About Financial Modeling Depreciation
In financial modelingWhat is Financial ModelingFinancial modeling is performed in Excel to forecast a company's financial performance. Overview of what is financial modeling, how & why to build a model., depreciation can be calculated several different ways: (1) as a percentage of revenue, (2) as a percentage of property plant and equipment, (3) on a straight-line basisStraight Line DepreciationStraight line depreciation is the most commonly used and easiest method for allocating depreciation of an asset. With the straight line method, the annual depreciation expense equals the cost of the asset minus the salvage value, divided by the useful life (# of years). This guide has examples, formulas, explanations, and (4) on an accelerated basis. The most appropriate method to use in your model will depend on how much detail is required and what the ultimate use for the analysis is. An FP&A model, for example, requires lots of detail on depreciation, while an LBO modelLBO ModelAn LBO model is built in Excel to evaluate a leveraged buyout (LBO) transaction, the acquisition of a company funded using a significant amount of debt., by contrast, does not.
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