Financial Statement Modeling 2

In this exercise, you’ll practice building an advanced 3-statement model using provided historical financial statements (income statement, balance sheet, and cash flow statement). You’ll:Define assumptions and drivers (growth rates, margins, working capital ratios)Project all three financial statementsVerify balance sheet reconciliationWhen putting together a three-statement model for a solid business, you might want to follow this simple plan:First, gather past financial data, which consists of the income statement, balance sheet, and cash flow statement. For most businesses, looking at 3-5 years of data should be enough. When making the Profit & Loss (P&L) projections, use the historical averages to guess the future revenues, costs, and other important items. But for some items, you might want to use the last year's figure or change rate from other analysis results instead.After finishing the P&L predictions, it's time to move to the balance sheet. Make estimates for assets, liabilities, and equity using similar methods based on past data. The last step is figuring out the future cash flow. This comes from changes in the balance sheet, the income statement, and certain cash flow items like paying back debt and money spent on big investments.Always revisit and revise this process. If your balance sheet doesn't add up, keep tweaking your guesses until it does. Lastly, do some testing by changing the assumptions to see how it affects your model. This helps you understand how sensitive your model is to different predictions.

Practice Financial Statement Modeling 2 with interactive Excel modeling exercises in our Financial Statement Modeling module.

This hands-on modeling exercise helps you master Financial Statement Modeling 2 through real-world Excel practice and financial modeling techniques.