Model Layout
Hello All,
I am currently trying to teach myself how to make financial models (I'm a Law Student that would like to work a fund carrying out equity research after University) and was wondering if you guys include the Balance Sheet and Cash Flow statement when modeling professionally?
Do you generally just model the Income Statement and forecast future cash flows and then apply the ratios from the Balance Sheet and Cash Flow statement (such as CFFO, CFFI, CFFF FCF etc) below? I ask because it seems inputting each of the Financial Statements seems really long winded. However if this is how it's done in reality then I will of-course continue with it.
Please see the below screenshots of a model I'm building for Cronos Group at the moment. I would really appreciate any advice and guidance on what you include whilst modeling companies for your respective firms.
https://imgur. (remove this space) com/a/hNtV4HU
Many Thanks
Craig
Thank-you for the response!
With that said I will continue to include the Balance Sheet and Cash Flow statements in my model :)
Quick valuation: only project I/S, required capex and W/C as % of sales and COGs.
Usually don’t worry too much about b/s unless there’s significant seasonal swings in working capital and to project out debt reduction. C/f is almost all calculations rather than projections off of I/s and b/s.
Ah ha, thank-you for the response.
So it's always necessary to have the I/S in the model along with the forecasts of future revenue, COGS, operating margin etc. However instead of putting the entire B/S and C/F in, just calculate the important ratios from the B/S and C/F statement and include it under the I/S?
CapEx, FCF, CFFO,CFFI,CFFF, Current Assets/Current Liabilities etc?
If you do DCF, the capital structure is in the WACC, not in your cash flows. So in that case you do not need a B/S (execpt for working capital, PPE (capex and depr) or one off provisions for instance). If you forecast all balance sheet items except those to stay constant, there is no merit in modeling it all out.
Personally, I like to model out the historical data for the IS, BS and CFS, but that's just preference. At the bare minimum, I like to have 2-3 years for the BS and CFS just so I can show where it's going. As others have said, you need the IS and can forecast the rest.
The one thing I noticed is that your model is quarterly. I'm not a fan of building out a model on quarterly data alone. There are uses for the quarterly data, but you should always include the full year data where available. In general, the Q4 Statement is the only fully audited statement available, so it should be used whenever possible because it covers the financials of the company for the year. That said, there are uses for the 10Qs in modeling (stub period, diluting shares, TTM calcs, etc.), that you need to use them for, but I would remodel the data using the Annual reports.
Oh, one more thing - as to formatting, I would check out resources like Macabacus as a reference for laying out your model. It will help you build something that looks cleaner and easier to follow than what you have.
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