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Financial Modeling
Copyright Investment Banking Institute
www.ibtraining.com
2
Table of Contents
I. Introduction
II. Spreading Historical Financial Statements
III. Deriving Historic Ratios, Trends and Variables
IV. Financial Statement Projections
V.
Integration of Financial Statement Projections / Revolver
Modeling
3
Introduction
Uses for Financial Models in Investment Banking and Private Equity:
 Models begin with inputting historical results, and then making
projections for future years, linking the income statement, balance
sheet, and cash flow statement
 Examples of a model’s use:
– Acquisition or sale of an entire company or division
– Merger of equals
– Leveraged buyouts / Management buyouts
– Public or private placement of new equity or debt capital
– Restructuring / Bankruptcy
 The associate or analyst will construct and maintain the model, and
set the model up so that any changes in financial projections or the
deal terms can be quickly entered, and the result seen immediately.
Creating a robust model is imperative.
4
Introduction
Tips for Setting Up the Financial Model:
 Keep historic and projected income statement, balance sheet and
cash flow on same worksheet
 Have Historic Ratios / Assumptions for Projections on the same
worksheet but separate from the worksheet that has income
statement, balance sheet and cash flow
 Formatting is very important in investment banking:
– same font and letter size throughout model
– clearly labeled pages
– blue text usually denotes an input that is a driver
– black text is usually output
– convention is one decimal point for $ amounts; 0 or 1 decimal points for
percentages
– Set print ranges and preferences
– Footnote all sources and assumptions clearly
 Keep it as simple as you can
5
Table of Contents
I. Introduction
II. Spreading Historical Financial Statements
III. Deriving Historic Ratios, Trends and Variables
IV. Financial Statement Projections
V.
Integration of Financial Statement Projections / Revolver
Modeling
6
Spreading Historical Financial Statements
 3 to 5 year history for income statement, balance sheet and cash flow
usually sufficient
 Source of historic financial statements:
 Publicly traded companies’ financial statements must be filed with the
SEC on a quarterly (10-Q) and annual basis (10-K) and are publicly
available
 Private companies: audited financial statements provided by company
 Adjust historical income statement for one-time, extraordinary, non-
recurring items such as restructuring charges or sale of business
division
 When spreading the historic financial statements: keep it simple!
7
Deriving Historic Ratios, Trends and Variables
 Goal is to intuit historical trends, margins, growth rates for making
projections. Remember that the past is not always a guide to the
future, but sometimes it is.
 Important ratios needed for historical results in the income
statement:
 Revenue growth
 Gross margin: (revenue – cost of goods sold) / revenue
 SG&A margin: SG&A / revenue
 Operating margin: operating income / revenue
 EBITDA margin: (operating income + D&A) / revenue
 Operating income growth (AKA EBIT) and EBITDA growth
 Depreciation as a percentage of gross P,P&E
 Effective tax rate: income tax / pre-tax income
 Other income/expense: read the notes to statements to see if there is a trend
– Depreciation schedules can also be used; for purposes of this model, we are
using Depreciation as % of Gross PP&E; Depreciation Schedule available for
illustrative purposes.
8
Deriving Historic Ratios, Trends and Variables
Important ratios needed for historical results in the balance sheet:
 Accounts receivable, Inventory, and Accounts Payable are expressed in
terms of number of days (e.g. DSOs are 30 days):
 Days in Accounts Receivable: Average A/R Balance / Revenue * 360 days
 Days in Inventory: Average Inventory Balance / COGS * 360 days
 Days in Payables: Average A/P Balance / COGS * 360 days
• Days in accounts receivable is also called “days in receivables” or “days
sales outstanding” (DSOs)
• Other assets and liabilities can be expressed either as a percent of revenue
or COGS, it all depends on what they are most correlated with
• Capital Expenditures (CAPEX) is expressed as a % of revenue
• Asset Dispositions should be explored in notes to statements, to see if
there is a trend or if they are one-time (non-recurring) items.
9
Table of Contents
I. Introduction
II. Spreading Historical Financial Statements
III. Deriving Historic Ratios, Trends and Variables
IV. Financial Statement Projections
V.
Integration of Financial Statement Projections / Revolver
Modeling
10
Income Statement Projections
 Revenue projections are based sometimes on historical growth if a
mature or cyclical company, or more on market intelligence and
judgment if a fast growing company
 Revenue = price x quantity. Break them out, maybe you have a good
handle on future unit sales, or price. Does the company have power
to pass through future cost increases? Is the sector expanding
capacity, which may pressure prices?
 For a restaurant chain, if average revenue per store were stable, and
we knew the number of new stores they planned to open, we can
project revenue.
 COGS projections - what percent of COGS is fixed v. variable? Variable
costs go up in line with their % of unit volume, but fixed costs stay the
same unless capacity is expanded. What are Capex plans? D&A is a
component of COGS.
 Break out COGS as detailed as possible. 2/3 of a chemical
manufacturer’s COGS is energy, what is our outlook for natural gas
prices? An aircraft engine maker sources metals, are miners
expanding or shrinking capacity (impacts prices).
11
Income Statement Projections
 S,G&A expenses are projected as a % of revenue (e.g. hard key 15%,
then make the expense projection = 15% x projected revenue),
however a portion is a fixed cost and will not increase in line with
revenue.
 Interest income and expense are projected based on debt and cash
balance projections. Is there debt coming due, and if/when rolled
over, will rates be higher or lower?
 Other income / expense is hard to project unless there is a recurring
trend. If not, project zero.
 Income tax expense is projected as a % of pre-tax income, based on
past rates as long as constant. Be mindful of future use of “net
operating loss” (NOL), which reduces tax rates.
12
Balance Sheet Projections - Assets
 Cash: this is the one item on the balance sheet that will be linked FROM
the cash flow statement (beg of yr cash + net cash flow = end of yr cash)
 Accounts Receivable: in an assumptions sheet, you will hard key DSOs
based on trends, if 30 days, then AR balance will = 30 / 360 * revenue
projection
 Same methodology for Inventory and Accounts Payable, except multiply
by COGS projection instead of revenue
 Other Assets: discern if there are trends or not, could be hard keyed or
tied as a % of revenue
 Goodwill: is not amortized, it sits there unless there is an impairment,
which one cannot project.
 Amortization: Financing fees from acquisitions can be amortized, but not
investment banking fees (to be discussed in the LBO section). You can
project this for past expenses, but rarely do you project future
acquisitions, unless maybe if you work in corporate development as an
in-house banker.
13
Balance Sheet Projections – Assets
Property, Plant & Equipment (P,P&E)
 Gross P,P&E = beg balance + capex – asset sales
 Capex projection: discern historical capex (from cash flow statement) as
% of revenue
 Asset sales projection: discern trends, read notes. Often you will project
$0.
 Then project depreciation expense (from historical cash flow statement)
as % of gross P,P&E historically.
 Add each year’s projected depreciation to the accumulated depreciation
balance.
 Net P,P&E = gross – accumulated depreciation.
14
Balance Sheet Projections
Liabilities:
 Accounts payable projection, if 40 days in payables = 40 / 360 * COGS
projection
 Accrued liabilities and other: discern trends, express either as absolute
hard keyed value, or as % of COGS
 Debt: read the debt schedule in the filings, is there debt coming due?
Shareholders’ Equity:
Retained earnings projection = beg balance + net income (after dividends)
Liabilities and Shareholders Equity
15
Cash Flow Projections
 All Changes in all Balance Sheet Accounts must be run through the cash
flow; otherwise the balance sheet totals will not balance
 All Non-cash items in the income statement must be added back /
deducted from the operating cash flow
 Operating Cash Flow = sum of….
 Net Income: take from income statement
 Depreciation and Amortization: take from income statement
 Add back / deduct any other non-cash expenses / income from the income
statement (examples are non-cash interest expense, any non-cash
restructuring charges, amortization of capitalized accounts, etc.)
 Changes in working capital
– Current Assets: previous period balance – current period balance
– Current Liabilities: current period balance – previous period balance
 Changes in other assets / other liabilities
– Other Assets: previous period balance – current period balance
– Other Liabilities: current period balance – previous period balance
16
Cash Flow Projections
 Cash Flow from Investing Activities = sum of….
 Capital Expenditures are outflows
 Acquisitions are outflows
 Sale of Assets are inflows
 Cash Flow from Financing Activities
 Driven by debt and interest schedule, which integrates the cash and debt
balance sheet accounts, interest expense and interest income on income
statement, and the cash flow statement
 An increase in debt or equity is a cash inflow
 Ending Cash Balance = Beginning Cash Balance + Cash Flow during Period
17
Debt and Interest Schedule Projections
 Create a section just for debt and interest, all tranches
 The notes to financial statements contain info on amortization,
maturity, and rates.
 Ending debt balance = beg balance + drawdowns – amortization,
paydowns, or maturing debt that is not rolled over
 Interest expense projection = average debt balance x interest rate
 After projecting each debt tranche in the separate table, link the
beginning and ending balances to the balance sheet
 Link the interest expense to the income statement’s interest expense
 Link projected interest income to the income statement’s interest
income, because a cash balance earns interest.
18
Table of Contents
I. Introduction
II. Spreading Historical Financial Statements
III. Deriving Historic Ratios, Trends and Variables
IV. Financial Statement Projections
V.
Integration of Financial Statement Projections / Revolver
Modeling
19
Revolver Modeling
 The revolver is a short-term bank line that can be drawn on or
paid down daily.
 We will learn how to write a formula so that any excess cash flow
will automatically be used to pay down as much of the revolver as
possible, or so that any cash flow deficits will use the revolver to
maintain sufficient working capital for operations.
 The following slide is a snapshot of how that will appear in the
model we will create……
20
Revolver Modeling
Cash Flow Before Revolver =
Operating CF + Investing CF +
CF from Change in Term Loan + CF
from Change in Unsecured Debt +
Beg Cash Position
(Paydown)/Drawdown=
-MIN (Cash Flow before Revolver,
Beginning Revolver Balance)
1. If negative cash flow before
revolver, company borrows up to the
amount of its cash flow deficit.
Balance sheet cash is zero after
borrowing.
2. If positive cash flow AND a
revolver balance, company can pay
back the revolver, but ONLY up to
the amount of positive cash flow it
generated.
3. If company has positive cash
flows but NO revolver balance, then
the positive cash flow goes
to balance sheet cash.
Cash Flow
Net Income $23.4 $26.4 $29.4 $32.7 $36.2
Plus / (minus):
Depreciation and Amortization $7 $7 $7 $8 $8
Changes in Working Capital
Accounts Receivable ($0.6) ($0.5) ($0.6) ($0.6) ($0.6)
Inventory ($0.2) ($0.2) ($0.2) ($0.2) ($0.2)
Other Current Assets $0.0 $0.0 $0.0 $0.0 $0.0
Accounts Payable $0.2 $0.2 $0.2 $0.2 $0.2
Accrued Liabilities $0.1 $0.1 $0.1 $0.1 $0.1
Other Current Liabilities $1.3 $0.1 $0.1 $0.1 $0.1
Change in Other Liabilities $0 $0 $0 $0 $0
Cash Flows from Operations $31.3 $33.3 $36.5 $40.0 $43.7
Cash Flows from Investing
Capital Expenditures ($8.8) ($9.3) ($9.7) ($10.2) ($10.7)
Asset Dispositions $0.0 $0.0 $0.0 $0.0 $0.0
Cash Flows from Investing ($8.8) ($9.3) ($9.7) ($10.2) ($10.7)
Cash Flows from Financing
Change in Revolver ($10.6) $0.0 $0.0 $0.0 $0.0
Change in Term Loan ($25.0) ($25.0) ($25.0) ($25.0) ($25.0)
Change in Unsecured Debt $0.0 $0.0 $0.0 $0.0 $0.0
Total Cash Flows from Financing ($35.6) ($25.0) ($25.0) ($25.0) ($25.0)
Total Cash Flow ($13.1) ($0.9) $1.8 $4.8 $8.0
Beginning Cash Position $86.9 $73.7 $72.8 $74.6 $79.4
Change in Cash Position ($13.1) ($0.9) $1.8 $4.8 $8.0
Ending Cash Position $73.7 $72.8 $74.6 $79.4 $87.3
Cash Flow Before Revolver $84.4 $72.8 $74.6 $79.4 $87.3
Debt and Interest Schedule
Revolver
Beginning Revolver Balance $10.6 $0.0 $0.0 $0.0 $0.0
(Paydown) / Drawdown ($10.6) $0.0 $0.0 $0.0 $0.0
Ending Revolver Balance $0.0 $0.0 $0.0 $0.0 $0.0
Interest Rate 6.25% 6.50% 6.75% 7.00% 7.25%
Interest Expense $0.3 $0.0 $0.0 $0.0 $0.0
21
Revolver Modeling
 Calculate the interest expense on the revolver as:
 interest rate x avg of beginning and ending revolver balance
 Link the revolver balance back into the balance sheet, the interest
expense on the revolver back into the income statement, and adjust the
changes in revolver in the cash flow
 Once the revolver has been properly modeled, the ending cash balance
should properly calculate in the cash flow, and this can be linked into
the cash balance in the balance sheet

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Financial modeling presentation

  • 1. Financial Modeling Copyright Investment Banking Institute www.ibtraining.com
  • 2. 2 Table of Contents I. Introduction II. Spreading Historical Financial Statements III. Deriving Historic Ratios, Trends and Variables IV. Financial Statement Projections V. Integration of Financial Statement Projections / Revolver Modeling
  • 3. 3 Introduction Uses for Financial Models in Investment Banking and Private Equity:  Models begin with inputting historical results, and then making projections for future years, linking the income statement, balance sheet, and cash flow statement  Examples of a model’s use: – Acquisition or sale of an entire company or division – Merger of equals – Leveraged buyouts / Management buyouts – Public or private placement of new equity or debt capital – Restructuring / Bankruptcy  The associate or analyst will construct and maintain the model, and set the model up so that any changes in financial projections or the deal terms can be quickly entered, and the result seen immediately. Creating a robust model is imperative.
  • 4. 4 Introduction Tips for Setting Up the Financial Model:  Keep historic and projected income statement, balance sheet and cash flow on same worksheet  Have Historic Ratios / Assumptions for Projections on the same worksheet but separate from the worksheet that has income statement, balance sheet and cash flow  Formatting is very important in investment banking: – same font and letter size throughout model – clearly labeled pages – blue text usually denotes an input that is a driver – black text is usually output – convention is one decimal point for $ amounts; 0 or 1 decimal points for percentages – Set print ranges and preferences – Footnote all sources and assumptions clearly  Keep it as simple as you can
  • 5. 5 Table of Contents I. Introduction II. Spreading Historical Financial Statements III. Deriving Historic Ratios, Trends and Variables IV. Financial Statement Projections V. Integration of Financial Statement Projections / Revolver Modeling
  • 6. 6 Spreading Historical Financial Statements  3 to 5 year history for income statement, balance sheet and cash flow usually sufficient  Source of historic financial statements:  Publicly traded companies’ financial statements must be filed with the SEC on a quarterly (10-Q) and annual basis (10-K) and are publicly available  Private companies: audited financial statements provided by company  Adjust historical income statement for one-time, extraordinary, non- recurring items such as restructuring charges or sale of business division  When spreading the historic financial statements: keep it simple!
  • 7. 7 Deriving Historic Ratios, Trends and Variables  Goal is to intuit historical trends, margins, growth rates for making projections. Remember that the past is not always a guide to the future, but sometimes it is.  Important ratios needed for historical results in the income statement:  Revenue growth  Gross margin: (revenue – cost of goods sold) / revenue  SG&A margin: SG&A / revenue  Operating margin: operating income / revenue  EBITDA margin: (operating income + D&A) / revenue  Operating income growth (AKA EBIT) and EBITDA growth  Depreciation as a percentage of gross P,P&E  Effective tax rate: income tax / pre-tax income  Other income/expense: read the notes to statements to see if there is a trend – Depreciation schedules can also be used; for purposes of this model, we are using Depreciation as % of Gross PP&E; Depreciation Schedule available for illustrative purposes.
  • 8. 8 Deriving Historic Ratios, Trends and Variables Important ratios needed for historical results in the balance sheet:  Accounts receivable, Inventory, and Accounts Payable are expressed in terms of number of days (e.g. DSOs are 30 days):  Days in Accounts Receivable: Average A/R Balance / Revenue * 360 days  Days in Inventory: Average Inventory Balance / COGS * 360 days  Days in Payables: Average A/P Balance / COGS * 360 days • Days in accounts receivable is also called “days in receivables” or “days sales outstanding” (DSOs) • Other assets and liabilities can be expressed either as a percent of revenue or COGS, it all depends on what they are most correlated with • Capital Expenditures (CAPEX) is expressed as a % of revenue • Asset Dispositions should be explored in notes to statements, to see if there is a trend or if they are one-time (non-recurring) items.
  • 9. 9 Table of Contents I. Introduction II. Spreading Historical Financial Statements III. Deriving Historic Ratios, Trends and Variables IV. Financial Statement Projections V. Integration of Financial Statement Projections / Revolver Modeling
  • 10. 10 Income Statement Projections  Revenue projections are based sometimes on historical growth if a mature or cyclical company, or more on market intelligence and judgment if a fast growing company  Revenue = price x quantity. Break them out, maybe you have a good handle on future unit sales, or price. Does the company have power to pass through future cost increases? Is the sector expanding capacity, which may pressure prices?  For a restaurant chain, if average revenue per store were stable, and we knew the number of new stores they planned to open, we can project revenue.  COGS projections - what percent of COGS is fixed v. variable? Variable costs go up in line with their % of unit volume, but fixed costs stay the same unless capacity is expanded. What are Capex plans? D&A is a component of COGS.  Break out COGS as detailed as possible. 2/3 of a chemical manufacturer’s COGS is energy, what is our outlook for natural gas prices? An aircraft engine maker sources metals, are miners expanding or shrinking capacity (impacts prices).
  • 11. 11 Income Statement Projections  S,G&A expenses are projected as a % of revenue (e.g. hard key 15%, then make the expense projection = 15% x projected revenue), however a portion is a fixed cost and will not increase in line with revenue.  Interest income and expense are projected based on debt and cash balance projections. Is there debt coming due, and if/when rolled over, will rates be higher or lower?  Other income / expense is hard to project unless there is a recurring trend. If not, project zero.  Income tax expense is projected as a % of pre-tax income, based on past rates as long as constant. Be mindful of future use of “net operating loss” (NOL), which reduces tax rates.
  • 12. 12 Balance Sheet Projections - Assets  Cash: this is the one item on the balance sheet that will be linked FROM the cash flow statement (beg of yr cash + net cash flow = end of yr cash)  Accounts Receivable: in an assumptions sheet, you will hard key DSOs based on trends, if 30 days, then AR balance will = 30 / 360 * revenue projection  Same methodology for Inventory and Accounts Payable, except multiply by COGS projection instead of revenue  Other Assets: discern if there are trends or not, could be hard keyed or tied as a % of revenue  Goodwill: is not amortized, it sits there unless there is an impairment, which one cannot project.  Amortization: Financing fees from acquisitions can be amortized, but not investment banking fees (to be discussed in the LBO section). You can project this for past expenses, but rarely do you project future acquisitions, unless maybe if you work in corporate development as an in-house banker.
  • 13. 13 Balance Sheet Projections – Assets Property, Plant & Equipment (P,P&E)  Gross P,P&E = beg balance + capex – asset sales  Capex projection: discern historical capex (from cash flow statement) as % of revenue  Asset sales projection: discern trends, read notes. Often you will project $0.  Then project depreciation expense (from historical cash flow statement) as % of gross P,P&E historically.  Add each year’s projected depreciation to the accumulated depreciation balance.  Net P,P&E = gross – accumulated depreciation.
  • 14. 14 Balance Sheet Projections Liabilities:  Accounts payable projection, if 40 days in payables = 40 / 360 * COGS projection  Accrued liabilities and other: discern trends, express either as absolute hard keyed value, or as % of COGS  Debt: read the debt schedule in the filings, is there debt coming due? Shareholders’ Equity: Retained earnings projection = beg balance + net income (after dividends) Liabilities and Shareholders Equity
  • 15. 15 Cash Flow Projections  All Changes in all Balance Sheet Accounts must be run through the cash flow; otherwise the balance sheet totals will not balance  All Non-cash items in the income statement must be added back / deducted from the operating cash flow  Operating Cash Flow = sum of….  Net Income: take from income statement  Depreciation and Amortization: take from income statement  Add back / deduct any other non-cash expenses / income from the income statement (examples are non-cash interest expense, any non-cash restructuring charges, amortization of capitalized accounts, etc.)  Changes in working capital – Current Assets: previous period balance – current period balance – Current Liabilities: current period balance – previous period balance  Changes in other assets / other liabilities – Other Assets: previous period balance – current period balance – Other Liabilities: current period balance – previous period balance
  • 16. 16 Cash Flow Projections  Cash Flow from Investing Activities = sum of….  Capital Expenditures are outflows  Acquisitions are outflows  Sale of Assets are inflows  Cash Flow from Financing Activities  Driven by debt and interest schedule, which integrates the cash and debt balance sheet accounts, interest expense and interest income on income statement, and the cash flow statement  An increase in debt or equity is a cash inflow  Ending Cash Balance = Beginning Cash Balance + Cash Flow during Period
  • 17. 17 Debt and Interest Schedule Projections  Create a section just for debt and interest, all tranches  The notes to financial statements contain info on amortization, maturity, and rates.  Ending debt balance = beg balance + drawdowns – amortization, paydowns, or maturing debt that is not rolled over  Interest expense projection = average debt balance x interest rate  After projecting each debt tranche in the separate table, link the beginning and ending balances to the balance sheet  Link the interest expense to the income statement’s interest expense  Link projected interest income to the income statement’s interest income, because a cash balance earns interest.
  • 18. 18 Table of Contents I. Introduction II. Spreading Historical Financial Statements III. Deriving Historic Ratios, Trends and Variables IV. Financial Statement Projections V. Integration of Financial Statement Projections / Revolver Modeling
  • 19. 19 Revolver Modeling  The revolver is a short-term bank line that can be drawn on or paid down daily.  We will learn how to write a formula so that any excess cash flow will automatically be used to pay down as much of the revolver as possible, or so that any cash flow deficits will use the revolver to maintain sufficient working capital for operations.  The following slide is a snapshot of how that will appear in the model we will create……
  • 20. 20 Revolver Modeling Cash Flow Before Revolver = Operating CF + Investing CF + CF from Change in Term Loan + CF from Change in Unsecured Debt + Beg Cash Position (Paydown)/Drawdown= -MIN (Cash Flow before Revolver, Beginning Revolver Balance) 1. If negative cash flow before revolver, company borrows up to the amount of its cash flow deficit. Balance sheet cash is zero after borrowing. 2. If positive cash flow AND a revolver balance, company can pay back the revolver, but ONLY up to the amount of positive cash flow it generated. 3. If company has positive cash flows but NO revolver balance, then the positive cash flow goes to balance sheet cash. Cash Flow Net Income $23.4 $26.4 $29.4 $32.7 $36.2 Plus / (minus): Depreciation and Amortization $7 $7 $7 $8 $8 Changes in Working Capital Accounts Receivable ($0.6) ($0.5) ($0.6) ($0.6) ($0.6) Inventory ($0.2) ($0.2) ($0.2) ($0.2) ($0.2) Other Current Assets $0.0 $0.0 $0.0 $0.0 $0.0 Accounts Payable $0.2 $0.2 $0.2 $0.2 $0.2 Accrued Liabilities $0.1 $0.1 $0.1 $0.1 $0.1 Other Current Liabilities $1.3 $0.1 $0.1 $0.1 $0.1 Change in Other Liabilities $0 $0 $0 $0 $0 Cash Flows from Operations $31.3 $33.3 $36.5 $40.0 $43.7 Cash Flows from Investing Capital Expenditures ($8.8) ($9.3) ($9.7) ($10.2) ($10.7) Asset Dispositions $0.0 $0.0 $0.0 $0.0 $0.0 Cash Flows from Investing ($8.8) ($9.3) ($9.7) ($10.2) ($10.7) Cash Flows from Financing Change in Revolver ($10.6) $0.0 $0.0 $0.0 $0.0 Change in Term Loan ($25.0) ($25.0) ($25.0) ($25.0) ($25.0) Change in Unsecured Debt $0.0 $0.0 $0.0 $0.0 $0.0 Total Cash Flows from Financing ($35.6) ($25.0) ($25.0) ($25.0) ($25.0) Total Cash Flow ($13.1) ($0.9) $1.8 $4.8 $8.0 Beginning Cash Position $86.9 $73.7 $72.8 $74.6 $79.4 Change in Cash Position ($13.1) ($0.9) $1.8 $4.8 $8.0 Ending Cash Position $73.7 $72.8 $74.6 $79.4 $87.3 Cash Flow Before Revolver $84.4 $72.8 $74.6 $79.4 $87.3 Debt and Interest Schedule Revolver Beginning Revolver Balance $10.6 $0.0 $0.0 $0.0 $0.0 (Paydown) / Drawdown ($10.6) $0.0 $0.0 $0.0 $0.0 Ending Revolver Balance $0.0 $0.0 $0.0 $0.0 $0.0 Interest Rate 6.25% 6.50% 6.75% 7.00% 7.25% Interest Expense $0.3 $0.0 $0.0 $0.0 $0.0
  • 21. 21 Revolver Modeling  Calculate the interest expense on the revolver as:  interest rate x avg of beginning and ending revolver balance  Link the revolver balance back into the balance sheet, the interest expense on the revolver back into the income statement, and adjust the changes in revolver in the cash flow  Once the revolver has been properly modeled, the ending cash balance should properly calculate in the cash flow, and this can be linked into the cash balance in the balance sheet