FINANCIAL MODELING

We build next-generation financial models for any complexity of M&A or planning & forecasting scenarios

Business Valuation Modeling

Leveraged Buyout Modeling

FP&A Monthly Cash Flow Forecast

Ecommerce Modeling

Scenario & Sensitivity Analysis

Mining Industry Modeling

Mergers & Acquisition Modeling

SAAS Business Modeling

Insight through transaction analytics

We help our clients in making some of their most important decisions using bespoke financial models and analytical tools.

The skill of our modelling experts lies in an ability to distil the essence of a problem and rapidly support the implementation of robust tools, delivering relevant and insightful analysis across the corporate project or transaction lifecycle.

Critical business decisions are increasingly underpinned by complex, bespoke quantified analysis. The need for expert modelling is often heightened when the financial exposure is significant, data sets are large or complex, and multiple stakeholders are involved. Modelling is a specialist skill and as a center of excellence, we apply proven methodologies and leading edge tools, bringing a disciplined and collaborative approach when helping our clients.

Business Modelling support across the corporate lifecycle

 
 

Financial modeling is an invaluable tool for forecasting future financial performance, measuring a business's value, evaluating M&A activity, assessing the impact of possible business scenarios and understanding performance sensitivity to volatile future environmental factors.

A financial model is simply a tool that’s built usually in Excel to forecast financial performance of a business into the future. The forecast is typically based on the company’s historical performance, assumptions about the future, and requires preparing an income statement, balance sheet, cash flow statement and supporting schedules (known as a 3 statement model). From there, more advanced types of models can be built such as discounted cash flow analysis (DCF model), leveraged-buyout (LBO), mergers and acquisitions (M&A), and sensitivity analysis.

 

The output of a financial model is used for decision making and performing financial analysis, whether inside or outside of the company.

 

Inside a company, executives will use financial models to make decisions about:

1 -  Raising capital (debt and/or equity)

2 - Making acquisitions (businesses and/or assets)

3 - Growing the business organically (i.e. opening new stores, entering new markets, etc.)

4 - Selling or divesting assets and business units

5 - Budgeting and forecasting (planning for the years ahead)

6 - Capital allocation (priority of which projects to invest in)

7 - Valuing a business

 

Do you know what it takes to create a next generation financial model?

Financial modeling is a complex & iterative process. You have to chip away at different sections until you’re finally able to tie it all together. It takes years of experience to become an expert at building complex financial models and the only way to learn it is through extensive practice under guidance.

My name is Mohammad Kashif Javaid

and I am ACS Consulting's founder & CEO.

 

In a professional career spanning well over two decades, I have developed hundreds of complex financial models whilst working on corporate development and FP&A assignments. 

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next generation financial model is fully dynamic, minimizes complexity and yet produces relevant analysis & accurate results for a variety of scenarios.

 

To create such a model, one needs to have an all-round expertise in several subject areas.

The skills that are absolute essential include:

 

1. Advanced knowledge & expertise in financial accounting

2. Expertise in business analysis & valuation - concepts & techniques

3. Solid grip on a wide range of finance & related subjects

4. Practical experience in corporate development and/or FP&A roles

5. High level of Excel expertise

6. In-depth knowledge of various performance management subjects

7. Comprehensive grasp of global economy & economics concepts

8. Advanced expertise in business mathematics

9. Expertise in statistical forecasting techniques

10. World-class presentation skills

At ACS, we combine decades of collective experience of our consultants to create a skill-set which well-surpasses the above mentioned minimum criteria.

 

Though each assignment could have varying needs, given below is a generic step-by-step breakdown of where we start and how we eventually connect all the dots to produce next generation financial models.

1. We analyze & compile historical results and assumptions

Most financial model starts with a company’s historical results. We begin building the financial model by pulling three to five years of financial statements and inputting them into Excel.
Next, we reverse engineer the assumptions for the historical period by calculating things like revenue growth rate, gross margins, variable costs, fixed costs, AR days, inventory days, and AP days, to name a few.
From there we fill in the assumptions for the forecast period.

2. We Start creating the income statement

With the forecast assumptions in place, we calculate the top of the income statement with revenue, COGS, gross profit, and operating expenses down to EBITDA.
We wait to calculate depreciation, amortization, interest, and taxes.

3. We Start creating the balance sheet

With the top of the income statement in place, we start to fill in the balance sheet. We begin by calculating accounts receivable and inventory, which are both functions of revenue and COGS as well as the AR days and inventory days assumptions.
Next, we fill in accounts payable which is a function of COGS and AP days.

4. We build the supporting schedules

Before completing the income statement and balance sheet we create a schedule for capital assets like Property, Plant & Equipment (PP&E) as well as for debt and interest.
The PP&E schedule is pulled from the historical period, to which we add capital expenditures and subtract depreciation.
The debt schedule is also pulled from the historical period to which we add increases in debt and subtract repayments. Interest should normally be based on the average debt balance.

5. We then complete the income statement and balance sheet

The information from the supporting schedules completes the income statement and balance sheet.
On the income statement, we link depreciation to the PP&E schedule and interest to the debt schedule. From there we calculate earnings before tax, taxes and net income.
On the balance sheet, we link the closing PP&E balance and closing debt balance from the schedules. Shareholder’s equity is completed by pulling forward last year’s closing balance, adding net income and capital raised and subtracting dividends or shares repurchased.

6. We build the cash flow statement

With the income statement and balance sheet complete, we then build the cash flow statement with the reconciliation method.  i.e. we start with net income, add back depreciation and adjust for changes in non-cash working capital, which results in cash from operations.
Cash used in investing is a function of capital expenditures in the PP&E schedule and cash from financing is a function of the assumptions that were laid out about raising debt and equity.

7. We Perform the DCF analysis

When the three statement model is completed it’s time to calculate free cash flow and perform the business valuation.
The free cash flow of the business is discounted back to today at the firm’s cost of capital (its opportunity cost, or required rate of return). 

8. We add sensitivity analysis and scenarios

Once the DCF analysis and valuation sections are complete, it’s time to incorporate sensitivity analysis and scenarios into the model.
The point of this analysis is to determine how much the value of the company (or some other metric) will be impacted by changes in underlying assumptions.
This is very useful for assessing the risk of an investment or for business planning purposes (i.e. does the company need to raise money if sales volume drops by x percent?).

9. We build charts and graphs

Clear communication of results is something that really separates good from great financial analysis.
The most effective way to show the results of a financial model is through charts and graphs.
Most executives don’t have the time or patience to look at the inner workings of the model, so charts are much more effective.

10. We stress test and audit the model

When the model is done our work is not yet over. Next, it’s time to start stress testing extreme scenarios to see if the model behaves as expected.
It’s also important to use the auditing tools to make sure it’s accurate and the Excel formulas are all working properly.
 
SAMPLE FINANCIAL MODELS
 
About ACS SYNERGY
ACS SYNERGY is a global business enablement firm. Transcending borders through technology, it maintains a virtual global presence and serves clients that are based around the world.
With a corporate headquarter in Singapore, the firm operates several online service businesses which are supported by delivery and support centers located at various locations globally.
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ACS is truly global. Wherever in the world your business is located, through effective use of enabling technologies and a healthy network of our global professional consultants, we are able to serve you anywhere and almost everywhere.

Global enquiries email: contact@acssynergy.com