2 Excel templates:
1) Apple Valuation
This model has several sheets: Input, Valuation, and Diagnostics.
On the Input sheet, you’ll enter assumptions and drivers for the valuation, like historical data, growth and profitability drivers, reinvestment ideas, and risks.
The Modeling sheet uses this data to calculate the company’s value.
The WACC sheet figures out the cost of capital.
Lastly, the Diagnostics sheet makes sure our projections add up, spots any issues, and helps us fix them to improve the model.
Click here to get your Excel template.
The model can be adjusted very easily to any company.
2) EBITDA Adjustments
The EBITDA Adjustment Template has two sheets.
One sheet shows an example of the gross balance for all accounts and has extra columns for noting any identified adjustments.
The second sheet is a summary of the EBITDA adjustments.
Click here to get your Excel template.
2 Infographics for Today:
1) Forecasting the most important finance categories
Get this infographic in a high-resolution PDF.
2) 7 Finance Model Types
Get this infographic in a high-resolution PDF.
Here’s today’s “How to” guide:
How to do quality checks of your forecasts
Once you’re done with your forecasts, your work isn’t finished yet.
Your forecasts need to go through quality and diagnostic checks.
The key here is to find and look into any inconsistencies.
First, figure out which variables to check for consistency.
For a more complex model, it’s useful to calculate full ratios based on your projections, like profitability ratios and liquidity ratios.
One of the best ways to spot inconsistencies is by creating visuals of your model.
Check out the graph below:
As you review the charts, ask yourself these questions:
- Is my graph line rising linearly, exponentially, or declining?
- Is the line cyclical? If so, what’s causing the cycles?
- Are there any peaks? If so, why are they happening, and what assumptions led to them?
- Are these movements realistic?
- Does this match the commonly accepted assumptions used in the forecasting process?
- Could someone from the board question why this parameter is increasing rapidly or declining?
- What’s the correlation between the dependent variables (like sales and receivables, or inventory and costs)?
For example, as sales increase, does this coincide with an increase in receivables from sales, and if not, why?
So, you need to have answers to all these questions.
Next, check if any inconsistencies come from incorrect assumptions or scenarios.
If you’re confident there are no inconsistencies or errors in your assumptions, make sure you have solid answers ready for management.
Finally, calculate the CAGR (Compound Annual Growth Rate) for your project variables like costs, revenues, and ratios.
Does the CAGR match your expectations? How much does it vary from year to year?
Be cautious with this.
Don’t let the numbers distract you from strategic thinking and the overall picture.