Financial Modeling
A model is only as good as the discipline behind it.
Beginning with the three-statement model, these explainers build through revenue and opex drivers, debt schedules, the revolver and cash sweep, and the circular references that snag newcomers, then move to the discounted cash flow, LBO mechanics, and merger math with accretion and dilution, finishing with sensitivity tables and scenarios.
The priority throughout, from Investing With Purpose, is structure: models that stay auditable, where every output traces back to an assumption you can defend.
The payoff is building the kind of forecast that supports a valuation, a deal, or a capital decision rather than a spreadsheet that breaks under questioning.
A revenue build is the schedule at the top of a financial model that projects sales from the underlying drivers of the…
Operating expense (OpEx) modeling is the step in a three-statement model where you project cost of goods sold (COGS)…
A debt schedule is the block of the financial model that tracks every borrowing the company has outstanding, computes…
The working capital build projects the operating current assets and liabilities (receivables, inventory, payables) that…
A sensitivity table (also called a data table) pivots one or two input assumptions across a grid of values and shows…
A three-statement model is an integrated forecast of the income statement, balance sheet, and cash flow statement where…
In a three-statement or LBO model, the revolver is the line of credit that flexes up when cash runs short and flexes…
A circular reference in a financial model occurs when a formula depends, directly or indirectly, on its own output. The…
An LBO model calculates the return a private equity sponsor earns from buying a company with mostly borrowed money,…
A merger model combines the financials of an acquirer and a target, adjusts for deal financing and synergies, and tests…
Adjusted Present Value (APV) values a company or project in two steps: first as if it were financed entirely with…
Sum-of-the-parts (SOTP) valuation, also called break-up analysis, values each operating segment of a company separately…
A DCF sensitivity analysis shows how the implied equity value changes when two or three key assumptions move within a…
A Monte Carlo DCF replaces each uncertain input with a probability distribution and runs the valuation thousands of…
Scenario analysis swaps an entire set of operating and financing assumptions in and out of a financial model with a…
A pro forma adjustment is a change to reported financial statements that strips out distortions, reflects an event "as…
The venture capital method (VC method) values an early-stage company by working backward from a target exit value to…
The Berkus method is a simple checklist for putting a pre-money value on a pre-revenue startup by assigning a dollar…
The scorecard valuation method, developed by angel investor Bill Payne, sets a startup's pre-money valuation by…
Risk factor summation is an early-stage valuation method that adjusts a regional median pre-money up or down by scoring…
Asset-based valuation calculates a company's worth as the sum of the fair values of its individual assets, minus the…
Liquidation value is the cash that would be left for equity holders after every asset is sold individually and every…
Replacement cost valuation values a company at the price a competitor would have to pay today to recreate its…
Precedent transactions analysis values a target by applying multiples paid in recent acquisitions of similar companies.…
A football field chart shows multiple valuation methods side by side as horizontal bars on a single page. It is the…