Module 13: Integrated financial modelling

A financial model turns a company's past numbers and your assumptions about its future into projected statements and a valuation, all linked so that changing one input flows through everything. This module walks through building one.

01What a model is for

A model makes assumptions explicit. Instead of saying a stock is cheap, you can show which growth and margins would make it cheap.

02Gathering the data

Several years of the profit and loss statement, balance sheet and cash flow from annual reports, laid out consistently.

03Historical ratios

Growth rates, margins, working capital days and capital spending as a share of revenue. The past gives a starting point for the assumptions.

04Revenue and cost assumptions

Projections start from revenue drivers, volume and price, and the costs that move with them. Each assumption should be written down with its reason.

05Projecting the three statements

The projected P&L feeds the balance sheet and cash flow; the balance sheet must balance. A model that does not balance has an error somewhere.

06Schedules: debt, assets and working capital

Separate schedules for borrowing, fixed assets and depreciation, and working capital keep the main statements clean and traceable.

07Valuation

Discounted cash flow and relative valuation turn the projections into a value per share.

08Sensitivity analysis

Tables that show value under different growth and discount rates. They show how much the answer depends on the inputs, which is usually a lot.

09Where this leads

A1Stock's stock pages give the historical results and balance sheet a model starts from.