Financial modelling
We use financial models to quantify the implications of investment, financing and shareholder decisions. Each model reflects how the business or project operates, translating commercial assumptions into earnings, cash flow, funding requirements and returns.
Uses of a model
Which decision does the model need to support?
- Business planning: integrated income statement, balance sheet and cash flow forecasts built around revenue and cost drivers.
- M&A and capital raising: acquisition price, financing structure, equity returns and the financial position following a transaction.
- Investment and project financing: links between construction or implementation schedules, costs, funding drawdowns, operating cash flow and debt service.
- Valuation: the effects of free cash flow, cost of capital and long-term assumptions on value.
- Comparison of options: the consequences of changes in prices, volumes, costs, investment timing or financing terms.
Model design
Clear inputs and connected calculations.
Commercial and operating drivers
Separate inputs from calculations. Derive revenue from relevant prices, volumes and contractual terms, and model operating costs, capital expenditure, working capital and tax assumptions.
Financing and cash flow
Model equity contributions, debt drawdowns, interest, fees and repayments. Assess liquidity, debt service coverage and the financial ratios relevant to the financing arrangements.
Scenarios and outputs
Develop base and downside cases and individual sensitivities. Show which assumptions have the greatest effect on funding requirements, enterprise value or shareholder returns.
Model review
Reviewing an existing financial model.
The technical and commercial scope is agreed in advance. A review can cover the full model or specific calculations and risks.
- 1
Structure and data links
Review worksheets, external links, timing conventions and the flow of inputs. Assess consistency between the income statement, balance sheet and cash flow, together with the checks built into the model.
- 2
Formulae and calculation logic
Check the formulae within scope, financing schedules, interest calculations, taxes and return measures. Identify inconsistencies, sign errors and unhandled edge cases.
- 3
Assumptions and scenarios
Assess consistency with business and financing documents. Test key variables and scenarios, distinguishing technical errors from risks in the commercial assumptions.
- 4
Findings and corrections
Prioritise findings by significance and recommend corrections. Where included in the mandate, check that changes have been incorporated or help restructure or rebuild the model.
Handover and use
A model that remains usable after the assignment.
Models are delivered in an editable format, with explanations of the principal assumptions and outputs. We walk through the calculations, how to update the model and the limitations to consider when using it.
Deliverables
Typical outputs of an assignment
- 01Editable financial model
- 02Assumptions schedule and source references
- 03Scenarios and sensitivity analysis
- 04Management and financing summaries
- 05Model review findings and recommendations
- 06Handover discussion and user guidance
Model review covers the agreed scope. It is not a statutory audit or a guarantee of future performance.
Let’s discuss the assignment.
An initial discussion helps establish the business context, your objectives and the advisory support required.