What is a Modular Model?
A modular model splits out the core statements into smaller schedules and conducts the calculations outside of the core statements. This allows the focus to remain on the core statements, which can now be kept cleaner. Supporting schedules do all the calculations and dirty work. In a horizontal model, these supporting schedules may be placed on separate tabs from the core statements.
When calculations are completed, the resulting output can be referenced back to the core statements. As such, most line items within the balance sheet, income statement, and cash flow statements are references to the supporting schedules, as opposed to containing inputs or formulas.
Why use a modular model?
The benefit of the modular model is that it is easier to manipulate small pieces of data, as calculations have been dissected into their individual pieces. Also, because data has now been split, it becomes easier to see where mistakes or errors have arisen. The modularity of the model makes understanding the flow of data easier.
Depending on the information needed, a modular model also allows new data, accounts, or schedules to be added to the core statements easily. As opposed to having to create new lines and formulas within the core statements, the analyst can cleanly create a new schedule to calculate values for the new accounts. Then it becomes as simple as inserting a new line in the relevant core statements and referencing the new schedule.
What schedules are used in modular models?
The following are just some supporting schedules that support the core statements within a modular model:
- Working Capital Schedule
- PP&E and Depreciation Schedule
- Intangibles and Amortization Schedule
- Debt and Interest Schedule
- Stockholders Equity Schedule
- Schedule of other long-term items
CFI is the official provider of the Financial Modeling & Valuation Analyst designation and on a mission to help you advance your career. To learn more, see the following CFI resources: