Instructions how to use the Excel Models?

Most Excel templates will not come with much instructions since the formulas disclosed are actually more precise than writing much text.

The reason for that is that a good Excel model should be self-explaining through its structure. However, a template gives you a good framework but there might still be some fine-tuning to do as every financial modeling case is different.

So how do you go about if you like to customize your model further? – We propose to follow a systematic work plan as follows:

  1. Assumption cells: Normally assumption cells are marked as such and therefore you should work through the assumptions first and fill them with your own assumptions.
  2. Profit and Loss Line Items: The next step is to work through the Profit & Loss line items and see if those apply to your own specific case. You can insert or amend sources of revenues and use the Trace Precedent / Trace Dependent function in Excel to trace back where the revenues come from. When doing this you should be able to trace all calculations back to its assumptions and understand where the numbers come from.
  3. CAPEX, Working Capital: The next step is to review the CAPEX (Capital expenditures or investments) and working capital (Days Receivables, Days Inventory, Days Payables) assumptions so that you can understand how your balance sheet will develop.
  4. Debt Schedule: Next step is to review the debt schedule, especially the interest rate and debt repayment assumptions used.
  5. Balance Sheet and Cash Flow Statement: Now you should have all elements in place to review your balance sheet forecast and the forecasted change in cash. Your model should show (1) Total Assets = Total Liabilities and Equity and (2) the same cash position on the balance sheet which should be calculated in your cash flow statement forecast.
  6. Reviewing Results and Play with Scenarios. The next step is review all the remaining parts of the model such as the Discounted Cash Flow (DCF) valaution, Internal Rate of Return (IRR) calculation and the Executive Summary. To check that your model works, you can simply play now with your assumptions. When varying the assumptions, you can check now that the resulting DCF value or change in IRR is what you would expect.

If you need any help, feel free to ask one of our skilled financial modelers for help by posting a review project here.