line items EBT

EBT margin (%)
depending on your needs. Income tax expense

You should only have line Tax rate (%)

Net Income (Adjusted)
items that are useful for what Non-recurring events

you want to achieve Discontinued operations

Other
Total non-recurring events
Net Income
Dividend payout
Net Income after distribution
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Step 2 - Use our Excel Cash Flow statement and adjust the actual years,
projected years and line items when necessary

Consolidated Cah Flow Statement

In US$ millions
Period Ending June 30
Use the same years,
Actuals Estimates
format and columns as
the income statement 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
Cash flows from operating activities
Net income adjusted
Depreciation and amortization
Deferred income taxes
Changes in operating working capital
Changes in accounts receivable
Changes in inventory
Add or remove line Changes in accounts payable

items depending on Changes in accrued liabilities

Net changes in operating working capital
your needs. You
Total cash flows from operating activities
should only have line Cash flows from investing activities
items that are useful Payments for property and equipment (CAPEX)
for what you want to Other investing activities
achieve Total cash from investing activities
Cash flows from financing activities
Short-term borrowings (repayments)
Long-term borrowings (repayments)
Dividends paid
Equity Issuances (buybacks)
Total cash from financing activities
Total change in cash and cash equivalents

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Step 3 - Use our Excel Balance Sheet statement and adjust the actual
years, projected years and line items when necessary

Consolidated Balance Sheet Statement

In US$ millions
On June 30
Use the same years, Actuals Estimates
format and columns as 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
the income statement Assets
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Total current assets
Property, plant and equipment, net
Other long term assets
Total assets
Add or remove line Liabilities
items depending on Current liabilities:
your needs. You Accounts payable
Accrued liabilities
should only have line Short term borrowings
items that are useful Total current liabilities
for what you want to Long-term debt
Deferred income taxes and other
achieve Total liabilities
Shareholders' equity
Equity
Retained earnings
Total shareholders' equity
Total liabilities & equity
SUPPLEMENTAL DATA:
Balance? (Y/N) Y Y Y Y Y Y Y Y

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Step 4 - Create a map of the different Excel sheets in your workbook

Quarterly and/or annual reports

Income statement Cash flow Balance sheet

Scenario with
assumptions

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Step 5 - Fill in the historical years for the 3 financial statements

• Use blue font for the hardcoded cells

Generic tips • Use black font for the calculated cells
• Use green font for your assumptions

• Fill in the “$” line items using the company’s quarterly and/ oryearly reports
Income
• Fill in the “%” line items using the formulas in our “Example” Excel sheets (if you added or removed line items,
statement make sure the formulas stay relevant

• Link the line items “Net Income”, “D&A” and “Dividend paid” with the relevant items within the income statement
Cash flow • Fill in the remaining line items using the company’s quarterly and/or yearly reports

• Fill in every line item for the first historical year using the company’s quarterly and/ oryearly reports
Balance
• Fill in every line item for the other historical years by linking them with the relevant line items from the cash flow
sheet statement

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Step 6 – If required, identify several scenarios including different
assumptions using our“Scenario”Excel sheet

Changing the number in the yellow box will update the

“selected scenario” which will update the 3 financial
statements

Insert below your scenario #

Scenario 1

Actuals Estimates
2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
Selected scenario: 1.Street scenario
Y/Y revenue growth (%) 18% 18% 18% 18% 18%
COGS as a % of revenue 17% 17% 17% 17% 17%
Selling expenses as a % of revenue 25% 25% 25% 25% 25%
1.Street scenario
Y/Y revenue growth (%) 19% 19% 16% 18% 18% 18% 18% 18%
COGS as a % of revenue 18% 17% 15% 17% 17% 17% 17% 17%
Selling expenses as a % of revenue 27% 24% 22% 25% 25% 25% 25% 25%
2.Optimistic scenario
Y/Y revenue growth (%) 19% 19% 16% 19% 19% 19% 19% 19%
COGS as a % of revenue 18% 17% 15% 15% 15% 15% 15% 15%
Selling expenses as a % of revenue 27% 24% 22% 22% 22% 22% 22% 22%
3.Pessimistic scenario
Y/Y revenue growth (%) 19% 19% 16% 16% 16% 16% 16% 16%
COGS as a % of revenue 18% 17% 15% 18% 18% 18% 18% 18%
Selling expenses as a % of revenue 27% 24% 22% 27% 27% 27% 27% 27%

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Step 7 - Fill in the projected years of the income statement with the
assumptions included in the “Scenario” Excel sheet
Consolidated Income Statement
In US$ millions except per share amounts
Period Ending June 30

Actuals Estimates
2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
Revenue
Net Sales $10,000 $12,000 $14,000
% Growth 20% 17%
Other Income $1,000 $1,100 $1,200
% Growth 10% 9%
Total revenue $11,000 $13,100 $15,200 $17,942 $21,179 $25,000 $29,510 $34,834
Y/Y revenue growth (%) 19% 19% 16% 18% 18% 18% 18% 18%
Cost of goods sold
Cost of goods sold $2,000 $2,200 $2,300 $2,684 $3,132 $3,656 $4,266 $4,979
COGS as a % of revenue 18% 17% 15% 17% 17% 17% 17% 17%
Gross profit $9,000 $10,900 $12,900 $15,258 $18,047 $21,344 $25,244 $29,855
Gross profit margin (%) 18% 17% 15% 15% 15% 15% 14% 14%
Operating expenses
Selling, general and administrative $3,000 $3,200 $3,400 $4,013.38 $4,737.41 $5,592.06 $6,600.89 $7,791.73
SG&A as a % of revenue 27% 24% 22% 22% 22% 22% 22% 22%
EBITDA $6,000 $7,700 $9,500 $11,245 $13,309 $15,752 $18,643 $22,063
EBITDA margin (%) 55% 59% 63% 63% 63% 63% 63% 63%
Depreciation and amortization $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
EBIT $5,000 $6,700 $8,500 $10,245 $12,309 $14,752 $17,643 $21,063
EBIT margin (%) 45% 51% 56% 57% 58% 59% 60% 60%
Interest
Interest expense $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
Interest income $500 $500 $500 $500 $500 $500 $500 $500
Net interest expense $500 $500 $500 $500 $500 $500 $500 $500
EBT $4,500 $6,200 $8,000 $9,745 $11,809 $14,252 $17,143 $20,563
EBT margin (%) 41% 47% 53% 54% 56% 57% 58% 59%
Income tax expense $1,000 $1,400 $1,900 $2,226.74 $2,698.50 $3,256.73 $3,917.28 $4,698.85
Tax rate (%) 22% 23% 24% 23% 23% 23% 23% 23%
Net Income (Adjusted) $3,500 $4,800 $6,100 $7,518 $9,111 $10,995 $13,225 $15,864
Non-recurring events
Discontinued operations $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
Other $0 $0 $0 $0 $0 $0 $0 $0
Total non-recurring events $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
Net Income $2,500 $3,800 $5,100 $6,518 $8,111 $9,995 $12,225 $14,864
Dividend payout $200 $200 $200 $200 $200 $200 $200 $200
Net Income after distribution $2,300 $3,600 $4,900 $6,318 $7,911 $9,795 $12,025 $14,664

Sometimes you may want to have some assumptions in your income statement sheet and not in
Important Note your scenario sheet. If you do, make sure that they are in green. Also be aware that when you
change scenario in your scenario sheet, these assumptions will stay identical.

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Step 8 - Fill in the projected years on the cash flow statement

Consolidated Cah Flow Statement

In US$ millions
Period Ending June 30

Actuals Estimates
2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
Cash flows from operating activities
Net income adjusted $3,500 $4,800 $6,100 $7,518 $9,111 $10,995 $13,225 $15,864
Depreciation and amortization $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
Deferred income taxes $200 $200 $200 $200 $200 $200 $200 $200
Changes in operating working capital
Changes in accounts receivable $100 $0 $100 $67 $67 $67 $67 $67
Changes in inventory $189 $100 ($200) $30 $30 $30 $30 $30
Changes in accounts payable $100 ($100) $100 $33 $33 $33 $33 $33
Changes in accrued liabilities $189 $100 ($200) $30 $30 $30 $30 $30
Net changes in operating working capital $578 $100 ($200) $159 $159 $159 $159 $159
Total cash flows from operating activities $5,278 $6,100 $7,100 $8,877 $10,470 $12,355 $14,585 $17,224
Cash flows from investing activities
Payments for property and equipment (CAPEX) ($800) ($1,200) ($1,300) ($1,100) ($1,100) ($1,100) ($1,100) ($1,100)
Other investing activities $630 $500 $2,000 $1,043 $1,043 $1,043 $1,043 $1,043
Total cash from investing activities ($170) ($700) $700 ($57) ($57) ($57) ($57) ($57)
Cash flows from financing activities
Short-term borrowings (repayments) ($680) ($2,000) $1,120 ($520) ($520) ($520) ($520) ($520)
Long-term borrowings (repayments) $900 $1,630 $900 $1,143 $1,143 $1,143 $1,143 $1,143
Dividends paid ($200) ($200) ($200) ($200) ($200) ($200) ($200) ($200)
Equity Issuances (buybacks) ($300) ($300) ($300) ($300) ($300) ($300) ($300) ($300)
Total cash from financing activities ($280) ($870) $1,520 $123 $123 $123 $123 $123
Total change in cash and cash equivalents $4,828 $4,530 $9,320 $8,944 $10,537 $12,421 $14,651 $17,290

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Step 9 - The balance sheet projected year should be automatically updated
based on the cash flow statement. Just ensure that Asset = Liabilities + Equity

Consolidated Balance Sheet Statement

In US$ millions
On June 30
If Asset doesn’t equal
Liability + Equity, check Actuals Estimates
that: 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
Assets
• Every line item on the Current assets:
balance sheet is linked Cash and cash equivalents $6,000 $10,530 $19,850 $28,794 $39,331 $51,752 $66,403 $83,693
to the relevant line item Receivables, net $3,000 $3,000 $2,900 $2,833 $2,767 $2,700 $2,633 $2,567
Inventories $2,000 $1,900 $2,100 $2,070 $2,041 $2,011 $1,981 $1,952
on the cash flow
Total current assets $11,000 $15,430 $24,850 $33,698 $44,138 $56,463 $71,018 $88,212
statement Property, plant and equipment, net $20,000 $20,200 $20,500 $20,600 $20,700 $20,800 $20,900 $21,000
Other long term assets $1,000 $500 ($1,500) ($2,543) ($3,587) ($4,630) ($5,673) ($6,717)
• Each cash flow
Total assets $32,000 $36,130 $43,850 $51,754 $61,251 $72,633 $86,245 $102,495
statement line item is Liabilities
used once Current liabilities:
Accounts payable $800 $700 $800 $833 $867 $900 $933 $967
• Ensure that the “sign” Accrued liabilities $700 $800 $600 $630 $659 $689 $719 $748
linking the balance Short term borrowings $500 ($1,500) ($380) ($900) ($1,420) ($1,940) ($2,460) ($2,980)

sheet with the cash flow Total current liabilities $2,000 $0 $1,020 $563 $106 ($351) ($808) ($1,265)
Long-term debt $16,800 $18,430 $19,330 $20,473 $21,617 $22,760 $23,903 $25,047
statement is the right Deferred income taxes and other $500 $700 $900 $1,100 $1,300 $1,500 $1,700 $1,900
correct by using your Total liabilities $19,300 $19,130 $21,250 $22,136 $23,023 $23,909 $24,795 $25,682
common sense or Shareholders' equity

checking the formulas Equity $10,000 $9,700 $9,400 $9,100 $8,800 $8,500 $8,200 $7,900
Retained earnings $2,700 $7,300 $13,200 $20,518 $29,429 $40,224 $53,249 $68,913
we used in our Excel Total shareholders' equity $12,700 $17,000 $22,600 $29,618 $38,229 $48,724 $61,449 $76,813
examples Total liabilities & equity $32,000 $36,130 $43,850 $51,754 $61,251 $72,633 $86,245 $102,495
SUPPLEMENTAL DATA:
Balance? (Y/N) Y Y Y Y Y Y Y Y

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Step 10 - Double-check Double-check that your financial statements
automatically update when you change scenario and make sure the financial
statements are linked properly
From income statement… … to cash flow statement

Revenue Net income adjusted

Cost of goods sold Depreciation and amortization

Gross profit Deferred income taxes

Operating
Operating expenses Changes in accounts receivable
activities

EBITDA Changes in inventory

Depreciation and amortization Changes in accounts payable

EBIT Changes in accrued liabilities

Interest CAPEX
Investing
Income tax expense Other investing activities activities

Net income adjusted Debt

Net Income Dividends paid Financing

activities
Dividend payout Equity issuances (buybacks)

Net income after distribution Total change in cash

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Step 10 - Double-check that your financial statements automatically update
when you change scenario and make sure the financial statements are
linked properly
From cash flow statement… … to balance sheet
Net income adjusted Cash

Depreciation and amortization Receivables, net

Deferred income taxes Inventories Asset

Operating
Changes in accounts receivable
activities Property, plant and equipment, net
Changes in inventory
Other long-term assets
Changes in accounts payable
Accounts payable
Changes in accrued liabilities
Accrued liabilities
CAPEX Liabilities
Debt
Investing
Other investing activities
activities
Deferred income taxes
Debt
Equity
Dividends paid
Financing Equity
activities Retained earnings
Equity issuances (buybacks)

Total change in cash

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