Integrating Financial Statement - A Simple Model

A Simple Model
Integrating Financial
Statements
NOTES TOACCOMPANYVIDEOS
These notes are intended to supplement the videos on ASimpleModel.com. They are not to be used
as standalone study aids, and are not written as comprehensive overviews of the topic detailed. The
purpose of these notes is to provide a tangible collection of the visuals used in the videos with
comments highlighting the more important aspects covered.
2013 A Simple Model, LLC. All rights reserved.
Integrating Financial Statements

002
Overview of the Process
The objective of the first video in this series is to explain and briefly walk through the
process of building a fully integrated financial statement model.
Initially a brief outline is provided detailing the sequence in which this model will be
built:
Overview of Building an Integrated Financial Statement Model

1.
Input Historical Data
2.
Project Financial Statements
3.
I.
Income Statement
II.
Balance Sheet
III.
Cash Flow Statement
Build the Supporting Schedules

I.
Debt Schedule
II.
PP&E Schedule
Keeping this sequence in mind as you build the model provides a good reference for
progress made.
A Simple Model

002
Overview of the Process
The video then walks through these steps using a fully integrated financial statement
model that has been formatted to fit on the screen.
The relationships between the financial statements and supporting schedules are
pointed out individually and color coded to make it easier to identify the source of
information.
A red arrow, for example, indicates that data from the PP&E Schedule is being used
at the location referenced.
Financial Statements
Supporting Schedules
INCOME STATEMENT
Revenue
Cost of Goods Sold
Gross Profit
Operating Expenses (SG&A)
Operating Incom e (EBIT)
Interest Expense
Pretax Incom e
Income Tax Expense
Net Incom e
20X1
1,331
799
532
200
333
43
290
102
189
20X2
1,464
878
586
220
366
38
329
115
214
20X3
1,611
966
644
242
403
33
370
130
241
20X4
1,772
1,063
709
266
443
28
415
145
270
BALANCE SHEET
Cash
Accounts Receivable
Inventory
Total Current Assets
Property Plant & Equipment (PP&E)
TOTAL ASSETS
Accounts Payable
Current Portion on Long Term Debt
Total Current Liabilities
Long Term Debt
TOTAL LIABILITIES
Common Stock
Retained Earnings
TOTAL EQUITY
TOTAL LIABILITIES & EQUITY
Check
20X1
478
109
131
718
840
1,559
66
50
116
400
516
100
943
1,043
1,559
0.0
20X2
627
120
144
892
837
1,729
72
50
122
350
472
100
1,157
1,257
1,729
0.0
20X3
809
132
159
1,100
827
1,927
79
50
129
300
429
100
1,397
1,497
1,927
0.0
20X4
1,026
146
175
1,346
808
2,155
87
50
137
250
387
100
1,667
1,767
2,155
0.0
CASH FLOW STATEMENT

CASH FLOW FROM OPERATING ACTIVITIES
Net Incom e
Add Back Non-Cash Item s
Depreciation
Amortization
Changes in Working Capital
Accounts Receivable
Inventory
Accounts Payable
Net Cash Provided by Operating Activities
CASH FLOW FROM INVESTING ACTIVITIES
Capital Expenditures - Purchase of PP&E
Net Cash Used in Investing Activities
CASH FLOW FROM FINANCING ACTIVITIES
Revolving Credit Facility
Long Term Debt (Current Portion)
Net Cash Provided by (Used in) Fnce Activities
Net Cash Flow
20X1
20X2
20X3
20X4
214
241
270
73
0
81
0
89
0
(11)
(13)
7
269
(12)
(14)
7
302
(13)
(16)
8
337
(70)
(70)
(70)
(70)
(70)
(70)
0
(50)
(50)
149
0
(50)
(50)
182
0
(50)
(50)
217
DEBT SCHEDULE
Cash Balance @ Beg of Year (End of Last Year)
Plus: Free Cash Flow from Operations and Investing
Less: Minimum Cash Balance
Total Cash Available or (Required) for Debt Service
20X1
20X2
478
199
0
677
20X3
627
232
0
859
20X4
809
267
0
1,076
Debt
Current Portion of LT Debt
Long Term Debt
50
350
50
300
50
250
Total Cash Surplus
627
809
1,026
Line of Credit
INTEREST EXPENSE
Interest Rate on Long Term Debt
Interest Rate on Line of Credit
Interest Expense on Long Term Debt
Interest Expense on Line of Credit
Total Interest Expense
PP&E SCHEDULE
Beg: PP&E, Net of Accum. Depreciation
Plus: Capital Expenditures
Less: Depreciation
End: PP&E, Net of Accum. Depreciation
10%
8%
37.5
0
38
20X1
20X2
840
70
73
837
10%
8%
32.5
0
33
20X3
837
70
81
827
10%
8%
27.5
0
28
20X4
827
70
89
808
This is merely used to provide a visual reference. The model built in the video that
follows incorporates a greater level of detail.
A Simple Model

003
This video walks through a fully integrated financial statement model, and provides
instruction and an Excel file so that the user can follow along.
A strong grasp of this process is the single most important thing you can learn to excel
at building financial models (authors opinion).
In the video two years of historical financial data are used to build the model. The
historical data pictured below does not pertain to any company, and was created for
the purpose of this exercise.
Income Statement
Balance Sheet
Company Name
Company Name
(000s)
INCOME STATEMENT
(000s)
20X1
20X2
BALANCE SHEET
20X1
20X2
ASSETS
Revenue
Growth (%)
74,452
NA
83,492
12.1%
Cost of Goods Sold

% of Sales
64,440
86.6%
72,524
86.9%
Gross Profit
% of Sales
10,012
13.4%
10,968
13.1%

% of Sales
6,389
8.6%
6,545
7.8%
3,623
4,423
518
474
Pretax Incom e
3,105
3,949
Income Tax Expense

Tax Rate
1,087
NM
1,382
NM
Net Incom e
2,018
2,567
Operating Income (EBIT)

Depreciation
Amortization
EBITDA
3,623
2,648
0
6,271
4,423
2,981
0
7,404
Interest Expense
Current Assets
Cash
Accounts Receivable
Inventory
Prepaid Expenses
1,773
7,750
4,800
456
14,779
2,000
8,852
5,700
1,849
18,401
Fixed Assets
PP&E, Net of Accum. Depreciation
10,913
10,932
25,692
29,333
5,665
792
500
6,957
6,656
1,375
500
8,531
TOTAL ASSETS
LIABILITIES
Current Liabilities
Accounts Payable
Line of Credit
Current Maturities of Long Term Debt
Long Term Liabilities
Long Term Debt, Net of Current Maturities
5,000
4,500
TOTAL LIABILITIES
11,957
13,031
EQUITY
Common Stock
Additional Paid In Capital
Retained Earnings
TOTAL EQUITY
15
5,000
8,720
13,735
15
5,000
11,287
16,302
25,692
29,333
0 .0
0 .0
Check
A Simple Model

003
For this exercise you will be provided

the template pictured to build the
model.
With a blank template the first step is
to input the historical data provided.
Integrated Financial Statements

Company Name
(000s)
INCOME STATEMENT
Historical
Historical
Project ed
Project ed
Project ed
Project ed
Project ed
20X1
20X2
20X3
20X4
20X5
20X6
20X7
20X1
20X2
20X3
20X4
20X5
20X6
20X7
20X1
20X2
20X3
20X4
20X5
20X6
20X7
20X1
20X2
20X3
20X4
20X5
20X6
20X7
20X1
20X2
20X3
20X4
20X5
20X6
20X7
Revenue
Growth (%)
Cost of Goods Sold
% of Sales
Gross Profit
% of Sales
% of Sales
Interest Expense
Pretax Incom e
Income Tax Expense
Tax Rate
Net Incom e
Depreciation
Amortization
EBITDA
BALANCE SHEET
Current Assets
Cash
Accounts Receivable
Inventory
Prepaid Expenses
Fixed Assets
TOTAL ASSETS
Current Liabilities
Accounts Payable
Line of Credit
TOTAL LIABILITIES
Common Stock
Retained Earnings
TOTAL EQUITY
Check
BALANCE SHEET ASSUMPTIONS

AR Days
Inventory Days
AP Days
CASH FLOW STATEMENT
Net Incom e
Depreciation
Amortization
Accounts Receivable
Inventory
Accounts Payable
Revolving Credit Facility (Line of Credit)
Long Term Debt
Net Cash Flow
Beginning Cash Balance
Ending Cash Balance
Company Name
(000s)
DEBT SCHEDULE
Plus: Free Cash Flow from Financing (BEFORE L.O.C.)
Total Cash Available or (Required) from L.O.C.
Line of Credit
Debt
Current Portion of Long Term Debt
Interest Expense
PP&E SCHEDULE
Less: Depreciation
Depreciation as % of Revenues
Used To Project
A Simple Model

003
Once the historical data has been included in the template, the next step is to project
the income statement.
For most items on the financial statements historical information provides sufficient
data to project the future. Some items, however, must first be calculated on a different
financial statement or supporting schedule. All such items will be shaded purple to
indicate that this data will be linked later in the process.
Two items will be shaded purple:
1.
Interest Expense: This is calculated on the Debt Schedule.
2.
Depreciation: Depreciation is calculated on the PP&E Schedule.

Company Name
(000s)
INCOME STATEMENT
Historical
Historical
Projected
Projected
Projected
Projected
20X1
20X2
20X3
20X4
20X5
20X6
Projected
20X7
Revenue
Growth (%)
74,452
NA
83,492
12.1%
91,841
10.0%
101,025
10.0%
111,128
10.0%
122,241
10.0%
134,465
10.0%
Cost of Goods Sold

% of Sales
64,440
86.6%
72,524
86.9%
79,634
86.7%
87,597
86.7%
96,357
86.7%
105,992
86.7%
116,592
86.7%
Gross Profit
% of Sales
10,012
13.4%
10,968
13.1%
12,208
13.3%
13,428
13.3%
14,771
13.3%
16,248
13.3%
17,873
13.3%

% of Sales
6,389
8.6%
6,545
7.8%
7,540
8.2%
8,294
8.2%
9,124
8.2%
10,036
8.2%
11,040
8.2%
3,623
4,423
4,667
5,134
5,647
6,212
6,833
518
474
Pretax Incom e
3,105
3,949
4,667
5,134
5,647
6,212
6,833
Income Tax Expense

Tax Rate
1,087
NM
1,382
NM
1,634
35.0%
1,797
35.0%
1,977
35.0%
2,174
35.0%
2,392
35.0%
Net Incom e
2,018
2,567
3,034
3,337
3,671
4,038
4,442

Depreciation
Amortization
EBITDA
3,623
2,648
0
6,271
4,423
2,981
0
7,404
4,667
5,134
5,647
6,212
6,833
0
4,667
0
5,134
0
5,647
0
6,212
0
6,833
Interest Expense
A Simple Model

003
With the income statement projected, the next step is to project the balance sheet.
Five items will be shaded purple:
1.
Cash: Cash must first be calculated on the cash flow statement.
2.
PP&E, Net of Accum. Depreciation: This is calculated on the PP&E schedule.
3.
Line of Credit: This is calculated on the Debt Schedule.
4.
Current Maturities of Long Term Debt: This is calculated on the Debt Schedule.
5.
Long Term Debt, Net of Current Maturities: This is calculated on the Debt
Schedule.
BALANCE SHEET
20X1
20X2
20X3
Current Assets
Cash
Accounts Receivable
Inventory
Prepaid Expenses
1,773
7,750
4,800
456
14,779
2,000
8,852
5,700
1,849
18,401
Fixed Assets
10,913
10,932
25,692
5,665
792
500
6,957
TOTAL ASSETS
Current Liabilities
Accounts Payable
Line of Credit
20X4
20X5
20X6
20X7
9,649
6,095
1,849
17,593
10,614
6,705
1,849
19,167
11,675
7,375
1,849
20,899
12,842
8,113
1,849
22,804
14,127
8,924
1,849
24,900
29,333
17,593
19,167
20,899
22,804
24,900
6,656
1,375
500
8,531
7,155
7,870
8,657
9,523
10,475
7,155
7,870
8,657
9,523
10,475
5,000
4,500
TOTAL LIABILITIES
11,957
13,031
7,155
7,870
8,657
9,523
10,475
Common Stock
Retained Earnings
TOTAL EQUITY
15
5,000
8,720
13,735
15
5,000
11,287
16,302
15
5,000
14,320
19,335
15
5,000
17,658
22,673
15
5,000
21,328
26,343
15
5,000
25,366
30,381
15
5,000
29,808
34,823
25,692
29,333
Check

AR Days
Inventory Days
AP Days
0.0
38
27
32
0.0
39
29
33
26,490
30,543
35,000
39,904
45,298
(8,897.1)
(11,375.3)
(14,101.2)
(17,099.8)
(20,398.2)
38
28
33
38
28
33
38
28
33
38
28
33
38
28
33
A Simple Model

003
With the balance sheet projected, the next step is to project the cash flow statement.
Four items will be shaded purple:
1.
Depreciation: Depreciation is calculated on the PP&E Schedule
2.
Capital Expenditures Purchase of PP&E: This is calculated on the PP&E schedule.
3.
Revolving Credit Facility (Line of Credit): This is calculated on the Debt Schedule.
4.
Long Term Debt: This is calculated on the Debt Schedule.
CASH FLOW STATEMENT

Net Incom e
Depreciation
Amortization
Accounts Receivable
Inventory
Accounts Payable
Long Term Debt
Net Cash Flow
Ending Cash Balance
20X1
20X2
20X3
20X4
20X5
20X6
20X7
3,034
3,337
3,671
4,038
4,442
(797)
(395)
499
(965)
(610)
715
(1,061)
(670)
787
(1,167)
(738)
866
(1,284)
(811)
952
2,340
2,478
2,726
2,999
3,298
2,340
2,000
4,340
2,478
4,340
6,819
2,726
6,819
9,545
2,999
9,545
12,543
3,298
12,543
15,841
A Simple Model

003
With the three financial statements projected, the next step is to build the supporting
schedules.
As these schedules are built the items shaded in purple can be appropriately linked to
complete the model.
DEBT SCHEDULE
Line of Credit
20X1
20X2
20X3
792
1,375
2,000
2,071
(500)
2,000
1,571
0
5,000
500
4,500
500
4,000
500
20X4
20X5
20X6
20X7
2,196
2,257
(500)
2,000
1,953
0
3,953
2,531
(500)
2,000
3,984
0
5,984
2,830
(500)
2,000
6,313
0
8,313
3,155
(500)
2,000
8,969
0
3,500
500
3,000
500
2,500
500
2,000
500
Debt
Interest Expense
8.0%
5.0%
8.0%
5.0%
8.0%
5.0%
8.0%
5.0%
8.0%
5.0%

380
34
340
0
300
0
260
0
220
0
414
340
300
260
220
PP&E SCHEDULE
20X1
20X2

Less: Depreciation
Used To Project
3.56%
3.57%
20X3
20X4
20X5
20X6
20X7
10,932
3,500
11,159
4,000
11,559
4,500
12,099
5,000
12,743
5,500
3,273
3.56%
3,600
3.56%
3,960
3.56%
4,356
3.56%
4,792
3.56%
11,159
11,559
12,099
12,743
13,451
A Simple Model

003
Please see the video for some

concluding remarks.

Company Name
(000s)
INCOME STATEMENT
Revenue
Growth (%)
Historical
Historical
Project ed
20X1
20X2
20X3
74,452
NA
83,492
12.1%
91,841
10.0%
Projected
Projected
Projected
Projected
20X4
20X5
20X6
20X7
101,025
10.0%
111,128
10.0%
122,241
10.0%
134,465
10.0%
116,592
86.7%
Cost of Goods Sold

% of Sales
64,440
86.6%
72,524
86.9%
79,634
86.7%
87,597
86.7%
96,357
86.7%
105,992
86.7%
Gross Profit
% of Sales
10,012
13.4%
10,968
13.1%
12,208
13.3%
13,428
13.3%
14,771
13.3%
16,248
13.3%
17,873
13.3%
6,389
8.6%
6,545
7.8%
7,540
8.2%
8,294
8.2%
9,124
8.2%
10,036
8.2%
11,040
8.2%

% of Sales
Interest Expense
3,623
4,423
4,667
5,134
5,647
6,212
6,833
518
474
415
341
300
260
220
Pretax Incom e
3,105
3,949
4,252
4,793
5,347
5,952
6,613
2,315
35.0%
Income Tax Expense

Tax Rate
1,087
NM
1,382
NM
1,488
35.0%
1,678
35.0%
1,872
35.0%
2,083
35.0%
Net Incom e
2,018
2,567
2,764
3,116
3,476
3,869
4,299

Depreciation
Amortization
EBITDA
3,623
2,648
0
6,271
4,423
2,981
0
7,404
4,667
3,273
0
7,940
5,134
3,600
0
8,734
5,647
3,960
0
9,607
6,212
4,356
0
10,568
6,833
4,792
0
11,625
BALANCE SHEET
Current Assets
Cash
Accounts Receivable
Inventory
Prepaid Expenses
Fixed Assets
TOTAL ASSETS
Current Liabilities
Accounts Payable
Line of Credit
20X1
20X2
20X3
20X4
20X5
20X6
20X7
1,773
7,750
4,800
456
14,779
2,000
8,852
5,700
1,849
18,401
2,000
9,649
6,095
1,849
19,593
3,325
10,614
6,705
1,849
22,492
4,816
11,675
7,375
1,849
25,715
6,501
12,842
8,113
1,849
29,306
8,449
14,127
8,924
1,849
33,348
10,913
10,932
11,159
11,559
12,099
12,743
13,451
25,692
29,333
30,752
34,051
37,814
42,049
46,799
5,665
792
500
6,957
6,656
1,375
500
8,531
7,155
32
500
7,687
7,870
0
500
8,370
8,657
0
500
9,157
9,523
0
500
10,023
10,475
0
500
10,975
5,000
4,500
4,000
3,500
3,000
2,500
2,000
TOTAL LIABILITIES
11,957
13,031
11,687
11,870
12,157
12,523
12,975
Common Stock
Retained Earnings
TOTAL EQUITY
15
5,000
8,720
13,735
15
5,000
11,287
16,302
15
5,000
14,051
19,066
15
5,000
17,166
22,181
15
5,000
20,642
25,657
15
5,000
24,511
29,526
15
5,000
28,809
33,824
25,692
29,333
30,752
34,051
37,814
42,049
46,799
Check
0.0

AR Days
Inventory Days
AP Days
CASH FLOW STATEMENT
0.0
38
27
32
20X1
0.0
39
29
33
20X2

Net Incom e
Depreciation
Amortization
Accounts Receivable
Inventory
Accounts Payable
38
28
33
20X3
0.0
38
28
33
20X4
0.0
38
28
33
20X5
0.0
38
28
33
20X6
38
28
33
20X7
2,764
3,116
3,476
3,869
4,299
3,273
0
3,600
0
3,960
0
4,356
0
4,792
0
(1,061)
(670)
787
(1,167)
(738)
866
(1,284)
(811)
952
(797)
(395)
499
0.0
(965)
(610)
715
5,343
5,857
6,491
7,186
7,947

(3,500)
(3,500)
(4,000)
(4,000)
(4,500)
(4,500)
(5,000)
(5,000)
(5,500)
(5,500)

Long Term Debt
(1,343)
(500)
(1,843)
(32)
(500)
(532)
0
(500)
(500)
0
(500)
(500)
0
(500)
(500)
Net Cash Flow

Ending Cash Balance
0
2,000
2,000
1,325
2,000
3,325
1,491
3,325
4,816
1,686
4,816
6,501
1,947
6,501
8,449
Company Name
(000s)
DEBT SCHEDULE
Line of Credit
20X1
20X2
20X3
792
1,375
2,000
1,843
(500)
2,000
1,343
32
5,000
500
4,500
500
4,000
500
20X4
20X5
20X6
20X7
2,000
1,857
(500)
2,000
1,357
0
3,325
1,991
(500)
2,000
2,816
0
4,816
2,186
(500)
2,000
4,501
0
6,501
2,447
(500)
2,000
6,449
0
3,500
500
3,000
500
2,500
500
2,000
500
Debt
Interest Expense
8.0%
5.0%
8.0%
5.0%
8.0%
5.0%
8.0%
5.0%
8.0%
5.0%

380
35
340
1
300
0
260
0
220
0

PP&E SCHEDULE
415
20X1
20X2

Less: Depreciation
20X3
10,932
3,500
Used To Project
3.56%
3.57%
341
20X4
11,159
4,000
300
20X5
11,559
4,500
260
20X6
12,099
5,000
220
20X7
12,743
5,500
3,273
3.56%
3,600
3.56%
3,960
3.56%
4,356
3.56%
4,792
3.56%
11,159
11,559
12,099
12,743
13,451
A Simple Model

Integrating Financial Statement - A Simple Model

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Integrating Financial Statement - A Simple Model

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A Simple Model

Integrating Financial Statements

Overview of the Process

Overview of Building an Integrated Financial Statement Model

Input Historical Data

Project Financial Statements

Cash Flow Statement

Build the Supporting Schedules

Integrating Financial Statements

Overview of the Process

CASH FLOW STATEMENT

Total Cash Surplus

Integrating Financial Statements

Integrating Financial Statements

Cost of Goods Sold

Operating Expenses (SG&A)

Operating Incom e (EBIT)

Income Tax Expense

Operating Income (EBIT)

TOTAL LIABILITIES & EQUITY

Integrating Financial Statements

Integrating Financial Statements

For this exercise you will be provided

Integrated Financial Statements

BALANCE SHEET ASSUMPTIONS

End: PP&E, Net of Accum. Depreciation

Integrating Financial Statements

Integrating Financial Statements

Interest Expense: This is calculated on the Debt Schedule.

Depreciation: Depreciation is calculated on the PP&E Schedule.

Integrated Financial Statements

Cost of Goods Sold

Operating Expenses (SG&A)

Operating Incom e (EBIT)

Income Tax Expense

Operating Income (EBIT)

Integrating Financial Statements

Integrating Financial Statements

Cash: Cash must first be calculated on the cash flow statement.

PP&E, Net of Accum. Depreciation: This is calculated on the PP&E schedule.

Line of Credit: This is calculated on the Debt Schedule.

TOTAL LIABILITIES & EQUITY

BALANCE SHEET ASSUMPTIONS

Integrating Financial Statements

Integrating Financial Statements

Depreciation: Depreciation is calculated on the PP&E Schedule

Capital Expenditures Purchase of PP&E: This is calculated on the PP&E schedule.

Long Term Debt: This is calculated on the Debt Schedule.

CASH FLOW STATEMENT

Integrating Financial Statements

Integrating Financial Statements

Interest Expense on Long Term Debt

Total Interest Expense

Beg: PP&E, Net of Accum. Depreciation

Integrating Financial Statements

Integrating Financial Statements

Please see the video for some

Integrated Financial Statements

Cost of Goods Sold

Operating Expenses (SG&A)

Income Tax Expense

Operating Income (EBIT)

TOTAL LIABILITIES & EQUITY

BALANCE SHEET ASSUMPTIONS