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About this lesson

An overview of what we have covered in the Financial Modeling Basics course.

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Quick reference

Finale

Recap of Financial Modeling Basics

When to use

To refer back to when preparing to build a Financial Model

Instructions

Quick session on summarizing Part 1:

  • This course has set the scene for what we will cover in the Financial Modeling Techniques course
  • It is necessary to understand the concepts of ‘CRaFT’Models should adhere to the following four key qualities:
    • Consistency
    • Robustness
    • Flexibility
    • Transparency

Model layout 

  • Model should “read” from left-to-right, front-to-back
  • Where possible, keep it simple:
    • Comprehension, named cells, arrays, “megaformulae”
  • All data entry should only occur once and be clearly defined
  • No hard coded data in formulae
  • Input conventions should be consistent

Checks

  • Various checks should be explicit in the model
  • e.g. Balance Sheet and Cashflow Error Checks
    • Identification of omissions / double counting
    • Identification of incorrect accounting entries
    • Time saving – link error check through to every sheet

Key functions

  • Do not all return values, i.e. a number
  • Some functions return other types of data including TRUE / FALSE, or a worksheet range
  • Everyday functions:
    • SUM, AVERAGE, MIN, MAX
  • Logic functions:
    •  IF, AND, OR, NOT 
  • Other functions:
    •  CHOOSE, INDEX, MATCH, OFFSET 

Financial statement ideology

  • Income Statement
    • Summary of revenues, cost of goods sold and expenses
    • Calculates net profit after tax (NPAT)
  • Balance Sheet
    • Shows status of assets, liabilities and equity at a point in time
    • Snapshot of entity’s financial position at a point in time
  • Cash flow statement
    • Show how changes in Income Statement and Balance Sheet items affect cash at bank
    • Separates cash flows into operating, investing and financing activities
    • Calculates net change in cash held (cash)

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  • 00:04 Phew, that was a fair bit to get through but we got there.
  • 00:09 Congratulations you've made it to the end of Financial Modeling, The Preparation.
  • 00:14 Sounds like some sort of movie, doesn't it?
  • 00:17 All this been necessary in order to get you ready for Financial Modeling,
  • 00:22 the actual application.
  • 00:24 But let's summarize what we've been through.
  • 00:27 This course has set the scene.
  • 00:31 It's not just been about talking through some of the rudimentary basics of Excel.
  • 00:36 We've looked at some of the necessary concepts, functions and features,
  • 00:40 in order to build a financial model.
  • 00:42 No one's saying everything in there is exhaustive.
  • 00:45 But we couldn't have an infinite running course,
  • 00:47 even if it felt like that's what I've actually put on.
  • 00:50 Hopefully, you've not found it too theoretical.
  • 00:52 The examples throughout you should play with and
  • 00:55 understand the functions and Excel features that we've gone through and
  • 00:59 the ideas of consistency, robustness, flexibility and transparency.
  • 01:04 We're going to assume this is something you already know when we build the model
  • 01:07 in the financial modeling techniques course.
  • 01:10 The next course is all about building up a simple model.
  • 01:12 It's gonna be rudimentary, reason being, doesn't matter how complex we make it,
  • 01:16 it's never going to look anything like a model you ever build.
  • 01:18 Because your model will be specific to what you require for
  • 01:22 your business in your industry, etc., etc.
  • 01:25 But if you understand the concept it'll make your life easier.
  • 01:28 So the layout tips we've provided, the functions,
  • 01:30 the key features of Excel, this will all be useful.
  • 01:34 I hope you've enjoyed it and
  • 01:35 hopefully we'll see you again to build the model in the next course.
  • 01:38 Thanks for now.

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