From the course: Financial Modeling Foundations

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Improving model quality

Improving model quality - Microsoft Excel Tutorial

From the course: Financial Modeling Foundations

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Improving model quality

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- [Instructor] Once you've finished building your three-statement financial model, there are a few things you can check to make sure you have all the right parts and pieces in place. To begin with, you want to make sure that you've translated all of your value drivers: price, cost of new capacity, and the cost structure into your financial statement projections appropriately. In particular, you need to go through and minimize the operating data so that you have just one measure of capacity and one measure of sales. Remember, a financial model is a simplification of reality. If you put in too much detail, you're gonna find an overwhelming amount of information, and that'll make it more difficult to make decisions effectively. You also need to go through and evaluate the historical relationship between your value drivers and your financial variables. So don't just use a generic variable. Instead, think about what it is that's really driving those particular sets of relationships. It's…

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