3 Statement Financial Model | Building From Scratch
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- Опубликовано: 16 июл 2024
- We walk through the process of building a 3 statement financial model starting with an empty Excel spreadsheet. Also included is a downloadable template of the model.
✅ Download the Excel template: bit.ly/3stmt_mlchmp
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In this video, we learn how to build a 3 statement financial model in Excel, which includes an integrated Income Statement, Balance Sheet, and Cash Flow Statement - with a balance sheet that balances!
Also included is a link (in the "resources & links" section) where you can download the 3-statement financial model Excel template for free.
In order to successfully build these types of models, you need to really understand that the models are representing the operations of a company. And if you understand the operations and construction of these models, you will be better at building them, and better at fixing them.
So in an effort to make you better at financial modeling (and being analytical), let's zoom out and talk about what these three financial statements represent, and how they work.
Here is a brief explanation of each one.
Income Statement:
The income statement shows the amount of revenue a business generates from providing a service, and the expenses associated with the service, over a window of time. This is why the income statement is considered a flow statement - as it summarizes flows of income over time. This statement, however, doesn't tell us anything about the capital structure of a company (debt, equity, asset purchases, etc).
Balance Sheet:
While the income statement shows us what happened during a period of time, the balance sheet can only show us one precise moment. The balance sheet shows us exactly what a company owns, and owes, on a specific date. But what happens to what we owe / own over periods of time? The balance sheet cannot tell us anything about that.
Cash Flow Statement:
The cash flow statement is a flow statement, similar to the income statement. However, while the income statement is showing us revenues and related costs, the cash flow statement is simply converting the balance sheet into a flow statement by calculating the changes in what we owe / own (on the BS). The cash flow statement doesn't care about what services we provide, it only tracks where the dollars go. Things like debt repayment and changes in working capital show up on the cash flow statement, but not on the income statement.
Sections:
0:15 Overview of income statement, balance sheet, and cash flow statement
1:14 Steps for building a 3-statement financial model
1:55 Income statement: building the assumptions
5:39 Income statement: building the forecasting model
13:25 CAPEX & depreciation schedule
18:57 Balance sheet: historical numbers & concept discussion
21:05 Liabilities + Equity = Assets (in order for the balance sheet to balance)
21:39 Balance sheet: building the assumptions
23:55 Balance sheet: building the forecasting model
25:20 Balance sheet: linking in the Capex model
26:30 Balance sheet: modeling out debt
28:15 Balance sheet: linking net income (P&L) to retained earnings (BS)
29:55 Cash flow statement: structure & discussion
31:15 Cash flow statement: operating cash flow section
33:30 Cash flow statement: investing cash flow & free cash flow
34:00 Cash flow statement: cash flow from financing
35:15 Cash flow statement: net cash flow calculation
35:43 Balancing the balance sheet (linking in net cash flow)
36:32 Troubleshooting checklist - if your balance sheet doesn't balance
I hope that you can now feel confident building a 3-statement financial model in Excel. If you have questions (I'm sure you do) - please leave comments below and I'll try to help. Cheers!
#financialmodel #3statementfinancialmodel
![Build a 3-Statement Financial Model [Free Course]](http://i.ytimg.com/vi/Rmi9fwkJjHw/mqdefault.jpg)
this 38 minutes better than my whole years in undergraduate degree. Thank you soo much Eric!
Hey Giry, this comment makes me so happy you have no idea. This was the whole point of this channel, I was imagining what lessons would have helped me when I graduated from college. Awesome 😊
Sadly its true
Its not only what we learn from this video that teaches us but the frame of mind when handling excel. Thanks a million!
@@eric_andrews Thanks a bunch man, you're a hero.
X2
Oh man...what a presentation. Can't get any better than that. One of the best learning videos i have seen so far. Feels great that i stumbled upon on this video and did justice by spending 38 quality mins of my life. Thanks a ton Eric :) God bless you...
Now I can easily understand the models and how they link-up together in simple logical explanation, no technical jargon that even hard to spell. Thanks Eric! ..looking forward for more videos.
Thank you for this video! I found this because I am in the middle of jobs interview and part of the process was a financial modeling test. I studied this video to prepare and I just received the email that I excelled on the test, and I will have the final interview with the CFO. Thanks again!!
That's amazing!!! Congrats ricardo! You don't know how happy that makes me to hear it. These are the kinds of messages that help me keep going creating content
Great video. Here's a helpful tip for those struggling to balance: if your balance sheet is not balancing, quite often it's because your fixed assets, capex, and depreciation are not in sync across the 3 statements. To test for this, take last year's fixed assets, net of amortization from last year's balance sheet, add capex expenditures from the cash flow statement (which increases net fixed assets), and subtract depreciation shown on the cash flow statement and income statement (which reduces net fixed assets). The result should be the net fixed assets on your current year balance sheet. if it's not, then you're out of sync, and your balance sheet won't balance until you fix it. FA, Deprec, and Capex are a closed loop and must work together.
This deserves many many more views. Pure, succinct, free !! My best wishes to you, Eric !
I'm so glad it was valuable for you! My dream is to make information free - like it should be!! Cheers try peace
One of the best videos on building a financial model I have ever seen. It's very concise and well-explained. Thanks a lot, Eric.
This video was phenomenal! Totally simplifies the 3 financial statements and links them. Allows you to clearly see the difference between all 3 statements. As an economic consultant and finance professional, this video has brought me great value! Thank you so much
Appreciate the comments and the feedback Modupe. So glad it was valuable for you. Cheers!
What has been taking me 2 years and counting can literally take me a week or so thank you so so much. New, permanent subscriber here!!!! I'm starting with my financial projections right now @10:30pm.
This is amazing man, it helps me a lot for my business even though I'm studying CPA, it's so quick and clear with the video. THANK YOU
Stoked to hear it Dan! Thanks for watching. Cheers!
38 minutes of my life well spent. Great content. Thank you so much for this informative video.
Thank you for watching Jimmy C & Co!! Glad it was valuable
most informative video i've seen on 3 statement modelling!!!! thank you Eric, please keep up the amazing work!
This was by far the best video I’ve seen on 3 statement modeling. I was trying to watch videos by some prep companies a couple months but those went above my head and made me give up for some time. Thanks !
Means a lot to hear it. Really happy it was helpful and more possible to learn this time around. Cheers !! 🙏🙏
This is really incredibly helpful. I haven't built a model on my own before, and I think this really gave me a guide to doing it myself. Thank you so much!
you are very welcome i'm happy to hear it!
Wow ! This is so good. Thank you so much for the clear explanation. All accounting and finance students/professionals must see this.
Really this 38 mins is worth a lot more then 4 yrs of my graduation. Hats off to you Eric. Your truly an inspiration for accountants like us. Lots of love and gud wishes for you and your future brother. ❤️❤️
I wanted to say that this video is worth of 2 years in finance classes at school but its taken already. Such a great explanation!!!
Eric to see you had fun going through it without losing the audience... awesome.
Hey frank....I'm glad you made it through with me! I enjoy this stuff, thanks for the support. Cheers
Great Tutorial for understanding Business with Excel. I need to watch your video over and over before I get the hang of it. Thanks
Awesome! And if you want to look at the Excel file, you can download the template in the description as well. Cheers!
You're amazing! I've watched this three times and it's really helped me with my forecasting. Thank you!
Love to hear it Belinda!!!!! 😎😎😎🙏
Wow. Detailed Explanation and very easy to understand. Thank you!
Well done. Your explanations are extremely clear. Thank you!
Happy it was helpful kyle. Cheers
Awesome! A complete and simple explanation of how all 3 FS work together!
You just made this feel so seamless. I got everything on point. You are a great Tutor. Thanks very much.
Awesome video Eric. I've been a Finance manager for a few years and have always been forecasting P&Ls because we're a start up. This will help me take my forecasting skills to the next level. Cheers
Awesome to hear thanks for sharing
Eric, this is great, simplified, and cleared. you re a great teacher. thank you
Really happy it was valuable for you wilfred!
Great video Eric! Thanks for the clear explanation, really helpful!
The interlinkages make way more sense when you are actually working through these statements in a real example case, sure lecture topics help us shape our approach, but without applied examples most of it goes in one ear and out the other! You have a natural talent for teaching, thank you for this content!
I'm really glad to hear that Eric. Yes, I honestly barely learned / understood anything in my university finance classes, so I'm trying to create lectures that are like the "anti-college" and fill those gaps. So glad you understand this stuff now and good luck! More to come!
@@eric_andrews you are definitely meeting this goal. Always happy to see more!
This is extremely useful... beautiful explanation and very lucid presentation of the ideas....great job!
Just brilliant. Loved your presentation, loved how quickly you put the whole thing together. Very inspiring. thank you!
I'm so glad to hear it. Cheers!
I can't thank you enough Sir, the model you created is informative + fun. Please continue to upload such great stuff. Thank you 😍
Cheers Azhar 😎😎😎 will do!
Great Job, Eric! Watching this video actually provided answers to the questions of the three main statements. Well represented.
I'm happy this video cleared it up for you. Thanks for checking it out Tania
I really love this...Despite being CPA and having finance bachelor things have never been presented this clearly in my life. Thank you do much 💐😘
😎😎😎 makes me so happy to hear it! Cheers!!
Thanks, Eric. You did a splendid job there. Your teaching skills make it quite easy to understand. You're doing a great job with these tutorials.
I appreciate that wolf man! Cheers
Eric: Thank you for the excellent content, your explanation was so amazing.
Hey Kamesh I'm really glad to hear that
Amazing ❤️
Best I have ever seen on 3 Statement model..
Great Work !
the last 38mins has been my best understanding of financial modedlling :-)
thank you Eric
Such a beautiful and clear explanation, wish I had access to it earlier. Thank you so much!
Thanks for the comment David. Really glad you found it helpful! Let me know if there are any other subjects you'd like to see on the channel 👍
Eric, this is amazing. Thank you so much, so clear so easy to follow.
Glad it was helpful Eloise!
A really great video! Thank you so much because this helped me clear the interview of a boutique Investment Banking firm where the interviewer asked me how to link the Cash flow statement and the balance sheet and I at the back of my mind, I was like 'Thank you so much Eric Andrews'!
Literally one of my favorite comments I've ever received. So glad to be able help you in that situation! Wishing you great success out there!!!
@@eric_andrews According to you, what would be the most flattering answer to the question, Why Investment Banking?
@@jayanthchunduru3437 You mean, as an interview question? I actually work in startups, as I'm more interested in running companies than buying / selling them! But at the end of the day people sign on for i banking because you can get tons of experience understanding transactions, capital markets and companies in a short period of time. This will leave you with a broad skill set to do many things after a few years. And in terms of societal value, banks help businesses realize the value they've created by facilitating competitive transactions and getting businesses access to liquidity. Those events can change people's lives (employees / founders getting an exit), help companies grow, help the economy grow, etc, which can be very positive. I would focus on those points.
@@eric_andrews Thank you, Eric!
Well done job , please how to prepare financial statement using excel format in very simple way
Your explanation was great! I have always struggled with basic financial modelling and you made everything appear very simple! Thanks a ton!
Hey shreeya - really glad to hear it. Thanks for letting me know 😁
Y
Cant thank you enough Eric! Your content is incredibly helpful.
I appreciate that! Its my pleasure Rabia
Thank you Eric! I always had problem to tie out the Cash Flow Statement but it is now cleared for me, specifically on the operating activities. I am really enjoying your videos and content, right to the point! Greetings from Panama 🇵🇦!
Cheers Garry, great to hear it. I'll try to include this type of modeling in more of my videos. Saludos amigo! Tal vez un dia un video en español tambien!
Maybe the most useful 38 minutes I've spent this year. Fantastic!
This was really helpful Eric. Thanks and keep up the good work
What's something new that you learned in this 3-statement model video? Or something you liked? Let me know in a comment!
Thanks Eric. I have a question about the depreciation in P&L, why didn't you consider the depreciation for the beginning balance 40,000 assets, thanks.
Using the shortcut keys
Very Nicely done and at a good pace. Liked the item list that you took which is close to real world rather than textbook generic. Am trying to get more into financial analysis. Searched financial modeling and found 3 statement modeling and led me to your video. My question: If a company is running quickbooks how would building this help. All the data would be in there already. I thought in this 3 statement you might do some more analysis. Please guide on that.
@@navc8550 hi, thanks for the comment and letting me know how you found it! To answer your question, QuickBooks would just give you backwards-looking historical financial information about the past. A financial model is forwards-looking, so we are basically trying to predict the future and build a financial plan before you do something. QuickBooks just does the historical accounting, but it obviously can't build you a future forecast. That's why we build these models. That is the main difference between accounting and finance, backwards vs forwards-looking.
Almost everything. Can you please make a video to show how to calculate value of stock (DCF model??)
I do appreciate Brother Eric! I have been a practitioner for self teaching on corporate finance..but your vide on build financial statements is reall good..Thank you very very much
Thank you! Concise, to the point and weel explained.
Great explanation, Eric! Thanks a lot!
My pleasure Maryna! Thanks for checking it out
this is just beautiful, simple and very clear. thanks for the content
Ephraim - really appreciate that feedback. It's my pleasure to help. Cheers!
Great job Eric, very useful! Thank you so much
Love it. Please keep up the great work.
WOW, well explained with basic data . It's really great and huge data can be handled very easily after watching this video . I did less or more in a same way but still got great idea and logic to compile the huge data .
Really really happy to hear that you now feel like you have working knowledge and understanding to do this yourself for companies. To be honest, it was tough getting it all into one video so I'm really glad it was helpful for you! This type of modeling took me a long time to learn because no one could really explain it to me in a coherent way, so my goal was to make it easier.
I love your excel & finance knowledge skills, you are awesome
Great!!! this video is well explanatory and easy to comprehend.
Thank you Eric for this video.
Agboola 🙏🙏👍 cheers
Best ever video on the 3 financial statements. For the first time I was able to complete end to end such model for an ongoing business. Thanks for sharing such insightful video.
Great to hear!
This is exactly what I needed !! Thank you so so much Eric!
That's what I love to hear, cheers Swastik
this video is gold...I am able to understand each and everything related to modelling thanks for being a CA student however i was getting problem in excel cause i am like beginner into it....love from india bro and thx for such excellent lesson
Thank very very much. I was just totally lost, but you came along with your tutorial and made my day. 🙏🙏🙏
This was amazing learnt so much! Thanks Eric
My pleasure I'm glad it was valuable for you.
I hope to have a financial analyst job by November/December, I read building a 3 statement model is a must in every FA job interview, thank you for making this Eric!! God bless you!
My pleasure - good luck!!!
Am super super grateful for this man. I have been practicing over a week now. cheers
Wow that's awesome Daramola. Makes me happy you found it so valuable. Good luck with everything - you got this!
I watched 2 of your video now back to back. I have always been interested in Excel and financing models but your videos saved me tones of $$$ in planned course fees. Thanks you
You are very welcome and I'm glad to hear it Muhy 👍
Thank you so much, I agree this is way better than years in undergraduate degree! thank you again
Hey, I love this.
I patiently watch this. Needed in my job. My new company has problem in FS. My recently task is Cash Flow. There's a discrepancy. This video of yours I will try this, hopefully can help my employer. Thank you very much. Please create more content about FS or auditing each titles, and taxes. God bless!
I have to felicitate you!!!!! To do this in 30 minutes, so well explained that a novice excel user can understand it, I am surprise!!!! you are indeed bless. thank you for sharing your teaching blessing in finance!!!! Looking forward to check other lessons.
Hey JR, it is my pleasure to help and I'm so happy that this video helped you learn these complex concepts. Appreciate the comment!!!!
Very good video. I’ve been a CPA for 18 years and a CFO for 14. Your accounting/financial statement format knowledge seems broad. Thank you.
My pleasure and glad it was still valuable for you!
Thank you Eric. This explanation is awesome. Very clear and simple.
Mariam - I love to hear that! Cheers!
Great Job Eric! Concise and clear explanation - Many thanks!!
My pleasure Konstantinos
This was some of the most useful information I’ve ever had the privilege to consume. Am on a job hunt for financial analyst job & need to brush up my skills. Thanks for this !!
Absolutely love to hear it Ahmed, good luck out there!
Super glad I found this video! Thank you so much!!!
Great video Eric! That's the most valuable 38 minutes I've ever spent - now I get a deeper understanding of the difference between FCF and FCFF. Nicely done!
Glad you enjoyed it!
Thank you so much Eric. You helped me understand building the financial models and do my work easily.
My pleasure Daniel 👍
3 Statement financial model well elaborated!! You are the best on-line tutor
Thank you Eric! This video is very GOOD!!
In the history of my life I have never commented on RUclips!! So this is a big deal! AMAZING!! This was soooooo helpful. You have no idea! Being able to learn this the way you teach with templates and myself putting in the data at the same time while I paused the video was worth more than ALLLL the years i spent learning accounting in high school and college. Seriously thanks. Def. subscribed!
Yessss 🚀👏
Right away, I see it is a good video! Eric is a real cool teacher. The skill is important, most analysts don't know who to integrate models with a balance sheet, so are prone to make all sorts of mistakes, which sometimes end up being dissected in courts. I like the layout of the model, even though I prefer to model all the three statements and have all the supporting statements on a single worksheet. And separate out each statement module with an empty gray row of cells. But I see little point in doing "Excel without a mouse" - saving in time is dubious
Hey achudakhin - thanks for the comment, really appreciate it! I agree with you that it can be easier to put everything on one sheet especially with simpler models like the one in my video. I will say however that when you are building models for a real company you'll see that the P&L and balance sheets are often enormous, sometimes many hundreds of rows because of how many accounts there are in real life situations. In those scenarios, doing everything on one worksheet gets too crazy and I think it is easier to split up. But it all depends on the situation and I appreciate you sharing your experience as well. Cheers!!
Dude, I have no other words but AMAZING for you and this video! Clear, concise and engaging, as I was following every step in the excel file you provided in the video description. I just found my new RUclips teacher!!
Just a tiny mistake I'd like to point out: under LIABILITIES > Accounts Payable & Deferred Revenue you called the raw "Total Current Assets". Should it not be Total Current Liablities? Thanks
@@giuseppebv9068 Ya that was a small mistake I made - glad you were paying attention and thanks a lot for the comments! Glad the video was valuable for you.
This is so good! Thank you so much man
This is an amazing stuff! Thank you for sharing
This is awesome Eric, you have made it so simple than when I was in the University
I love to hear that Kayode! Thanks for letting me know
This is simply the best lecture! No need for expensive database. Just excel spreadsheet. Keep it up
Love to hear it Susuve, cheers!!
Starting a new career and this video really helped me build a strong foundation for financial models. Thanks so much!
Happy to hear it. Good luck Sam!
Clearly explained, great stuff!!! Keep up the good work!!!
Hey Sanjoy appreciate that, will do !!
Amazing. Just the right duration too. Thank you so much.
You're very welcome Venkatesh!
Great content Erick. Thank you!!
Excellent and simple Eric ...
Big thanks for that clear and understandable explanation, all financial accounting course in 38 minutes! just go ahead
I'm very glad to hear it, thanks for the comment Alua!
Literally the best video ever!!! I built the entire model and understood it all. THANK YOU!!
haha, you're welcome
Fabulous Teaching Period. Cleared my concepts like Crystal I swear...
Amazing. This was super helpful!!
Amazing content. Thank you for producing this. I have one request can you please provide an explanation on how to produce a monthly Balance Sheet and cashflow with formulas for the cash position based in debtors and creditors. Many thanks.
Love this! Thank you so much:)
This is very explanatory and simple to understand. Thanks Eric for the video.
You're very welcome!!
This video is awsome😊 the best modeling course on RUclips👍🏻
Thank You Eric, You explained this financial model in such an easy and understandable way.
I'm glad to hear it!
What a valuable 38 minutes of learning 😊
Double thanks! I think I need of your videos !
My pleasure!!
The content you create is really helpful and very easily understandable. Do make more such videos✌
Really appreciate it! Will get some more content up soon. I really enjoy contributing to this community
Hi Eric, This is amazing work. Thank you so much!
My pleasure, thanks for the comment