Financial Modeling
Build integrated financial models with 3-statement projections. Create income statement, balance sheet, and cash flow models with proper linkages.
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# Financial Modeling Skill
## Overview
I help you build integrated 3-statement financial models that link Income Statement, Balance Sheet, and Cash Flow Statement. These models are essential for valuation, budgeting, and strategic planning.
**What I can do:**
- Build income statement projections
- Create balance sheet forecasts
- Generate cash flow statements
- Model working capital requirements
- Build debt schedules and interest calculations
- Create scenario analysis (base/bull/bear cases)
**What I cannot do:**
- Access real-time financial data
- Guarantee projection accuracy
- Provide accounting advice
- Replace professional financial analysis
---
## How to Use Me
### Step 1: Provide Historical Data
I need 2-3 years of:
- Income statement (revenue, COGS, operating expenses)
- Balance sheet (assets, liabilities, equity)
- Cash flow statement (optional but helpful)
### Step 2: Define Projection Assumptions
Key drivers:
- Revenue growth rate
- Gross margin
- Operating expense ratios
- Capex as % of revenue
- Working capital days (DSO, DIO, DPO)
### Step 3: Choose Model Scope
- **Basic**: Income statement only
- **Standard**: Income statement + balance sheet
- **Full**: Complete 3-statement model with cash flow
---
## Model Architecture
### Three-Statement Linkages
```
┌─────────────────────────────────────────────────────────────┐
│ INCOME STATEMENT │
│ Revenue → Gross Profit → Operating Income → Net Income │
└─────────────────────────┬───────────────────────────────────┘
│
Net Income flows to Retained Earnings
│
▼
┌─────────────────────────────────────────────────────────────┐
│ BALANCE SHEET │
│ Assets = Liabilities + Equity │
│ (Must balance via Cash as plug) │
└─────────────────────────┬───────────────────────────────────┘
│
Changes in B/S items drive CF Statement
│
▼
┌─────────────────────────────────────────────────────────────┐
│ CASH FLOW STATEMENT │
│ Operating CF + Investing CF + Financing CF = Δ Cash │
│ Ending Cash flows back to Balance Sheet │
└─────────────────────────────────────────────────────────────┘
```
### Key Formulas
#### Income Statement Drivers
```
Revenue = Prior Year × (1 + Growth Rate)
COGS = Revenue × (1 - Gross Margin %)
Gross Profit = Revenue - COGS
SG&A = Revenue × SG&A %
EBITDA = Gross Profit - SG&A
D&A = Prior PP&E × D&A Rate OR Revenue × D&A %
EBIT = EBITDA - D&A
Interest = Avg Debt × Interest Rate
EBT = EBIT - Interest
Taxes = EBT × Tax Rate
Net Income = EBT - Taxes
```
#### Balance Sheet Drivers
```
Accounts Receivable = Revenue × (DSO / 365)
Inventory = COGS × (DIO / 365)
Accounts Payable = COGS × (DPO / 365)
PP&E = Prior PP&E + Capex - D&A
Retained Earnings = Prior RE + Net Income - Dividends
Cash = Total Liabilities + Equity - Other Assets (plug)
```
#### Cash Flow Statement
```
Operating Cash Flow:
Net Income
+ D&A (non-cash)
- Increase in AR
- Increase in Inventory
+ Increase in AP
= Cash from Operations
Investing Cash Flow:
- Capex
= Cash from Investing
Financing Cash Flow:
+ Debt Issuance
- Debt Repayment
- Dividends
= Cash from Financing
Net Change in Cash = CFO + CFI + CFF
```
---
## Output Format
```markdown
# Financial Model: [Company Name]
**Projection Period**: [Years]
**Base Year**: [Year]
**Currency**: [USD/CNY/etc.]
---
## Key Assumptions
| Driver | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|--------|--------|--------|--------|--------|--------|
| Revenue Growth | XX% | XX% | XX% | XX% | XX% |
| Gross Margin | XX% | XX% | XX% | XX% | XX% |
| SG&A % Revenue | XX% | XX% | XX% | XX% | XX% |
| Capex % Revenue | XX% | XX% | XX% | XX% | XX% |
| DSO (days) | XX | XX | XX | XX | XX |
| DIO (days) | XX | XX | XX | XX | XX |
| DPO (days) | XX | XX | XX | XX | XX |
---
## Income Statement Projection
| ($M) | Base | Y1 | Y2 | Y3 | Y4 | Y5 |
|------|------|-----|-----|-----|-----|-----|
| **Revenue** | | | | | | |
| Growth % | | | | | | |
| COGS | | | | | | |
| **Gross Profit** | | | | | | |
| Gross Margin % | | | | | | |
| SG&A | | | | | | |
| **EBITDA** | | | | | | |
| EBITDA Margin % | | | | | | |
| D&A | | | | | | |
| **EBIT** | | | | | | |
| Interest Expense | | | | | | |
| **EBT** | | | | | | |
| Taxes | | | | | | |
| **Net Income** | | | | | | |
| Net Margin % | | | | | | |
---
## Balance Sheet Projection
| ($M) | Base | Y1 | Y2 | Y3 | Y4 | Y5 |
|------|------|-----|-----|-----|-----|-----|
| **ASSETS** | | | | | | |
| Cash | | | | | | |
| Accounts Receivable | | | | | | |
| Inventory | | | | | | |
| **Current Assets** | | | | | | |
| PP&E (net) | | | | | | |
| Other Assets | | | | | | |
| **Total Assets** | | | | | | |
| | | | | | | |
| **LIABILITIES** | | | | | | |
| Accounts Payable | | | | | | |
| Short-term Debt | | | | | | |
| **Current Liabilities** | | | | | | |
| Long-term Debt | | | | | | |
| **Total Liabilities** | | | | | | |
| | | | | | | |
| **EQUITY** | | | | | | |
| Common Stock | | | | | | |
| Retained Earnings | | | | | | |
| **Total Equity** | | | | | | |
| **Total L + E** | | | | | | |
✓ Balance Check: Assets = Liabilities + Equity
---
## Cash Flow Statement
| ($M) | Y1 | Y2 | Y3 | Y4 | Y5 |
|------|-----|-----|-----|-----|-----|
| **Operating Activities** | | | | | |
| Net Income | | | | | |
| D&A | | | | | |
| Change in AR | | | | | |
| Change in Inventory | | | | | |
| Change in AP | | | | | |
| **Cash from Operations** | | | | | |
| | | | | | |
| **Investing Activities** | | | | | |
| Capex | | | | | |
| **Cash from Investing** | | | | | |
| | | | | | |
| **Financing Activities** | | | | | |
| Debt Changes | | | | | |
| Dividends | | | | | |
| **Cash from Financing** | | | | | |
| | | | | | |
| **Net Change in Cash** | | | | | |
| Beginning Cash | | | | | |
| **Ending Cash** | | | | | |
---
## Key Metrics Summary
| Metric | Base | Y1 | Y2 | Y3 | Y4 | Y5 |
|--------|------|-----|-----|-----|-----|-----|
| Revenue Growth | | | | | | |
| Gross Margin | | | | | | |
| EBITDA Margin | | | | | | |
| Net Margin | | | | | | |
| ROE | | | | | | |
| Debt/Equity | | | | | | |
| FCF | | | | | | |
```
---
## Tips for Better Results
1. **Provide clean historical data** in a consistent format
2. **Be specific about growth drivers** (volume vs price, organic vs acquisition)
3. **Specify industry context** for appropriate benchmarks
4. **Ask for scenario analysis** to understand range of outcomes
5. **Request sensitivity tables** for key assumptions
---
## Limitations
- Projections are only as good as the assumptions
- Cannot model complex corporate structures
- Does not account for one-time items automatically
- Simplified tax calculations
- Currency assumed constant (no FX modeling)
---
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