What is a Discount Factor? In financial modeling, a discount factor is a decimal number multiplied by a cash flow value to discount it back to its present value. The factor increases over time (meaning the decimal value gets smaller) as the effect of compounding the discount rate builds over time. Practically speaking, it is…
What is Accrued Revenue? Accrued revenue is revenue that has been earned by providing goods or services but the payment has yet to be received. In other words, cash collection will occur in a subsequent period after the goods or services have been provided. Since it comes with the customer’s future obligation to pay, an…
What is the Nordic Model? The Nordic model is an economic model that is practiced in Scandinavian countries, including Sweden, Norway, Denmark, Finland, and Iceland. The countries are characterized by high living standards and low income disparities and are seen as a model for economic equality and opportunity. Scandinavian countries implement a comprehensive welfare state…
What is a Sources and Uses of Cash Schedule? A Sources and Uses of Cash schedule gives a summary of where capital will come from (the “Sources”) and what the capital will be spent on (the “Uses”) in a corporate finance transaction. When computing their total amounts, the sources and uses accounts should equal each…
How to Build a Merger Model A merger model is an analysis representing the combination of two companies that come together through an M&A process. A merger is the “combination” of two companies, under a mutual agreement, to form a consolidated entity. An acquisition occurs when one company proposes to offer cash or its shares…
What is an Independent Variable? An independent variable is an input, assumption, or driver that is changed in order to assess its impact on a dependent variable (the outcome). Think of the independent variable as the input and the dependent variable as the output. In financial modeling and analysis, an analyst typically performs sensitivity analysis…
What is Scenario Analysis? Scenario analysis is a process of examining and evaluating possible events or scenarios that could take place in the future and predicting the various feasible results or possible outcomes. In financial modeling, the process is typically used to estimate changes in the value of a business or cash flow, especially when…
Projecting Income Statement Line Items When building a three statement model, it becomes necessary to get into the habit of projecting income statement line items. Being able to project the main line items of the income statement should become second nature. Each specific line item will have drivers that impact their future values. In fact,…
What is a Three-Statement Model? A 3-statement model links a company’s income statement, balance sheet, and cash flow statement into one dynamically connected financial model in Excel. It is used to forecast a company’s financial performance based on key assumptions and to produce a complete set of projected financial statements for budgeting, valuation, and decision-making….
What are Accounting Ratios? Accounting ratios cover a wide array of ratios that are used by accountants and act as different indicators that measure profitability, liquidity, and potential financial distress in a company’s financials. The ratios are used by accountants and financial professionals to communicate and investigate problems or successes within a designated time period….
