Financial Planning Models
This financial model projects a company's revenues, expenses, and profit over a set period, typically 3–5 years.
What is a financial forecast (or pro forma model)?
A pro-forma income statement begins with this top-line figure, representing total revenue before any expenses are deducted.
What is gross revenue (or net sales)?
This capital budgeting method calculates how long it takes for a project's cumulative cash inflows to recover the initial investment.
What is the payback period?
This common financing source involves obtaining funds by selling ownership stakes in the company to investors, with no obligation to repay.
What is equity financing?
This financial control tool sets a detailed plan of expected revenues and expenses for a future period, serving as a benchmark for actual performance.
What is a budget?
In a discounted cash flow (DCF) model, future cash flows are divided by this factor to express their value in today's dollars.
What is the discount rate (or cost of capital)?
This line on the pro-forma income statement represents revenue minus the direct costs of producing goods or services.
What is gross profit?
When a project's net present value equals zero, the discount rate being used is called this.
What is the internal rate of return (IRR)?
This financing arrangement gives a business the right to use an asset for a set period in exchange for regular payments, without necessarily owning it outright.
What is a lease (operating or finance lease)?
The process of comparing actual financial results against budgeted figures and explaining the gaps is known as this.
What is variance analysis?
This three-statement model links the income statement, balance sheet, and this third financial document to ensure all outputs are consistent.
What is the cash flow statement?
When building a pro-forma balance sheet, this accounting equation must always hold true: Assets = Liabilities + this.
What is shareholders' equity (or owners' equity)?
This technique tests how sensitive a project's NPV is to changes in individual variables — such as sales volume or input costs — one at a time.
What is sensitivity analysis?
This financial ratio compares a company's total debt to its total equity and is a key indicator of financial leverage and capital structure.
What is the debt-to-equity ratio?
Type of risk can be mitigated through proper diversification
non- systematic risk
Used in M&A valuation, this model estimates a company's value based on the trading multiples of comparable public companies — such as EV/EBITDA.
What is a comparable company analysis (comps)?
In pro-forma cash flow projections, this section captures cash from buying or selling long-term assets such as equipment and property.
What is investing activities (cash flow from investing)?
Unlike sensitivity analysis, this method changes multiple variables simultaneously across defined ranges to assess a range of possible project outcomes — often labeled best, base, and worst case.
What is scenario analysis?
This hybrid financing instrument carries features of both debt and equity — it pays interest like a bond but can be converted into shares at a later date.
What is a convertible note (or convertible bond)?
This rolling financial planning approach updates forecasts on a continuous basis — adding a new period as each old one closes — so plans always cover the same forward horizon.
What is a rolling forecast?
This advanced technique uses random sampling across thousands of simulated scenarios to model the probability distribution of outcomes — commonly applied in portfolio risk analysis.
What is Monte Carlo simulation?
This pro-forma technique adjusts historical financial statements to remove one-time or non-recurring items, presenting a normalized view of ongoing operations.
What is normalization (or adjusted/normalized financials)?
Financial derivative contract that gives the buyer the right, but not the obligation, to sell an underlying asset (such as stocks) at a specified "strike price" within a specific timeframe.
What is a put option?
This cost-of-capital model weights a firm's equity and debt financing proportionally to derive a single discount rate used to evaluate investment projects.
What is WACC (Weighted Average Cost of Capital)?
This type of hedging is used to mitigate country risk sucha as exchange rate risk.
What are currency futures?