There are two basic types of line item in financial models – flows and balances.
Balances are amounts at a point in time. Balances can be financial or non financial.
Every balance has similar properties. This guide explains what those properties are, and gives a standard model component that can be used for all balances.
3. Financial modelling should be collaborative. Collaboration reduces
error, speeds up development time and lowers cost. The Financial
Modelling Handbook is a collaborative, crowd-sourced guide to
building better financial models using the FAST Standard.
4. Isha Sahnan is a Financial Modeller
at F1F9. She is part of the Banking
and Advisory team and has worked
on models for debt structuring and
credit analysis.
5. There are two basic types of line item in
financial models – flows and balances.
Balances are amounts at a point in time.
Balances can be financial or non financial.
Every balance has similar properties. This
guide explains what those properties are,
and gives a standard model component
that can be used for all balances.
6. In order to model balances we need the following components.
Balance BEG + Initial balance + Upward flow – Downward flow = End balance
7. The corkscrew is a standard modeling component that allows balances to be modelled
consistently.
It deals with the 4 components we’ve already seen and adds the ability to “inject” an initial
balance into the corkscrew at a specific point in time, for example a “last actuals” balance.
8. The upward and downward flows
are always links. Avoid the
temptation to calculate the flows in
the middle of the corkscrew.
The purpose of the corkscrew is to
calculate the balance, not the flow.
The upward flow and downward flow
are presented in the same order
each time, aiding consistency.
9. The beginning balance is calculated
by looking backward at previous
period’s end balance.
Formula in J26:
= I29
The end of period balance is
calculated as the beginning balance,
plus the upward flow, less the
downward flow.
Formula in J29:
= J26 + J27 – J28
10. The initial, or “pre-existing” balance can be an input or a calculated line called up
to the corkscrew. The flag is included in the corkscrew to tell the calculation
when to “inject” the initial balance.
Formula in J29:
= IF(J24 = 1, $F23, J26 + J27 – J28)
11. The words “plus” and “less” are
included in Column D to indicate the
upward and downward flows. Since all
the flows are present as positive
numbers, it helps to show what is being
added and what is being subtracted
from the beginning balance, to get to
the end balance.
Since the corkscrew is a “nonstandard” calculation block, it is
indicated with top and bottom
borders. This makes it easy to “see”
in a financial model.
12. Most financial models contain lots of balances. It is important to be
able to quickly set up a standard corkscrew.
We recommend keeping a “template” or blank corkscrew in the Tmp
sheet of your model. Whenever you need to set up a balance
calculation, you can copy this template. Each time you copy the
template you’ll need to:
1. Changing the labels.
2. Updating the links of the following components:
• Upward flow
• Downward flow
• Initial balance
13. Select the corkscrew
Copy the corkscrew using Ctrl + C.
Shift + Spacebar + Down arrow
Then paste to your desired location:
•
•
Selecting a row: Shift + Spacebar
Enter
14. Select the labels column (from A to E).
Use ‘find and replace’ to update the labels:
•
•
•
•
Press Ctrl + H
Find what: [xxx]
Replace with: The name of your balance, in this case “Accounts payable”
Press Alt + A as a shortcut for “Replace All”
15. Once the labels are replaced, update the links for:
•
•
•
Initial balance: Link to the initial balance
The upward flow
The downward flow
16. Remove the yellow “placeholder” marking using the FAST format macros.