Economic Value Added Model Template

Economic Value Added Model presents another valuation method which is based on a residual income approach which takes the perspective of all providers of capital (both debt and equity), where we subtract a capital charge (the company’s total cost of capital in money terms) from the company’s after-tax operating profit. The model generates the three financial statements (profit & loss, balance sheet and cash flow), the company valuation using the economic valued added method, break even analysis, ratios, and various graphs.

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Economic Value Added Model presents another valuation method which is based on a residual income approach which takes the perspective of all providers of capital (both debt and equity), where we subtract a capital charge (the company’s total cost of capital in money terms) from the company’s after-tax operating profit. The model generates the three financial statements (profit & loss, balance sheet, and cash flow), the company valuation using the economic valued added method, break-even analysis, ratios, and various graphs.

So, a quick overview of the model, in the contents tab you can see the structure of the model and by clicking on any of the headlines to be redirected to the relevant worksheet.

On the manual tab, you can feed the general information for the model such as: model name, responsible, timeline of the model & date, and currency conventions.

Additionally, there is a description of the color-coding of the model in the same tab. Inputs are always depicted with a yellow fill and blue letters, call up (that is direct links from other cells) are filled in light blue with blue letters while calculations are depicted with white fill and black characters.

There is also color-coding for the various tabs of the model. Yellow tabs are mostly assumptions tabs, grey tabs are calculations tabs, blue tabs are outputs tabs (that is effectively results or graphs) and finally, light blue tabs are admin tabs (for example: the cover page, contents, and checks).

Moving on to the inputs tab, you can adjust the various assumptions of the model based on the specifications and requirements of your business (in yellow whatever can be amended as an assumption). So effectively, you can adjust a set of inputs such as the number of stores, historic revenue per store, forecast revenue per store growth.

Afterwards, you can set the historic Cost of Goods Sold and forecast the Cost of Goods Sold margin, as well as the Sales and General Administrative Expenses growth rate.

Moving on, the user can set the interest rate on debt, the income tax rate, and the dividend payout ratio.

Regarding the balance sheet, several inputs need to be filled such as: the depreciation as a percentage of the acquisition costs, the CAPEX to sales ratio, the days inventory outstanding, the days sales outstanding, the overdraft interest, the loan repayment schedule per year, as well as the days payable outstanding and the growth rate to perpetuity.

The user also needs to fill the inputs relevant to the historic (Actuals) period in columns J, K, and L.

The calculations follow the same logical flow as in the inputs tab. As already mentioned, no inputs from the user are needed here, as all the inputs are fed in the yellow cells on the assumptions tab.

The calculations are separated into revenues, costs, non-operating costs, Non-Current Assets, Current Assets, Equity and Liabilities, and finally a cash flow calculation.

On the Statements tab, the profit and loss, balance sheet, and cash flow statements are calculated, with the relevant checks to make sure everything balances.

The Weighted average cost of capital is also calculated based on the corresponding user inputs.

The Economic Value Added tab as previously mentioned performs the valuation of the company based on a residual income approach which takes the perspective of all providers of capital (both debt and equity), where we subtract a capital charge (the company’s total cost of capital in money terms) from the company’s after-tax operating profit. A sensitivity table has also been implemented on the equity value of the company, which can be updated with F9.

On the Break-Even tab, a breakeven analysis per store is performed. The user can select the category of stores, on which to perform the breakeven analysis (by changing the yellow selector in cell D12).

The most important ratios are presented in this tab, where a series of ratios are presented and formatted accordingly based on their trends over the historic and forecast period.

Additionally, on the Graphs tab, a series of charts are presented: number of stores and revenues per stores, profitability metrics and margins, working capital, assets, liabilities, and equity, operating cash flows, investment, and financing cash flows, cash inflows, economic value added, valuation and sensitivity on equity value.

Finally, the checks tab where the most critical checks are aggregated. Whenever you see an error message on any page, you should consult this page to see where the error is coming from.

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