Operating Model

In this tutorial, we will walk through how to build a general industry business operating model.

Let's now build out our earnings projections. First, we add a section just below the income statement to group key metrics that summarize the performance...

There are a few balance sheet items we can project at this time but, as you can see from the pink shading, most require separate schedules that we will...

In this step, we compute net working capital, or NWC, which is the difference between non-cash current assets and non-debt current liabilities. The components...

At this point, we have enough information to start building our statement of cash flows. Note that we link up the change in cash to the cash and cash equivalents...

The first step in building our debt schedule is to enter assumptions related to the characteristics of any debt and preferred stock financing. These assumptions...

Our second step in constructing the debt schedule involves projecting debt and preferred stock balances. Some instruments are subject to mandatory repayment...

As we covered in Step 6, if the borrower has excess cash and the terms of the debt provide for early repayment at the borrower's option, the borrower may...

Now that we have (a) computed period-end debt balances that account for scheduled amortization and optional prepayment, and (b) entered assumptions on...

Interest expense and preferred dividends may be paid "in kind", as described in more detail on our page dedicated to this topic. The percentages in our...

It is more likely than not that the company you are modeling does not have equity investments. Nonetheless, we include them in our operating model because...

We already projected our depreciation expense as a percentage of sales in Step 2, so why revisit it now? Because we want to (a) confirm that our depreciation...