3-Way Financial Modelling

3-Way Financial Modelling is one of the most widely used financial models that are able to forecast a company’s performance and visualise how operating, financial and investing decisions can impact your future performance.

 

Financial modelling can allow you to project your cash flow position year on year and make better business decisions and see how different decisions can impact the overall performance. It also enables you to identify your company’s potential issues before they become a significant problem.

 

3-Way Financial Modelling:

  • Provide accurate and robust insights for your future financial position

  • Gives you confidence about cash positions of your business and forecast current and future financial position

  • Allows you to achieve financial stability within the company and forecast your future, which also attracts potential investors and lenders

  • Allows you to ‘future-proof’ your business with insights to make better decisions and grow your business by evaluating potential issues before they become an issue and build a budget to suit your business model and goals

  • Ensure your business can pay suppliers and employees

 

 

What is required?

 

Three things are required for financial modelling: income statements, balance sheets and cash flow statements. The income statement shows the company’s profitability and is key to allowing future growth rates to be forecasted. The balance sheet is a screenshot of the company’s assets and funding of resources. It also reveals the amount of investment needed to support the sales and profits. The cash flow statement focuses on the change in cash inflow and outflow, which can also be projected ten years ahead.

 

We can help you with all the steps required to model your finances, especially analysing the results and working out a plan of action to reduce risk in your business and increase profits.

 

The general steps of Three-Way Financial Modelling:

1. Input historical financial information

 

2. Determine assumptions that will be used to drive the forecast, such as: revenue growth, margins, capital expenditures

 

3. Forecast the Income Statement

 

4. Forecast the capital assets by considering the capital expenditure and depreciation

 

5. Forecast the Balance Sheet

 

6. Complete the Cash Flow Statement