How to make Financial Models Easier to Understand, Use and Audit (5 tips)
Originally published: 07/02/2019 13:48
Publication number: ELQ-79382-1
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How to make Financial Models Easier to Understand, Use and Audit (5 tips)

A guide with 5 tips to build Financial Models easy to Understand, Use and Audit.

Introduction

Financial models can be scary and even daunting – especially when they haven’t been built by you! Maybe you are a financier or model auditor trying to figure out what a model is trying to tell you. Using the 5 financial model tips outlined in this article, we can all make financial models we build easier to understand, use and be audited (a crucial step in obtaining funding). Financial models don’t have to be the complex beasts they are sometimes made out to be! Follow these five financial model tips to modelling glory.

  • Step n°1 |

    Flags

    Flags are a single row that represent when an asset is in construction or operations, when a dividend or debt repayment is due to be made, when interest is being capitalised or paid etc. This is especially useful for project finance models!

    A flag can be used to represent anything that changes over time! A simple 1 or 0 (with some conditional formatting) can then be used in other calculations, complex formulas can just multiply by the flag to ensure they are being used in the appropriate periods.

    This is one financial model tip that makes a big impact!

    How to make Financial Models Easier to Understand, Use and Audit (5 tips) image
  • Step n°2 |

    Inputs all on one worksheet

    When reviewing a financial model against term sheets, EPC contracts and other long documents, having one worksheet where all of the inputs can be found makes life much easier! Even better is when those inputs are segregated according to themes or headings (E.g. Financing, Operations, Construction, Forex, Macro-Economic Inputs etc.). Intelligently structuring the Inputs worksheet is not only a financial modelling tip, but a sign of a well thought out and strategically built financial model.


    This financial model tip ensures that no-one spends hours looking for key assumptions!

    How to make Financial Models Easier to Understand, Use and Audit (5 tips) image
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