Financial Modeling Basics

Your Financial Model Checklist

Building a good financial model? Here’s what you need.

1. Input Sheet (Assumptions)

• ALL your key assumptions go here (e.g., revenue growth, COGS%, salaries, tax rate).
• Keep it clean: No hardcoding numbers in your formulas!
• Why: Allows for easy scenario and sensitivity analysis.

2. The 3 Core Financial Statements

• [ ] Income Statement: Projects your sales, costs, and ultimately, your profit.
• [ ] Balance Sheet: Forecasts assets, liabilities, and equity (must always balance!).
• [ ] Cash Flow Statement: Shows how cash moves (Operations, Investing, Financing).
• Why: These are the outputs that tell your financial story.

3. Integration (The Magic!)

• Link everything: Your Income Statement feeds your Balance Sheet, which then affects your Cash Flow Statement.
• Check for circularities: Make sure interest expense depends on debt, which depends on cash, which depends on interest expense (handle carefully!).
• Why: Ensures consistency and accuracy across all projections.

4. Output/Summary Sheet

• Key metrics, charts, valuation (if applicable), and scenario results clearly presented.
• Why: Communicates your findings effectively to stakeholders.

5. Sanity Checks

• Does the Balance Sheet balance?
• Are your assumptions realistic?
• Does the model make logical sense?

Golden Rule: A financial model is a tool for understanding, not predicting, the future. Its value is in exploring “what if” scenarios.