Required Inputs
- Company/Business: What is being modeled.
- Model Type: DCF, LBO, three-statement, or comparable companies.
- Time Horizon: Projection period (default: 5 years).
- Purpose: Valuation, fundraising, internal planning, or transaction.
Execution Steps
1. Revenue Build
Bottom-up revenue model. Identify drivers (units × price, users × ARPU, seats × ASP). Project each driver independently with stated assumptions.
2. Cost Structure
- COGS / gross margin projection with scale effects.
- OpEx by category (R&D, S&M, G&A) with % of revenue benchmarks.
- Working capital assumptions (DSO, DPO, DIO).
- CapEx and depreciation schedule.
3. Three-Statement Integration
Income statement → balance sheet → cash flow statement. Ensure the balance sheet balances. Cash flow ties to the change in cash on the balance sheet.
4. Model-Specific Outputs
DCF: WACC calculation, terminal value (exit multiple + perpetuity growth), sensitivity table on WACC × terminal growth.
LBO: Sources & uses, debt schedule, returns waterfall, IRR sensitivity on entry multiple × exit multiple.
Comps: Peer selection criteria, trading multiples (EV/Revenue, EV/EBITDA, P/E), regression analysis if applicable.
Output Template
## Financial Model: [Company]
### Key Assumptions
| Assumption | Year 1 | Year 3 | Year 5 | Source/Basis |
|---|---|---|---|---|
| Revenue growth | X% | X% | X% | [rationale] |
| Gross margin | X% | X% | X% | [rationale] |
| EBITDA margin | X% | X% | X% | [rationale] |
### Summary Financials ($M)
| Metric | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Revenue | | | | | |
| Gross Profit | | | | | |
| EBITDA | | | | | |
| Net Income | | | | | |
| Free Cash Flow | | | | | |
### [DCF/LBO/Comps] Output
[Model-specific valuation output with sensitivity analysis]
### Key Risks to Model
- [Risk]: Impact on valuation if assumption is wrong.
Quality Checks
- Every assumption has a stated source or rationale.
- Three statements are internally consistent.
- Sensitivity analysis covers at least 2 key variables.
- Model includes a bear case scenario.