Financial Reporting

Three-Statement Financial Model - Everything You Need To Know

Accounting allows us to comprehend an organization's historical financial statements. However, forecasts based on those financial statements let us analyze how a firm will perform under various assumption types. We can do this using a three-statement financial model. These statements enable financial experts and industry insiders to visualize an organization's operational and financial decisions. That includes: FP&A professionals Corporate development professionals Investment bankers Institutional investors Sell-side equity research Private equity Well-built three-statement financial models enable these professionals to see how various business activities work together to impact the future bottom line. That makes it easier to see how these corporate financial decisions affect overall business performance. 💡Key Takeaways: A three-statement financial model is an integrated model that forecasts an organization's income statements, balance sheets and cash flow statements. The three core elements (income statements, balance sheets and cash flow statements) require that you gather data ahead of performing any financial modeling. There are several steps to building a three-statement financial model, including key steps like inputting historical data, defining parameters and conducting your forecasting. What Is a Three-Statement Model? A three-statement financial model is an integrated model that forecasts an organization's income statements, balance sheets and cash flow statements. It is the foundation on which we can build additional (and more advanced) models. These include merger models, DCF models, leveraged buyout (LBO) models and various other financial model types, including those seen in the chart below. Source: Corporate Finance Institute 3 Core Elements of a Three-Statement Finance Model These integrated models are powerful tools because they allow you to modify assumptions in one part of the model to see how it accurately and consistently influences the other areas of the model. Yet, before you begin, you must gather the necessary data points before conducting financial modeling. At a minimum, you must gather an organization's most current SEC filings, equity research reports and possibly press releases. Information can be more difficult to locate for private companies than for public ones. Financial reporting requirements differ in other countries. A three-statement model includes various outputs and schedules. Yet, these three key elements accurately capture the association of the multiple line items across the financial statements. 1. Income Statement Income statements depict a business's profitability. These statements are formatted from left to right, with no less than three years of historical results. That provides historical ratios and growth rates based on our forecasts. Inputting data from historical income statements is the first step in creating three-statement financial models. The process includes manual data entry from either a press release or the 10K. You can also use an Excel plugin to drop historical data directly into your program. Financial planning and forecasting normally start with a revenue forecast preceded by various expense forecasting. The net result predicts the company's earnings per share and overall income. These statements cover a specified segment, such as a quarterly or annual period. For more information, check out how we can help income statement forecasting with our revenue planning software, or try creating one yourself with our free income statement template. Unify your departments Move your team from different spreadsheets to the same page with all revenue data in one place. 2. Balance Sheet Income statements display operating results over a specified time. However, the balance sheet is unlike the income statement. It is a company snapshot after any given reporting period. This sheet exhibits the organization's assets and resources and the funding for those resources, such as a shareholder's equity and liabilities. Entering historical balance sheet data is like inputting income statement data. You do this either manually or using a plugin for Excel. Revenues are what drive the operating assumptions. The operating assumptions drive the balance sheet you make based on the income statement. Furthermore, operating and revenue forecasts drive capital expenditures, working capital items and various other items. Think of the balance sheet as the cart and the income statement as the mule. In this sample below, see a financial statement model for Apple, formatted using a standard Excel document. Excel is an excellent tool for creating reports. However, there are better solutions to assist organizations with their FP&A processes. We recommend integrating a system powered by Excel but with additional features that ensure accurate forecasting. Source: Wall Street Prep Agile Scenario Modeling Mitigates Risk See how the decisions you make today will affect your bottom line tomorrow, with Vena. 3. Cash Flow Statement Lastly, we will look at the three-statement financial model's final core element: the cash flow statement. Entering results from historical cash flow statements is unnecessary before forecasting. That is due to a year-over-year pure reconciliation of the changes in the balance sheet from the cash flow statement. We should reference each individual line item of the cash flow statement from elsewhere within the financial model. When we construct the cash flow statement correctly, the balance sheet will balance. To generate a forecasted cash flow statement, a cash flow proof should be created. You can create this by using the change between the current and forecasted balance sheet accounts. The ending cash flow statement balance should reconcile with the forecasted cash balance on the balance sheet. How To Create a Three-Statement Financial Model In 7 Easy Steps You must take several steps to build a three-statement financial model. Some experts argue which steps are a top priority. A few industry leaders will claim there are only five steps in this process. However, we recommend that you take these seven steps: 1. Enter historical financial data into an Excel-formatted platform 2. Define the predictions that drive forecasting 3. Predict the income statement 4. Predict capital investments and assets 5. Predict financing activity 6. Predict the balance sheet 7. Complete a cash flow statement Your Best Source for Three-Statement Modeling Plan for any scenario. At Vena, we offer an entire FP&A ecosystem that allows you to create three-statement financial models you can run daily, weekly, monthly, quarterly and annually. We use Excel to format our platform, making it user-friendly and easy to integrate. Our financial modeling software allows you to quickly analyze the impact of your business decisions to help you plan with confidence. We offer the best source for three-statement modeling at Vena. Our software includes a Power BI integration, ad-hoc reporting tools, and executive-level reporting templates so that you can drive real-life growth by creating real-time reports. Ready to start your own growth journey?

February 16, 2023 |

How To Find New Revenue Streams From Your Analytics

Leverage the power of data to find new revenue streams from your analytics. Data is the lifeblood of your business. Without it, you lack the information and insights you need to not only create financial reporting to analyze revenue, but also to find additional channels from which to create cash flow. Incomplete or inaccurate data is equivalent to having no information to pull analytical data from and is equally detrimental to revenue streams. When evaluating analytics, you can’t expect to be accurate when your data is not. Improved analytical data is the only solution. Let’s discuss how fully automating your FP&A processes will help you find new ways to generate revenue using the insights you glean from better data. 💡 Key Takeaways: You may discover you need to rewrite a portion of your “playbook” to address changes in the market and find new revenue streams by analyzing past results. Keep data secure while still empowering employees. Give only those who need access the power to obtain the data they need for revenue-generating ideas. Inspire new revenue streams, such as creating innovative ways to convert leads and sell products and services on social media or any other channel your organization uses. Solve pain points to specific issues using customer segmentation. See what buying behaviors require unique solutions. Also, fix leaks in your funnel to ensure no data gets left out. Follow the money. Use data insights to see what customers are doing and how you can begin providing those services or products. 5 Ways To Find New Revenue Streams Many organizations have had to rewrite portions of their “playbooks” to accommodate market changes and this isn’t necessarily a bad thing. It’s time to reevaluate your current systems and see if updating processes, equipment and systems is necessary. Source: YouTube It will help you determine which revenue streams are fruitful and which aren’t. It’s also an opportunity to check your data for resources or to identify if a new revenue opportunity exists should you change your products and services. Here’s how you can harness the power of data to create new revenue streams: 1. Empower Employees to Access Data Over one-third, (34%) of companies worldwide say they have dealt with an insider threat involving a data breach. Employee access to data can be a security risk and not because they intend to be malicious. Source: TBG Security However, with the right FP&A software solution, you get a central database of information and the power to decide who can see what by granting permissions. If your marketing leaders need data about the marketing budget, they only see that data. With the power to know which campaigns were more profitable, marketing teams can find ways to generate new revenue streams. They can follow trends and focus the budget on them. 2. Get the Maximum Benefit of Omnichannel Flexibility One way to create new revenue streams is to tap into insights from previous marketing campaigns. Analyze data from the various channels you use to reach your audience. Do social media posts perform well for lead conversion? Do you know which campaign worked best? When you can see the numbers in front of you, you can make better decisions about moving forward with new campaigns. It ensures that no dollar of your organization’s marketing budget goes unspent, including finding new ways to generate revenue. For example, if your finance team reports that there is still room in the budget for additional marketing campaigns, teams are free to follow trends. They could start a TikTok channel and create content for the platform to generate sales. 3. Solve Specific Pain Points With Customer Segmentation One way to generate new revenue streams is to follow buying trends centered around solving specific pain points. Your CRM should allow you to segment customer data to glean insights on how to build campaigns addressing these pain points. For example, we noticed that 84% of customers with an FP&A solution still used their Excel spreadsheets and not the integrated software. So we developed our software for the Excel natives who manage accounting departments. 4. Fix Any Leaks in Your Funnel Almost every company has a “leaky funnel.” By streamlining and automating processes to improve your business performance, sales and marketing teams can be more successful. By implementing fixes, looking at your data and then taking action, your teams can be more effective and efficient. Source: Backbone Media 5. Follow the Money It doesn’t have to be all about the pain points consumers feel. No matter what happens, some parts of the economy are growing and even booming. Your analytics will tell you who is buying what. See where people spend their money, then figure out the best way to reach those customers. These can be necessary products and services or affordable indulgences. The rise of companies such as DoorDash and Post Mates is why Uber expanded operations from ride shares to food delivery. Uber followed the money, used insights from competitor financial data and developed a new revenue stream. Unlock the Value of Actional Data Insights With Vena Companies are constantly looking for solutions that will provide useful data insights faster. However, many people don’t have the resources or the time to easily and quickly develop a solution that scales independently. Additionally, even companies capable of building their services often struggle with the time it takes to prepare data for analysis. Vena can help you overcome these obstacles. Our FP&A platform seamlessly integrates with your existing tech stack providing data and simplifying analysis using visualizations and interactive dashboards. We make understanding your data easier so that you can leverage that information to create new revenue streams. Excel at Data Analysis Find ways to generate new streams of revenue with powerful insights you get from better data. Try one of our free Excel templates and see what we mean.

January 26, 2023 |

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Three-Statement Financial Model - Everything You Need To Know

How To Find New Revenue Streams From Your Analytics