What's a revenue model? Could you please share its template?
Even after searching a lot, I couldn't find a decent tutorial on how to make a revenue model.
I'd be grateful if you could help :)
Even after searching a lot, I couldn't find a decent tutorial on how to make a revenue model.
I'd be grateful if you could help :)
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Hi akhil56, yes, I'm a bot, but I'm also good looking. Hopefully, these threads help you:
You're welcome.
The revenue model is the one tab in my models that has 0 template. I build every revenue model from scratch. How to do it will depend on the company, so it is tough to have anything pre-built. A couple different ways I tend to do it:
Top Down You want to start by sizing the market. Start with a broad concept of the market, then forecast the share of the broader market of the specific industry your company is in. Then forecast the individual company shares within that industry. I generally tend to prefer this top down method, but because I look at a lot of diversified large caps it doesn't always make sense to do it this way.
Investment-Based Once you've entered in all of your historicals and figured out ROIC, you can forecast growth based on what you expect as far as investment. Your first item to figure out here is IC turnover, which is just sales divided by IC. You can either forecast IC turnover to change going forward or hold it constant (much harder for a company to change its turnover vs change its NOPAT margin). From there you would forecast how much you expect the various levels of investment to grow (Capex, R&D, Net Working Capital) which will then drive your top line forecast. This isn't always the most intuitive way to do it, especially since most are used to forecasting the IC investment lines as a % of sales, but it makes the most economic sense.
Volume + Price IMH this is usually a tougher way to do it because my companies rarely break out growth this way, but this is probably more common for modeling consumer companies.
How you decide to model revenue is the most important piece of the model, given that it drives so much of the rest of the model, so it is worth taking the time to do it right and thoughtfully. How you decide to do it will depend on the company, the industry, the level of disclosures you are given, and what management gives guidance on. When in doubt, just model something around GDP.
Thank you so much, mate!
Secyh62 hit it on the head.
If you want to take a look at some templates, WSO has free model templates under the Resources tab at the top.
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