Your Model Is Full of “Spaghetti” Links A link that links to a link, which then, in turn, links to another link, and so on throughout the model is called a spaghetti link. Spaghetti links can be confusing and difficult to follow, and they aren’t good modeling practice. Wherever possible, you’re always much better off […]
Financial Modeling in Excel Your Model Is Full of “Spaghetti” Links Read More »
Ten Common Pitfalls to Avoid hroughout my career as a financial modeler, I’ve seen countless things go horribly awry. Many of these problems can be attributed to at least one (or sometimes several) of the pitfalls I describe in this chapter. Why focus on the negative? So you can learn from the mistakes of those
Financial Modeling in Excel Ten Common Pitfalls to Avoid Read More »
Taking Note of Excel Error Values As irritating as they can be, I actually like seeing Excel errors in my formulas, because it means that something isn’t working and I can fix it. I’d much rather see an error value than a number that looks as though it’s correct when it’s actually completely wrong —
Financial Modeling in Excel Taking Note of Excel Error Values Read More »
Stress-Testing with Sensitivity Analysis After you’ve finished the model, you can test to see if the calculations are working correctly by changing an input and seeing what impact that change has on the numbers. This technique of changing one single input in isolation is called sensitivity analysis (as opposed to scenario analysis, which involves changing
Financial Modeling in Excel Stress-Testing with Sensitivity Analysis Read More »
Ten Strategies for Reducing Error f you aren’t absolutely paranoid about making a mistake in your financial model, you should be! Even people with a little experience using Microsoft Excel know how easy it is to get something wrong. Both formula and logic errors are easy to make — and they’re prevalent in corporate financial
Financial Modeling in Excel Ten Strategies for Reducing Error Read More »
Budgeting for Capital Expenditure and Depreciation he last two chapters deal with building financial models at quite a high level. In this chapter, you delve into more detail in one part of a financial model: the capital expenditure (CapEx). In Chapter 10, I explain the process of purchasing assets and calculating their depreciation. For example,
Financial Modeling in Excel Budgeting for Capital Expenditure and Depreciation Read More »
Building a Discounted Cash Flow Valuation he discounted cash flow (DCF) model is one of the most commonly used methods of finding the value of a company or any other cash flowing asset. In fact, many other methods of valuation — such as cash flow multiples and the leveraged buyout model — are proxies or
Financial Modeling in Excel Building a Discounted Cash Flow Valuation Read More »
Building Scenarios Now that you’ve determined your base case assumptions that reflect how you believe the business will perform, you also want to run worst-case and best-case scenarios. Not only do you want to see how you believe the business will do, but you also want to see how the business will perform if it
Financial Modeling in Excel Building Scenarios Read More »
Building the Balance Sheet The accounting equation as shown on the balance sheet is perhaps the single most important concept to understand in terms of financial statements modeling: Assets = Liabilities + Shareholders’ Equity Let’s take a look at each of these components: » Assets: All property owned by the company. This includes cash in
Financial Modeling in Excel Building the Balance Sheet Read More »
Building the Cash Flow Statement Cash is king! When running a business like this — particularly a new business — you should never ever run out of cash. You may have a business that’s highly profitable, but if you can’t pay your staff next month, then you don’t have a busi- ness. For this reason,
Financial Modeling in Excel Building the Cash Flow Statement Read More »
