To bring a plan from conception to reality, it is important to map out the financial details of multiple scenarios. A flexible and dynamic financial model can help you achieve your optimal goals.
A financial model begins with historical results. These help explain management’s demonstrated capabilities. This can provide a roadmap for management interviews and discussions.
The next step in a financial model is value drivers. Primary value drivers are the most impactful inputs that drive a company’s future cash flows. These can be augmented with secondary drivers, which also drive future cash flows but have limited impact. These can be implied from historical value drivers and augmented with the company’s strategy and business plan.
Value drivers and historical results are then combined to generate future financial performance. If crafted properly, future financial performance can update dynamically in response to changes in value drivers. Scenario tables can be built to show a range of results for a myriad of inputs and parameters.
Future financial performance can be evaluated with the use of financial ratios. These can be used to measure profitability, efficiency, liquidity, solvency and other factors. There are many different ratios, each with their strengths and weaknesses.
By layering in a valuation model, financial performance can be translated into value. This allows the user of the model to evaluate the economic impact of scenarios and make informed decisions.
AN Valuations has years of experience with financial models, from simple to complex, and can help you achieve your optimal results.