ExcellencewithExcel:HowtoCreateaWaterfallBridgeChartforEBITDA(CaseStudy) Inthiscasestudy,youllgetpracticecreatingwaterfallchartsthatshowhowcompaniesmovefrom revenue,profit,orEBITDAinoneyeartorevenue,profit,orEBITDAinthenextyear,orinthenext severalyears.

Heresarealexampleofwhatsuchawaterfallchartwouldlooklike,takenfromoneofDellsolder investorpresentations:

Theindividualchartelementsvary:sometimesyoullseesegmentedcolumnsandsometimesyoullsee normalcolumns. Thepositioningofthesmallerbarsthatbridgerevenueorothermetricsinbetweenthesetwoyears mayalsodiffer,andyoullseedifferentconventionsusedbydifferentgroupsandcompanies. However,thepurposeofwaterfallchartsisalwaysthesame:todemonstratevisuallyhowacompany cangrow(ordecline)fromyeartoyear,andwhereadditionalrevenueorprofitiscomingfrom. Inthispracticecasestudy,youllcomplete2exercisesrelatedtothesewaterfallcharts.Wellwalk throughthefirst,morecomplex,exercisetogethersoyoucanlearnthefundamentals,includinghowto dealwithnegatives(e.g.ifthecompanysrevenueorprofitactuallydeclinesinonesegment). Then,inthesecondexercise,wellgothroughasimpleexamplefirstandthenyoullgettopracticeon yourownwithadifferentscenario.

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 Thefirstexerciseismorecomplexsincewetrackrevenueovermultipleyearsandsincewerebuildingin supportforbothnegativeandpositivecontributions.However,thesecondexercisehasanadded complicationsincewerebuildinginsupportforconnectorlinesinbetweenthecolumnsinthechart. Exercise#1:SubscribersandChurnRates Youareworkingasaninvestmentbanker,representinganonlinesubscriptionservicescompany(think: Netflix,Hulu,Spotify,etc.)thatisseekingoutsideinvestment.Thecompanyearned$11.9millionin revenueinitsmostrecentfiscalyear,anditsinternalprojectionsstatethatitwillearn$14.2millionnext year,and$17.1milliontheyearafterthat. Youveusedtheseprojectionsintheconfidentialinformationmemorandum(CIM)senttopotential buyers,includingseveralprivateequityfirmsandstrategicacquirers,butoneofthemhasstepped forwardtoexpressskepticismoverthenumbers. Thisfirmdoesnotbelievethecompanysestimatesarerealistic,andhasrequestedadditionaldetailon theassumptionsbehindthenumbers. Thecompanysgrowthisdrivenbyacombinationofassumedpriceincreasesineachyear,aswellas additionalsubscribersgainedinkeygeographiesandfromspecificmarketinginitiatives,suchaspaid onlineadvertising(e.g.GoogleAdWords,Facebookadvertising,andLinkedInads)andcontent marketing(e.g.creatingYouTubevideos,blogposts,podcasts,andsoon). Herestheinformationforthecompanyscurrentsubscribersandaveragemonthlyfees,followedbythe projectedsubscribersineachsegmentandtheaveragemonthlyfeesinfutureyears: Year1 o o o Year2 o o o o o o o o o o Year3

Subscribers:100,000 AverageMonthlyFees:$9.95 Revenue:$11.9million SubscribersfromYear1:100,000 Churn(LostSubscribers):5,000 NorthAmericaNewSubscribers:4,000 EuropeNewSubscribers:2,000 EmergingMarketsNewSubscribers:8,000 PaidOnlineAdvertisingNewSubscribers:2,000 OnlineContentMarketingNewSubscribers:1,500 AverageMonthlyFees:$10.50 TotalSubscribers:112,500 Revenue:$14.2million

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SubscribersfromYear2:112,500 Churn(LostSubscribers):6,000 NorthAmericaNewSubscribers:5,000 EuropeNewSubscribers:3,000 EmergingMarketsNewSubscribers:10,000 PaidOnlineAdvertisingNewSubscribers:2,700 OnlineContentMarketingNewSubscribers:2,200 AverageMonthlyFees:$11.00 TotalSubscribers:129,400 Revenue:$17.1million

Usingthisdata,createawaterfallchartthatshowshowthecompanymovesfromrevenueinYear1to revenueinYear2torevenueinYear3. Pleasemakesureyourchartincludesthefollowingfeatures: ThesegmentsbetweeneachyearshouldincludeChurn,additionalrevenuefromeach differentregion,revenuefromeachmarketinginitiative,andrevenuefrompriceincreases. Thesesegmentsshouldallrepresentannualdollaramounts,notthe#ofsubscribers. Asaresult,youneedtoseparateouttheimpactofrevenuefrompriceincreasesvs.everything elsewhichwillrequiresomethought. Thechartitselfshouldfeaturepositiveandnegativecontributionsindifferentcolors,datalabels forthedollaramountsatthetopofeachbarorsegment,andaxislabelsthatcorrespondto whateachbarorsegmentrepresents(e.g.Year2RevenueorPriceIncreases. Hint:Thetrickiestpartofthisentireexercisewillbeaddingintheproperdatalabelsintheright positions.Thinkabouthowyoumightcalculatethecorrectverticalpositionofeachdatalabelin thechart

Exercise#2:PharmaceuticalProductLaunches Yourerepresentingapharmaceuticalcompanythathasbuiltupitspipelineovertimeandisplanningto launchnewproductsaggressivelyinthenextyear.Thiscompanysrevenuewillcomefromseveral sourcesinthenextyear: BaselineSalesofExistingGenerics:$510million LaunchesofNewGenerics:$40million LaunchesofNewSpecialtyProducts:$30million CrossSellingofExistingGenericsIntoEmergingMarkets:$25million

Basedonthisdata,createawaterfallchartthatshowshowthecompanywillgrowitsrevenuefrom $510millioninthelastfiscalyearto$605millioninthenextyear.

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 Pleasemakesurethatyourwaterfallchartincludesconnectorlinesinbetweeneachsegmentsothat youcanclearlydemonstratewhereonesegmentendsandwhereanotherbegins. Alsomakesurethatyouincludedatalabels,axislabels,anddistinctcolorsforeverything. Onceyouredonewiththis,extendtheexercisebycreatingaseparategraphthatshowshowrevenue willgrowfromYear2intoYear3: BaselineSales:$605million LaunchesofNewGenerics:$30million LaunchesofNewSpecialtyProducts:$25million CrossSellingofExistingGenericsIntoEmergingMarkets:$20million

Completethisexerciseonyourown,andthencheckyourworkagainstourwalkthroughattheendof thevideo.

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