Introduction To Financial Modelling Explanation

Purpose Explanation
Steps for Building a Financial Model Explanation
 Charts
Name Lectures Taken Total Lectures
A 140 150
B 120 150
C 90 150
D 140 150
E 121 150
F 120 150
G 132 150
H 45 150
I 90 150
J 120 150
K 130 150
L 140 150
M 110 150
N 60 150
O 48 150
P 78 150
Q 128 150
R 130 150

Q1 Make all the charts for the data above

• Column charts
• Line charts
• Pie charts
• Bar graphs
• Area charts

1 ACCRINT
Issue date First interest date Settlement date Coupon rate
3/1/2008 8/31/2008 5/1/2008 0.1

Calculate Accrued interest for a treasury bond with the terms above.

2 CUMIPMT
Loan amount 100000
total no of payments 360
Interest rate 5%

3 DB
Data Description
 $1,000,000 Initial cost
$100,000 Salvage value
6 Lifetime in years

Calculate Depreciation in first year, with only 7 months

4 DDB
Data Description
$2,400 Initial cost
$300 Salvage value
10 Lifetime in years

Calculate First day's depreciation, using double-declining balance method. Default factor is 2.

5 SLN
Data Description
$30,000 Cost
$7,500 Salvage value
10 Years of useful life

6 SYD
Description Data
Initial cost $30,000.00
Salvage value $7,500.00
Lifespan in years 10

Calculate Yearly depreciation allowance for the first year

7 IPMT
Description Data
Annual interest 10.00%
Period for which you want to find
the interest paid. 1
Years of loan 3
Present value of loan $8,000

Calculate Interest due in the first month for a loan

8 CUMPRINC
Description Data
Interest rate per annum 0.09
Term in years 30
Present value 125000
 Calculate The total principal paid in the second year of payments, periods 13 through 24

9 RATE FUNCTION

Description Data
Years of the loan 4
Monthly payment 200
Amount of the loan 8000

10 PRICE FUNCTION
Description Data
Settlement date 2/15/2008
Maturity date 11/15/2017
Percent semiannual coupon 5.75%
Percent yield 6.50%
Redemption value 100
Frequency is semiannual 2
30/360 basis 0

11 COUPDAYBS
Description Data
Settlement date 25-Jan-11
Maturity date 15-Nov-11
Semiannual coupon 2
Actual/actual basis 1

12 XNPV and XIRR

Values Date
-10,000 1-Jan-08
2,750 1-Mar-08
4,250 30-Oct-08
3,250 15-Feb-09
2,750 1-Apr-09

13 MIRR
Description Data
Initial cost -120000
Return first year 39000
Return second year 30000
 Return third year 21000
Return fourth year 37000
Return fifth year 46000
Annual interest rate for the 120,000
loan 0.1
Annual interest rate for the
reinvested profits 0.12

13 HLOOKUP

ORDER ID SUBTOTAL REGION SHIPPING

1 100 WEST
2 200 NORTH
3 300 SOUTH
4 400 WEST
5 500 SOUTH

SHIPPING RATE
ZONE NORTH SOUTH EAST
RATE 10% 15% 20%

14 VLOOKUP

Product ID Available Stock Price

2345 500 15
5457 234 28
9823 155 13
1233 122 12
2344 166 24

Product ID Price
9823
1233
Par value Frequency Basis
1000 2 0
semiannual 30/360 basis
WEST
13%
Components of a financial model,
Profit and Loss account Explanation of Components + Format
Balance sheet Explanation of Components + Format
Cash Flow Statement Explanation of Components + Format

Building the template Explanation

Filling Historical Data Explanation
Identifying Assumptions and Drivers Explanation
Forecasting financial statement and various schedules

Given below is the detail of company ABC (P) Limited. Prepare the projected profit and loss account and the balance

1) Sales of the company comprises of three parts, Sale of

product A, sale of product B and the Service/maintenance of the
products (AMC). Sale of product B is dependent on sale of
product A and is one per client. It is assumed that minimum
order quantity of product A, will be 25 each year per client.

Clients targeted each year Y1 Y2

Number of clients 10 50
Existing Customers 5 5
Selling Price of Product A per unit 30,000 35,000
Selling Price of Product B per unit 30,000 30,000

AMC per product A is Rs. 500, and per product, B is Rs. 1000,
with 10% increases YoY. AMC will start from year 2 as for the
first year there is a warranty. It is assumed that 60% of the
existing customers will opt for AMC.

2) Cost of goods sold is as follows:

Cost of goods sold Y1 Y2
Cost of product A per unit 4,500 4,725
Cost of product B per unit 4,500 4,725

3) The following table shows the manpower requirement and salaries per person.

Manpower Requirement Y1 Y2
CEO 1 1
CFO 1 1
Software Engineer 4 4
Senior Software Engineer - -
Hardware Engineer 3 3
Senior Hardware Engineer 1 1
Support Engineer 1 4
Sales Executive 2 2
Account Manager 1 2
Marketing Manager - -
HR Manager - -
Workers 10 10
Total 24 28
The salary per annum per category is as follows:
Salaries Y1 Y2
CEO 10,00,000 12,00,000
CFO 10,00,000 12,00,000
Software Engineer 6,60,000 7,26,000
Senior Software Engineer 8,00,000 8,80,000
Hardware Engineer 2,20,000 2,42,000
Senior Hardware Engineer 8,00,000 8,80,000
Support Engineer 1,20,000 1,32,000
Sales Executive 2,40,000 2,64,000
Account Manager 6,00,000 6,60,000
Marketing Manager 6,00,000 6,60,000
HR Manager 6,00,000 6,60,000
Workers 1,50,000 1,65,000

4) Rent per month is Rs. 50,000/-, 10% increase p.a

5) Telephone cost – for support function, 20 calls per client, call
rate @ Rs.3/-. Sales call 6000, 15000, 20,000, 30000 and 50,000
for years Y1 to Y5. Personal calls of employees, Rs. 50 per
month per employee.
6) Electricity charges are Rs. 50000 pm, with 10% increase YoY.
7) Training expenses to be provided at Rs. 100000 pa, with 20% YoY increase.
8) Travel costs Rs. 50000 pm, with 10% increase YoY.
9) Printing and stationery cost Rs. 5000 pm, with 5% increase YoY.
10) Books and periodicals Rs 3000 pm, with 10% increase YoY.
11) Membership and subscriptions, Rs.25,000 pm with 15% increase YoY
12) Consultancy charges Rs.20,000 pm, YoY, 5% increase
13) Other miscellaneous expenses Rs.5000 pm, YoY 10% increase.
14) Capital expenditure details are as follows:
Gross block is given below:
Gross Block Depreciation Y1
Software 60% 500000
Engineering tools and components 40% 900000
Hardware Tools 40% 1100000
Total 2500000

Depreciation is calculated on the SLM basis

15) The company has a term loan of Rs. 25 lakhs taken at an interest rate of 14%, repayable over 5 Years.
16) The tax rate applicable for the company is 32.45%.
17) Debtors are 60 days sales, and creditors are 30 days of cost
of good sold, expenses payable is 15 days, inventory is 30 days.
Capital infused in the business is Rs. 70lakhs
t and loss account and the balance sheet.

Y3 Y4 Y5
75 100 200
10 13 20
40,000 45,000 45,000
35,000 35,000 35,000

Y3 Y4 Y5
4,961 5,209 5,470
4,961 5,209 5,470

Y3 Y4 Y5
1 1 1
1 1 1
2 2 2
- - -
1 1 1
- - -
10 24 46
3 5 10
4 10 20
1 1 1
1 1 1
10 10 10
34 56 93
 Y3 Y4 Y5
20,00,000 30,00,000 45,00,000
20,00,000 30,00,000 45,00,000
7,98,600 8,78,460 9,66,306
9,68,000 10,64,800 11,71,280
2,66,200 2,92,820 3,22,102
9,68,000 10,64,800 11,71,280
1,45,200 1,59,720 1,75,692
2,90,400 3,19,440 3,51,384
7,26,000 7,98,600 8,78,460
7,26,000 7,98,600 8,78,460
7,26,000 7,98,600 8,78,460
1,81,500 1,99,650 2,19,615

Y2 Y3 Y4 Y5
600000 1600000 3500000 6500000
1600000 2400000 3200000 4000000
1200000 1500000 1800000 2000000
3400000 5500000 8500000 12500000

epayable over 5 Years.

VARIOUS APPROACHES TO VALUATION Explanation
Q The following sets of final account relates to KM Ltd.Calculate the following ratios for the com
(i) Inventory Turnover Ratio
(ii) Gross Profit Ratio
(iii) Working Capital Turnover Ratio
(iv) Current Ratio
(v) Quick Ratio
(vi) Net Profit Ratio
(vii) Capital Employed Turnover Ratio
(viii) Fixed Asset Turnover Ratio
(ix) Total Assets Turnover Ratio
(x) Return on Capital Employed
(xi) Return on Equity
(xii) Return on Total Assets
(xii) Earning per share

Liabilities

Share Capital:
Authorised
Issued,Subscribed and Paid -up
12,500 Equity Shares of Rs 10 e
6,000, 8% Preference shares of R
Reserve and Surplus:
General Reserve
Profit and Loss A/c
Secured Loans:
8% Debentures
Unsecured Loan
Current Liabilities and Provisions:
Creditors
Preference Dividend
Equity Dividend

Dr.
Particulars

To Opening Stock
To Purchases
To Gross Proft

To Operating Expense
To Interest on Debntures
To Net Proft c/d

To General Reserve
To Preference Dividend
To Equity Dividend
.Calculate the following ratios for the company:

BALANCE SHEET
as on 31 st Mrach 2018

Rs. Assets Rs.

Fixed Assets:
? Plant and Machinery 3,04,350
Investments:
1,25,000 Current Assets, Loan and Advances
60,000 Current Assets:
Stock 35,000
25,000 Debtors 46,000
98,700 Cash at Bank 17,250
Cash in Hand 3,650
40,000 Miscellaneous Expenditure ….
….
d Provisions:
34,000
4,800
18,750
4,06,250 4,06,250

PROFIT AND LOSS ACCOUNT

for the year ended 31 st March ,2018
Cr.
Rs. Particulars Rs.

24,000 By Sales 5,40,000

3,26,000 By Closing Stock 35,000
2,25,000
5,75,000 5,75,000

81,800 By Gross Profit b/d 2,25,000

3,200
1,40,000
2,25,000 2,25,000

25,000 By Balance b/d 7,250

4,800 By Net Profit b/d 1,40,000
18,750
1,47,250 1,47,250
EPS and multiples Explanation
Fundamentals EV/EBITDA Explanation
Fundamentals -EV/Sales Explanation
Sensitivity analysis

Example:

Sales quantity 1500

Selling Price 100

Variable cost 50/unit

Fixed cost 50000

Calculate the following:

(i) Quantity change from 1000 to

1500, and impact on profit

(ii) Fixed cost changes from -15%

to 15%, and impact on profit.
(iii) Variable cost changes from 40
to 60, quantity changes from 1000
to 1500, and its impact on profit.
Looking at the probabilistic analysis of the best and worst case scenario. Explanation