Creating a Comprehensive Three-Statement Financial Model

📊A three-statement financial model is essential for financial analysis and forms the foundation for valuation work.

💰The income statement is organized and built using a set of assumptions, including revenue, costs, and expenditures.

🧮Schedules are created to model more complex line items and calculate key metrics, such as gross profit margin.

📑The balance sheet is built by considering assets, liabilities, and shareholders' equity, ensuring compliance with accounting principles.

💼The cash flow statement is constructed to show the movement of cash in and out of the business, reconciling the changes in balance sheet items.

What is the purpose of a three-statement financial model?

—A three-statement financial model is used for financial analysis and serves as a basis for valuation work.

What assumptions are made when building the income statement?

—Assumptions include revenue, costs, and expenditures to determine the profitability of the business.

How are complex line items modeled in the financial model?

—Schedules are created to calculate complex line items such as depreciation and amortization.

What components make up the balance sheet?

—The balance sheet consists of assets, liabilities, and shareholders' equity, providing an overview of the company's financial position.

How is cash flow tracked in the financial model?

—The cash flow statement shows the movement of cash in and out of the business, tracking changes in balance sheet items.

00:00In this video, we learn how to create a comprehensive three-statement financial model.

00:35A three-statement financial model is essential for financial analysis and valuation work.

01:04The income statement is built using assumptions to determine revenue, costs, and profitability.

02:21Schedules are used to model complex line items like depreciation and amortization.

07:38The balance sheet includes assets, liabilities, and shareholders' equity to show the company's financial position.

08:58The cash flow statement tracks the movement of cash in and out of the business.