Quick start project finance model:
User Guide
Housekeeping
We have built the one-page financial model template to have everything you need for including financial forecasts in your business planning or investment round.
Firstly, a little bit on what you can do with the model
This model will allow you to build the next five year forecasts of your business, in practice this means;
- Build the Income Statement, Balance Sheet and Cashflow Statement of your business
- Build a Resources Plan and Corporate Investment Plan
- Map out up to three funding rounds which can be split out into a equity / debt structure
- Understand the company valuations for each round (pre / post money)
- Understand the changes to the Cap Table
- Understand the investor returns
- Map out the Enterprise Value over the year using three well known methodologies
- Tables and charts, that you can easily copy and paste into your investment docs
- Give your self corporate target KPIs and compare against the model outputs
How to complete
The model is fully dynamic and so there are only a few cells that require input from you – all the other cells will take those inputs and add the calculations around them to produce the outputs. All the key sections are on the same sheet and are the model works from left to right with each section and sub-section clearly titled and referenced.
To make things easy, we have also added clickable buttons that let you navigate the spreadsheet and get back to the place where you want to be – this key can be seen below:
As with most models (and because it is dynamic), please ensure that you save updated versions if you make any updates – this will ensure that should a change make the model unstable (which is unlikely), you can revert back to an older version without losing your work.
How the model is structured
As mentioned the model works from left to right and is made up of three sections
- The inputs – this is where you put in the inputs that are relevant to your business and these will drive the output
- The Calculations – this is what much of the analysis is carried out and the financial statements are built
- The Outputs – this is the section where the results of the financial model are presented which in the case of this model is made up of a Summary Financials and KPIs, Funding Summary, Presentation Summary and Financial Statements
We have worked very hard on the design and UI of the model to ensure that it remains one of the easiest Excel / Google Sheets based models on the Internet. This means we have focussed on consistency in formats and colours and provided additional guidance within the model itself and this supporting documentation. However, we know there is always room to improve so please do give us feedback good and bad and if you have purchased this template through a third party platform, please drop us a review – it helps massively. Equally, if the model does not quite do what you need, we can provide bespoke upgrades and modelling – please get in touch.
Thank you for reading and happy forecasting!
Model inputs
Importance of this section
This is the section the governs the entire Financial Model and makes the model precise to your business and your plan. one thing is for sure, the quality and accuracy of a financial model are heavily dependent on the inputs used. Financial models are used for decision-making, forecasting, and valuation. If the inputs are flawed or unrealistic, the outputs will be misleading, leading to poor decisions. Financial Models are not an exact science, they are directional so the inputs are completed with what we know and expect today so it is also important to regularly review and update these inputs to reflect changes in the economic environment or business operations.
We find that there is one golden rule to follow: The assumptions in a financial model need to be realistic and justifiable
Assumptions about market growth, inflation rates, or interest rates have a significant impact on projections. Overly optimistic or pessimistic assumptions can lead to skewed outcomes, affecting investment decisions and strategic planning BUT assumptions are exactly that – assumptions – we do not have a crystal ball but it is important to balance realism with ambition. If you are looking to use the Financial Model to secure funding, it is often good to have a narrative that sits behind the critical assumptions perhaps size of market, perhaps a USP either way, give the assumptions some real thought.
So with that said, let’s jump into it.
Structure of this section
The model is dynamic so any update to the inputs will automatically update the model and the model outputs. The Input section is the second section of the model and is a list of clearly labelled assumptions to drive the model – please note the guidance and the unit value – to get that most accurate outputs, please ensure that you are using the correct units. Always look at the column headings as we have assumptions that fall into three time frames:
- Annual assumptions – Assumptions that can be modified on annual basis and these assumptions are generally representing the average, in other words, it is the average salary in that model year or the average price charged. To complete these, it is important to think about the growth in the assumption from Year 1 to Year 2, Year 2 to Year 3, etc. – these assumptions will look like this:
- Model wide assumptions – An assumption that run through out the entire model period, remember in the 1 Page Financial Models we are considering a 5 year time frame. For the multi-year projections, consider the compounding effect of inflation and potential changes in taxation rates. – these assumptions will look like this:
- Funding round assumptions– In the 1 Page Financial Models, you can map up to 3 finance rounds. Accordingly, we have funding round specific assumptions which look like this:
1. General & Market
Model Start Date – This date signifies the commencement of the financial projections. All calculations, including cash flows, revenues, and expenses, will start from this date. Ensure that all historical data leading up to this date is accurate and complete.
- Currency – All financial transactions, balances, and statements should be calculated and presented in (in this case) GBP.
Inflation – This annual rate should be applied to project future costs and prices. It’s essential to factor in inflation for long-term projections to maintain the model’s accuracy over time. Review and update this rate annually or as market conditions change.
Taxation – Apply this tax rate to the calculated profit before tax to determine the tax expense. This input is crucial for accurate net profit calculations. Stay updated with tax legislation as changes can significantly impact financial outcomes.
Opening Cash Position – This nominal amount represents the initial cash balance. It’s a placeholder and should be updated with the actual opening cash balance when the model goes live. Ensure that this figure is reconciled with the company’s actual financial statements.
2. Revenue Drivers
So we are in business to drive Revenue which should drive profits and returns. In this section of the inputs, we look at the fundamental key drivers for the specific 1 page Financial Model selected. It is worth noting that in most cases the revenue is driven by Volume x Price, so this section looks to determine those two parameters. In each 1 page Financial Model, we also include “other” revenue to capture all – i.e. other revenues your business is forecasting outside the core template revenues. These are assumptions will be generally “Annual assumptions” so you have the option to be quite precise on the year on year inputs. The section will look as per the below:
In the above example, the volume is the average number of projects and the price is the average commission charged on the average value of the project but note, this section will reflect the 1 page Financial Model that you have purchased.
3. Cost Drivers
The Cost Drivers is where we begin to see some representations of the Income Statement. This section splits the costs out in terms of Variable Costs (Costs of Goods Sold), team costs (after all, it will be a team effort!!) and the more fixed overheads. Once we have these and the Revenue, the 1 page Financial Model can output the EBITDA or Operating Profit a critical Financial Health and Efficiency KPI. So let’s split into the sections.
Variable Costs – These are the costs that deliver the revenue, so they are only expended in revenue is generated, we therefore use a % of the revenue as the key driver. An example would be, in a Bakery and the cost of flour, sugar, and other ingredients varies directly with the quantity of baked goods produced. More production means higher raw material costs, making them variable expenses. These assumptions look like below (note in our 1 page Financial Models you can completely bespoke them for your business)
Team Costs – These are the costs that deliver the revenue, so they are only expended in revenue is generated, we therefore use a % of the revenue as the key driver. An example would be, in a Bakery and the cost of flour, sugar, and other ingredients varies directly with the quantity of baked goods produced. More production means higher raw material costs, making them variable expenses. These assumptions look like below (note in our 1 page Financial Models you can completely bespoke them for your business):
The key formula for working out the cost of the team is the average salary for the category x the number of FTE for the category BUT we need to remember that there are further costs to the business in terms of taxes and benefits so the wage bill is increased by a set % to cover these costs and reflect reality. The team size is driven by “FTE” – Full time Equivalent – so if someone is fulltime they are 1, if someone works 2.5 days a week they would 0.5. This is done for each category of staff (again, bespoke to your business) and on an annual basis to reflect growth in the team.
Overheads – These are the fixed costs (or overheads) and bespoke to your business. These are “Annual assumptions” so you can reflect growth in the costs, in line with growth in the business but remember that we inflate the prices (both revenue and costs) already. You can rename each overhead (as it is yellow!) to reflect you business. Overhead inputs look like the below:
4. Capital Spend
When completing the inputs, one of the key areas to focus on is corporate spending, particularly capital investments. Understanding and accurately inputting this data is crucial for the model to reflect the financial health and future projections of a business. By Capital Spend, we refer to the money a company spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. In your model, there are five different capital investments listed for each year. You can also add the type of capital investment that it is e.g. Vehicles or Premises. Note that these are Annual Assumptions.
There is also a Model Wide Assumption, the “Average life of assets” – this is the useful life of the asset and enables the model to calculate the depreciation which is the degradation of asset value through wear and tear and important for the Income Statement and forecasting an accurate asset valuation.
5. Funding & Returns
Now we get onto the financing assumptions and the first Funding round base assumptions – where the assumptions are split by funding round.
Here you can toggle investment rounds on and off by using the Y/N and then you can input the amount that you think you need to raise which can then be split into equity and debt – you can update this by entering what % of the funding will be equity (the debt portion will automatically calculate). You can also select the timing of the investment i.e. which model year and also the “Runway” which is a start up world term for how long the investment needs to last given your cost base, this is again in Years. We also recommend that you include some contingency funding to ensure that there is no cash shortfalls should there be delays or other unforeseen issues with the plan.
If there is a portion that is equity, the you will need to input the equity awarded in the round – this amount of the % equity ownership the investor will be awarded of the company.
If there is a debt portion, then you will need to enter the interest rate and the term of the loan. The model takes a simplistic view on loans that there are equal annual repayments each year and interest is paid on any outstanding loan in the company until all is paid back.
The model will calculate from your inputs the funding you need and will show you have short or over you are of that investment need.
6. Business Valuations
Business valuation is a critical process in finance, used to estimate the economic value of an owner’s interest in a business. This valuation is often necessary for financial reporting, taxation, and transactional purposes. Let’s explore how to complete the inputs for a business valuation in a financial model and understand their importance.
The 1 page Financial Model uses two valuation methods to get an “Enterprise Value” and these are the inputs that we need. The two methods are as follows
EBITDA multiple – This is using a market validated “multiple” to multiply the EBITDA. The market validated is by using comparisons in the market of similar transactions so if this multiple was 10x and the EBITDA was £100,000, then the valuation would be £1,000,000 – this is one of the simpler methods. So the input for this is the EBITDA multiple.
Discounted cashflow – This method takes each annual cashflow and “discounts” it back to a value today (“Present Value”) and then adds all those cashflows up – so you need to input the “discount rate” which is basically the risk factor, the higher the discount factor, the higher risk factor, the lower the valuation.
Terminal growth – The terminal growth rate is the constant rate at which a company is expected to grow forever. The reason is that this is needed is that the we need to have an understand of the value beyond the 5 year forecasts. This growth rate starts at the end of the last forecasted cash flow period in a discounted cash flow model and goes into perpetuity. A terminal growth rate is usually in line with the long-term inflation rate but not higher than the historical Gross Domestic Product (GDP) growth rate. We would normally suggest 1.0% to 1.5% but will depend on your specific business, stage and sector.
We cover valuations and their importance elsewhere in the guide, so please ensure you read up on them there!
7. Cash Management
The cash management inputs are crucial for understanding a company’s liquidity, operational efficiency, and shareholder return strategy. Here’s a summary of what each of these inputs means and their importance:
Days Receivable: This metric, also known as Days Sales Outstanding (DSO), indicates the average number of days it takes for a company to collect payment after making a sale. The lower the number of days the more efficient the business is at collecting cash owed to it.
Days Payable: Also known as Days Payable Outstanding (DPO), this measures the average time (in days) a company takes to pay its own bills and invoices. A higher DPO can be beneficial for cash flow management as it indicates that the company is able to retain cash longer, which can be used for other operational needs or investments. However, it’s important to balance this with maintaining good relationships with suppliers.
% Annual Dividends: This represents the percentage of net income that the company pays out to its shareholders as dividends. A 10% dividend rate is quite significant and suggests that the company is committed to returning a substantial portion of its profits to shareholders. This can be attractive to investors seeking regular income. However, it also implies that the company is choosing to distribute these funds rather than reinvesting them back into the business for growth or debt reduction.
That’s it! Once you have done this we can head straight over to the Financial Model Calculations.
Calculations
This is the engine of the financial forecast – an area you should not need to touch as all the formula have been built for you! This is where we take all your assumptions and build out the core forecasts over the 5 year period. If you are proficient at Excel / Google Sheets (or just want to play with the model), then you are welcome to make changes but we urge you to save a copy as it can be easily to break the model once these cells are changed.
Flags & rates
This is a control part of the forecasts that has the time series and build up the inflation factor. This enables the other formula to pick up the correct dates/years for the calculations. This is a good modelling practice no matter how complicated the Financial Model.
Revenue Drivers
Here, we calculate the drivers of the revenue which will be dependent on the type of business model that you’re forecasting. The revenue drivers are things that directly impact and generate revenue -a simplistic formula is Revenue = Price x Volume. In the case below, the revenue drivers are made up of one extra stage as this is a brokerage business. The revenue formula is
Projects x Value of projects x Project Commissions
This is critical to calculating the next section, the Income Statement as the Revenue is the opening financial metric.
Income Statement
Balance Sheet
Cashflow Statement
Free Cashflow to Firm
The Cash Flow Statement tracks the flow of cash in and out of your business over a period, highlighting cash from operations, investing, and financing activities. It helps you see whether your business is generating enough cash to cover expenses and grow. Understanding cash flow is vital to ensure you can pay bills on time, manage seasonal fluctuations, and maintain a healthy financial cushion.
Rolling Valuations
Rolling Asset Valuation
Rolling Asset Valuation
Debt Schedule
In this section, we outline your current and future debt obligations, including loans, credit lines, and other forms of borrowing. It typically includes details like the principal amount, interest rate, repayment terms, and due dates for each debt item. The debt schedule is crucial for managing cash flow, ensuring you have enough liquidity to meet debt repayments on time, and planning for future financing needs. It also helps with financial modelling and understanding how debt impacts your store’s profitability and overall financial health.
Burn Rate
Funder flags
This section highlights in which years the funder investments in the business and helps to drive the investor returns and other investment related metrics.
Outputs
Funding
In this section, we have outputs that are at the investment round level (so dependent on the inputs on size, structure and timing of funding) and we have annual assumptions running over the forecast period. This output section gives you an idea of the funding that you require to deliver your plan and this is simply driven by assessing the shortfall in cash that the calculations show. If you are never short of cash then the model will show that you do not actually need any funding.
Funding Rounds
This section allows you to map out your fundraise across the forecast period. In this one page financial model, you have the ability to forecast three different funding rounds which can be made-up of any combination of equity and debt based on your inputs. You also input your target funding need and the model will show you whether this is above or below what you actually need based on all the inputs. It will then give you a gross and net funding requirement which is the funding that you need.
Use of Funds
This section is very important when it comes to pitch decks and discussing investment with investors – this is the “need”. It shows you what you will spend the funding on across six core cost buckets – note this is based on the gross funding need. We would suggest to always have a contingency as this just mitigates any risk from the plan.
Funding Valuations
This section shows you the different valuations of your company at each investment round. We’ve split this out and “pre” and “post” money valuations (to understand what these concepts are please refer to the financial glossary that comes with this financial model) – the key here is that each funding round should show an increase in valuation showing that you are progressing, growing and hitting your milestones.
Summary Cap Table
This section is the cap table it shows the structure of the equity in the business and will show your dilution at each funding round and ultimately who owns what % of the company throughout the forecast period – this is important as the equity will dictate the returns that you as founders and your investors make.
Investor Returns
This is the all important section showing the investor forecasted returns that they may make. We look at this on a rolling basis on across the forecast period This means that we show the returns as if there was an “exit event” each and what that would mean to the founders and investors. You can select which valuation methodology to use (DCF valuation or EBITDA multiple) and the model will show the absolute returns your funder makes and the the “money multiple” which is the number of times that the returns exceeds the investment made and finally you will also see a return on investment you can see this based on each year and for each investor of each round.
Presentation Charts
The idea of this section is that you have the charts and tables that can easily be inserted into your investor materials such as a pitch deck or investment teaser. This section is dynamic and so will update as you change the model inputs. They are also open to be configured to reflect your branding in terms of colours and fonts.
The below charts cover the
- Use of funds – this can be changed for each funding round and is important for showing the funder what you need to spend the funding on
- Summary Financials – a quick table that shows the core financials
- Financials – Bar chart showing the Revenue and EBITDA across the forecast period
- FTE & Average salary – Summary of the team expenses and evolution over the forecast period
- Rolling Valuation – Enterprise value evolution throughout the forecast period
- Average burn rates – Line chart showing the average burn rate (monthly costs) over the forecast period
- Revenue breakdown – Bar chart showing the breakdown of the revenue across the forecast period
- Cost breakdown– Bar chart showing the breakdown of the costs across the forecast period
We are always looking to add to our charts so if you have any thoughts please do get in touch with us on team@numberslides.com with the subject title “One page model”.
KPIs
In this section, we summarise some of the key financial indicators of the business over the forecast period. We do this using averages, growth rates and ratios.
Revenue Drivers
This summarises your key revenue drivers and will be bespoke to your business model – it will give you an idea of the volume of work carried out, projects delivered or products sold. It is not only to assess each individual year but also the evolution over the five years and compare year on year. Generally, to be attractive to an investor or show financially viable and healthy business, you would expect all the numbers to go up year on year but this is dependent on your business situation.
Summary Stats
This is a beat summary table of the financials and a good sense check – as mentioned above, you would expect and hope that the key revenue numbers and profit numbers will increase year on year and that the cash position improves year on year. We also include a gross monthly burn rate, a useful stat to assess the monthly costs that need to be covered by the business – this can also increase as the business grows.
Key Ratios
Growth Rates
Rolling Valuations
Financial Statements
If you are writing a fuller business plan or investment memorandum then it is useful to have the full 3 financial statements – the Income Statement, Balance Sheet and Cashflow Statement. These have been designed to be dropped into those types of documents.
Income Statement
Balance Sheet
Cashflow Statement
Glossary
Assets – Assets are items, properties, or resources owned by an individual or a business that have value and can be used to meet debts, commitments, or legacies. In simpler terms, assets are things you own that are worth money. This includes physical items like houses, cars, and computers, as well as non-physical items like money in the bank, stocks, or intellectual property. They are important in finance because they represent the resources available to a person or a company to pay for their needs, invest for the future, or to sell in exchange for money when necessary.
Balance Sheet – A balance sheet is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders, at a specific point in time. It consists of three main sections: assets, liabilities, and shareholders’ equity. Assets, both current and long-term, represent the resources controlled by the company. Liabilities, similarly divided into current and long-term, are obligations the company must fulfil. Shareholders’ equity represents the residual interest in the assets of the company after deducting liabilities. The fundamental equation of a balance sheet is: Assets = Liabilities + Shareholders’ Equity. This statement is crucial for assessing the financial health and stability of a business.
Burn Rate – Burn rate refers to the speed at which a company expends its financial resources, particularly venture capital, in the absence of positive cash flow. It’s a key metric for start-ups and growth-focused businesses, primarily used to gauge the company’s cash runway – the time until it runs out of money if income and spending levels remain constant. High burn rates might indicate rapid scaling, significant investments in product development or market expansion, but also raise concerns about long-term sustainability. Conversely, a low burn rate suggests more conservative spending, potentially increasing the runway and lowering the risk of insolvency
Cap table – A Capitalisation Table, commonly referred to as a cap table, is a detailed spreadsheet or document that outlines the equity ownership capital of a company. It includes information about the company’s shares, options, warrants, and any other securities convertible into equity. The cap table displays the percentage of ownership, equity dilution, and value of equity in each round of investment. It is a crucial tool for start-ups and growing businesses, providing a clear picture of the company’s ownership structure and the distribution of its equity among founders, investors, and other stakeholders. Cap tables are essential for financial decision-making, particularly during funding rounds, as they illustrate how investments and other transactions impact ownership and control.
Capital Investments – Money spent by a business to buy, improve, or maintain long-term assets like equipment, buildings, or technology. These investments help a business grow and improve its operations. They typically require a large amount of upfront money but can generate returns over time through increased efficiency, capacity, or sales
Cash Flow Statement – A cash flow statement is a financial document that provides a detailed analysis of what happened to a business’s cash during a specific period. It categorizes cash flow into three main activities: operating (cash earned or spent in the course of regular business activity), investing (cash used for or generated from investments in assets), and financing (cash exchanged with investors and creditors). This statement is crucial for assessing the liquidity, flexibility, and overall financial health of a business. It helps stakeholders understand how the company generates and uses its cash, crucial for evaluating its ability to generate positive cash flow in the future.
Cash Growth – The increase in the amount of cash a business has over time, often resulting from profits, better cash flow management, or external funding. Cash growth indicates financial health and stability, giving a business more flexibility to invest in opportunities, cover unexpected costs, or expand operations.
Contingency – A reserve of money set aside to cover unexpected expenses or emergencies. Having a contingency fund helps a business handle unforeseen costs, ensuring that unexpected events don’t disrupt operations or cause financial strain. It acts as a safety net for the business.
Cash Growth – The increase in the amount of cash a business has over time, often resulting from profits, better cash flow management, or external funding. Cash growth indicates financial health and stability, giving a business more flexibility to invest in opportunities, cover unexpected costs, or expand operations.
Contingency – A reserve of money set aside to cover unexpected expenses or emergencies. Having a contingency fund helps a business handle unforeseen costs, ensuring that unexpected events don’t disrupt operations or cause financial strain. It acts as a safety net for the business.
Cost of Goods Sold – Cost of Goods Sold (COGS) represents the direct costs attributable to the production of the goods sold by a business. This amount includes the cost of the materials used in creating the good along with the direct labour costs involved in its production. COGS is important for understanding the gross margin and is deducted from revenues (sales) to calculate a company’s gross profit. It’s a crucial metric in the profit and loss statement and can significantly impact the financial health and pricing strategies of a business.
Days Payable – Days payable refers to the amounts that a company owes to its suppliers or creditors for goods and services received but not yet paid for. It is a current liability on a company’s balance sheet, representing the company’s short-term obligations to pay off these debts typically within a year. Effective management of accounts payable is crucial for maintaining good relationships with suppliers and for effective cash flow management. Accounts payable are often contrasted with accounts receivable, which are the amounts that others owe to the company. Accurate tracking and timely payment of accounts payable are essential for sustaining business operations and avoiding late fees or disrupted supply chains.
Days receivable – Accounts receivable (AR) represents the money that a company is owed by its customers for goods or services that have been delivered or used but not yet paid for. It is considered a current asset on a company’s balance sheet and is essential for its cash flow and liquidity. Accounts receivable arise from credit sales, where customers are allowed to pay for their purchases at a later date. Effective management of accounts receivable is crucial as it directly impacts the cash flow and financial health of a business. The key challenge in AR management is to minimize the time between sale and payment, reducing the risk of non-payment and ensuring a steady inflow of cash.
Debt – Debt refers to the amount of money borrowed by an individual or organization from another party, often financial institutions, under the agreement to repay it in the future, typically with interest. This financial obligation can take various forms, such as loans, bonds, or lines of credit. Debt is used for purposes like funding operations, investing in growth, or personal expenditures. The terms of debt include the amount borrowed (principal), the interest rate, and the repayment schedule. While it can provide necessary capital, excessive debt can lead to financial strain and impact credit ratings.
Depreciation – Depreciation is an accounting method used to allocate the cost of a tangible or physical asset over its useful life. It represents how much of an asset’s value has been used up. Depreciation allows businesses to generate revenue from an asset while expensing a portion of its cost each year it is in use. This process helps companies account for the wear and tear on long-term assets like machinery, vehicles, or buildings. The depreciation expense is recognized on the income statement and reduces the value of the asset on the balance sheet
Dilution – The reduction in ownership percentage of existing shareholders when a company issues new shares. Dilution decreases the value of each existing share and can reduce the control or decision-making power of early investors or founders in the company. It’s important to understand when raising funds or bringing in new investors.
Discount Rate – The interest rate used to calculate the present value of future cash flows in financial models, like Net Present Value (NPV). It reflects the time value of money and the risk associated with future cash flows. The discount rate helps determine the value of money over time. A higher discount rate lowers the present value of future cash flows, reflecting higher risk, while a lower rate increases the present value, indicating lower risk. Choosing the right discount rate is essential for accurate investment evaluations and financial decision-making.
Discounted Cash Flow – Discounted Cash Flow (DCF) is a financial valuation method used to estimate the value of an investment based on its expected future cash flows. This technique involves projecting future cash flows and then discounting them back to the present value using a discount rate, typically the weighted average cost of capital (WACC) or a similar rate of return. The DCF analysis helps determine the value of an investment, asset, or a company by considering the time value of money, which states that a dollar today is worth more than a dollar tomorrow. DCF is widely used in finance for investment appraisal, capital budgeting, and valuing businesses. It is a critical tool for investors and analysts in making informed investment decisions.
DSCR – The Debt Cover Ratio, also known as the Debt Service Coverage Ratio (DSCR), is a financial metric used to determine a company’s ability to pay its debt obligations with its operating income. It is calculated by dividing the company’s net operating income by its total debt service (principal and interest payments due for the period). A higher ratio indicates greater ability to cover debt payments from operational earnings, reflecting financial stability. Conversely, a lower ratio suggests potential difficulties in meeting debt obligations, signalling financial risk. This ratio is vital for lenders and investors in assessing the financial health of a business.
EBITDA – EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a financial metric used to evaluate a company’s operating performance. EBITDA focuses on the earnings generated from core business operations, excluding the effects of financing and accounting decisions. By removing interest, taxes, depreciation, and amortization, EBITDA provides a clearer picture of a company’s profitability from its operations. It is often used by investors and analysts to compare companies within the same industry, as it eliminates the effects of different capital structures, tax rates, and non-cash accounting practices like depreciation. However, it doesn’t account for capital expenditures or changes in working capital.
EBITDA Growth – The increase in a company’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) over time. EBITDA growth shows how well a company is improving its core profitability without considering non-operational expenses. It’s a key indicator of operational performance and financial health, often used by investors to assess the company’s earning potential.
EBITDA Multiple – A ratio used to value a company, calculated by dividing the company’s enterprise value (EV) by its EBITDA. The EBITDA multiple is commonly used by investors and analysts to compare companies and assess their value. A higher multiple indicates that the market expects higher growth, while a lower multiple may suggest the company is undervalued or facing challenges. It’s useful in mergers, acquisitions, and investment decisions.
Enterprise Value – Enterprise Value (EV) is a comprehensive measure of a company’s total value, often used in valuation or buyout scenarios. It represents the market value of the entire business, including its equity and debt components. EV is calculated by adding the company’s market capitalization (total value of its outstanding shares) to its total net debt (the sum of its short-term and long-term debt minus cash and cash equivalents). This metric is especially useful for comparing companies with different capital structures, as it provides a more complete picture than market capitalization alone. It is widely used in mergers and acquisitions to assess the value of a company.
Equity – Equity, in a financial context, refers to the residual interest in the assets of a business after deducting liabilities. It represents the ownership value held by the shareholders in the form of capital, retained earnings, and other equity components. Equity is crucial as it provides a cushion against losses and is an indicator of the company’s financial health and potential to generate returns for its owners. For small businesses and startups, equity is often a critical source of funding and a measure of the business’s value as perceived by owners and investors.
Fixed Assets – Tangible assets are physical assets that hold economic value and can be observed and quantified. These assets include machinery, buildings, vehicles, inventory, and furniture. They are key components of a business’s operations and are often used in the production of goods or services. Tangible assets are recorded on a company’s balance sheet at their purchase cost, minus depreciation. Depreciation is the process of allocating the cost of a tangible asset over its useful life. These assets are essential for performing day-to-day operations and can be sold or used as collateral for loans, making them vital for a business’s financial strategy.
Free Cash Flow to Firm – Free Cash Flow (FCF) is a financial performance metric that represents the amount of cash a company generates after accounting for capital expenditures (CapEx) like investments in plant, property, and equipment. It is calculated by subtracting CapEx from Operating Cash Flow. FCF is an important indicator of a company’s financial health and its ability to generate cash profit. It is considered by many investors and analysts as a more accurate representation of a company’s profitability and efficiency than traditional earnings or net income measures. A positive FCF indicates that a company has sufficient cash for dividends, debt reduction, expansion, and other investments to grow the business. Conversely, a negative FCF can signal potential financial problems or the need for additional funding.
FTE – A unit that represents the workload of an employee in a way that makes workloads comparable across different employment arrangements. One FTE is equal to one full-time worker. FTE is used to measure staffing levels and project labour costs. It helps businesses assess how many full-time workers they need or how part-time hours add up to equivalent full-time positions, useful for budgeting and resource planning.
Funding Round – A stage in the process of raising capital for a business, where investors provide funds in exchange for equity or other financial returns. Common rounds include Seed, Series A, Series B, and so on. Each funding round helps businesses grow by providing capital to scale operations, develop products, or enter new markets. Understanding funding rounds is key for start-ups seeking investment and for investors looking to assess growth potential.
Gross Profit – Gross profit is a key financial metric that represents the difference between revenue and the cost of goods sold (COGS). It’s an important indicator of a business’s profitability, exclusive of indirect expenses. Calculated by subtracting COGS – the direct costs attributable to the production of the goods sold or services provided – from total revenue, it reflects the efficiency of a company in managing its production processes and supply chain. Gross profit provides insights into the financial health of a business and is crucial for pricing strategies, financial analysis, and budget planning.
Income Statement – An income statement, also known as a profit and loss statement, is a financial report that provides a summary of a company’s revenues, expenses, and profits or losses over a specific accounting period. It begins with sales or revenue and subtracts various costs and expenses incurred in operating the business to arrive at a net income or loss. Key components include gross profit, operating income, and net income. The income statement is essential for assessing a company’s financial performance, profitability, and operational efficiency. It is one of the three core financial statements used in business, alongside the balance sheet and cash flow statement.
Inflation – Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. It is usually measured as an annual percentage increase. As inflation rises, every unit of currency buys fewer goods and services. Inflation is influenced by factors such as increases in production costs, higher demand for products, and monetary policies. Central banks and governments monitor inflation to adjust economic policy. While moderate inflation is a sign of a growing economy, hyperinflation can have detrimental effects, eroding savings and destabilizing economies. It’s a crucial factor in financial planning and investment decisions.
Interest Payments – Regular payments made by a borrower to a lender as a cost of borrowing money, typically based on a percentage of the loan amount. Interest payments are a crucial part of debt financing. They affect a company’s cash flow and profitability, and higher interest rates increase the cost of borrowing, reducing available capital for other investments. Managing interest payments effectively helps maintain financial health.
Liabilities – Liabilities in financial accounting represent the debts or obligations of a company that arise during the course of its operations. They are settled over time through the transfer of economic benefits including money, goods, or services. Recorded on the right-hand side of the balance sheet, liabilities are a crucial part of the equation: Assets = Liabilities + Owners’ Equity. Liabilities are categorized into current liabilities (due within one year) and long-term liabilities (due after one year). Understanding liabilities is essential for assessing a company’s financial health, as they reflect the company’s future sacrifices of economic benefits.
Money Multiple – A ratio that measures the total return on an investment, calculated by dividing the total cash returned to investors by the total amount of money invested. The money multiple shows how much money an investor has gained (or lost) relative to their original investment. For example, a money multiple of 2x means the investment has doubled. It’s an important metric for investors to assess the overall profitability of their investments.
Net Profit – Net Profit, also known as net income or net earnings, is the amount of money a company earns after subtracting all its expenses, taxes, and costs from its total revenue. It is a crucial indicator of a company’s profitability and financial health. Net income is found at the bottom of the income statement, hence often referred to as “the bottom line.” It includes deductions for operating expenses, cost of goods sold, interest, taxes, and other expenses. Net income is important for investors and stakeholders as it shows the company’s ability to generate profit from its operations and is often used as a basis for dividends and reinvestment.
Net Profit Margin – A percentage that shows how much of a company’s revenue is left as profit after all expenses, including taxes and interest, have been paid. It’s calculated by dividing net profit by total revenue and multiplying by 100. The net profit margin indicates how efficiently a company is converting revenue into actual profit. A higher margin means the company is more profitable, which is important for assessing financial health and sustainability.
Net Working Capital – Net Working Capital (NWC) is a financial metric that measures a company’s operational liquidity by subtracting current liabilities from current assets. Current assets include cash, accounts receivable, inventory, and other assets expected to be converted into cash within a year. Current liabilities encompass accounts payable, short-term debt, and other obligations due within the same period. A positive NWC indicates a company has sufficient short-term assets to cover its short-term liabilities, essential for maintaining smooth operations. Conversely, a negative NWC suggests potential liquidity problems, signalling difficulties in meeting immediate financial obligations. NWC is vital for assessing a company’s short-term financial health and operational efficiency.
NPV – Net Present Value, the calculation of the present value of a series of future cash flows, discounted to reflect their value today. It accounts for the time value of money, where future cash is worth less than cash today. NPV is used to evaluate the profitability of an investment or project. A positive NPV means the projected returns exceed the cost, making it a good investment. A negative NPV indicates the project is likely to lose money.
NPV Discount Rate – The rate used to discount future cash flows back to their present value when calculating Net Present Value (NPV). It reflects the risk, opportunity cost, or expected rate of return for the investment. The discount rate significantly impacts the NPV calculation. A higher discount rate reduces the present value of future cash flows, making the investment seem less attractive, while a lower rate increases the present value, making the investment appear more favourable. Choosing the right discount rate is crucial for accurate financial analysis.
Operating Costs – Operating Costs are the costs a business incurs during its operations to generate revenue. They are an essential aspect of a company’s financial activities and are reported in the income statement. Common examples include rent, salaries, utilities, and material costs. Expenses are categorized into various types, such as operating expenses (related to the company’s primary activities) and non-operating expenses (like interest payments or one-time costs). They can also be fixed (constant over time, like rent) or variable (fluctuate with business activity, like shipping costs). Accurate recording and management of expenses are crucial for evaluating a business’s profitability and financial health.
Overheads – Overheads, also known as indirect costs or operating expenses, are the ongoing expenses a business incurs that are not directly linked to the production of goods or services. These costs include rent, utilities, insurance, administrative salaries, and office supplies. Overheads are essential for the day-to-day functioning of a business but do not directly contribute to the production process. They are categorized as either fixed, varying consistently regardless of business activity levels, or variable, fluctuating with the level of business activity. Efficient management of overheads is crucial for maintaining profitability, as they can significantly impact a company’s bottom line.
Payback – The time it takes for an investment to generate enough cash flow to recover the initial amount invested. The payback period helps businesses and investors assess how quickly they will get their money back. A shorter payback period is generally more attractive, as it indicates lower risk and a quicker return on investment, but it doesn’t account for profitability beyond that point or the time value of money.
Post Money Valuation – The value of a company after it has received funding or investment. It is calculated by adding the amount of new investment to the company’s pre-money valuation (the company’s value before the investment). Post-money valuation is used to determine the ownership percentage of new and existing shareholders after a funding round. It’s crucial for investors and founders to understand how much equity they own after raising capital.
Pre-money Valuation – The value of a company before receiving any external funding or new investment. The pre-money valuation sets the baseline for determining the ownership percentage of new investors during a funding round. It helps both founders and investors negotiate how much equity is being sold in exchange for the investment.
Revenue – Revenue, often referred to as sales or turnover, is the total amount of income generated by a company from its normal business operations. It includes income from the sale of goods or services before any deductions for expenses. Revenue is a crucial indicator of a company’s financial performance and is reported at the top of the income statement, often leading to its nickname ‘top line’. It’s a key factor in determining a company’s profitability and growth potential. For investors and analysts, revenue is a primary metric for assessing a company’s size, market dominance, and ability to generate cash flow.
Revenue / FTE – A financial metric that measures the amount of revenue generated per full-time equivalent (FTE) employee. It’s calculated by dividing total revenue by the number of FTEs. This ratio helps assess the productivity and efficiency of a company’s workforce. A higher revenue per FTE indicates that each employee is contributing more to the company’s revenue, which is a sign of operational efficiency and scalability.
Revenue Growth – The increase in a company’s revenue over a specific period, usually expressed as a percentage. Revenue growth shows how well a company is expanding its sales or market share. Consistent revenue growth is a key indicator of business health, market demand, and the company’s ability to attract new customers or increase sales from existing customers. Investors and stakeholders closely monitor this metric to gauge the company’s success and potential for future expansion.
ROI – Return On Investment, a performance metric that measures the profitability of an investment, calculated by dividing the net profit from the investment by the initial cost of the investment, then multiplying by 100 to get a percentage. ROI helps determine how efficiently an investment is generating profit. A higher ROI indicates a more profitable investment, making it a key metric for comparing the potential returns of different opportunities and guiding financial decision-making.
Runway – The amount of time a company can continue operating before running out of cash, assuming no additional funding or significant changes in expenses. It’s typically measured in months. Knowing your runway is crucial for managing cash flow and planning for the future. A longer runway gives the business more time to achieve profitability or secure additional funding, while a shorter runway signals the need for quick adjustments or financing to avoid running out of money.
Shortfall – The gap between the money available and the money needed to meet financial obligations or goals. A shortfall indicates that a business doesn’t have enough resources to cover its expenses, which can lead to financial strain. Identifying and addressing shortfalls early helps avoid cash flow problems and ensures the business can continue operating smoothly.
Target Investment – The specific amount of money or resources a business aims to raise or allocate for a particular project, initiative, or growth plan. Setting a target investment helps define the capital required to achieve business goals, whether for expansion, new product development, or entering new markets. It provides a clear financial benchmark for investors and stakeholders to assess the feasibility and expected returns of the initiative.
Taxation – The process by which governments collect money from individuals and businesses based on their income, profits, or transactions to fund public services and infrastructure. Taxation affects a business’s net income, cash flow, and financial planning. Understanding and managing taxes is essential for maintaining compliance with laws, optimizing profits, and avoiding penalties or unexpected liabilities. Proper tax planning can also help reduce the overall tax burden on the business.
Terminal Growth Rate – The constant rate at which a company’s cash flows or earnings are expected to grow indefinitely after a forecast period, typically used in discounted cash flow (DCF) models. The terminal growth rate helps estimate the value of a business beyond the forecasted period. It’s a key assumption in calculating a company’s terminal value and overall valuation. A realistic terminal growth rate is crucial because overestimating it can inflate the valuation, while underestimating it may undervalue the business.
Variable Costs – Variable costs are expenses that vary directly with the level of production or sales volume. Unlike fixed costs, which remain constant regardless of output, variable costs increase or decrease in proportion to business activity. Common examples include raw materials, direct labour costs, and sales commissions. These costs are a crucial part of cost accounting and financial analysis, as they affect a company’s profit margins and break-even point. Understanding variable costs is essential for pricing strategies, budgeting, and financial forecasting. Businesses must manage variable costs effectively to maintain profitability, especially in industries where production volume fluctuates significantly.
Working Capital – The difference between a company’s current assets (like cash, accounts receivable, and inventory) and its current liabilities (such as accounts payable and short-term debt). Working capital measures a company’s ability to meet its short-term obligations and continue day-to-day operations. Positive working capital indicates that the business has enough liquidity to cover its short-term liabilities, while negative working capital could signal financial difficulties or cash flow issues. Managing working capital efficiently ensures operational stability.
If you need more help
Please feel free to get in touch with us on team@numberslides.com with the subject title “One page model”..