What Are The Important Statements Needed For Financial Modelling?

Financial modelling is a very important process when you want to understand whether your business is performing well or not.

As this is a very complex process, many businesses hire experts to help them with it. For this, they will need a few important financial statements for your business.

In this blog, we will share with you these important statements that you must have when hiring an expert to help you with the financial modelling of your business.

Important Statements For Financial Modelling

Here are the statements that are required for creating a financial model of your business.

Income Statement

This is also called the profit and loss or P&L statement. It helps you to determine the profitability of your business over a given period. This statement has three major components,

• Revenue: Income through the sale of goods or services or both and the sale of any asset that has brought money into your business.
• Cost of goods sold: This is how much your business has spent on producing the goods or services that have been sold.
• Operating expenses— All the expenses associated with running your business, such as rent, salaries, electricity bills, etc.
• Net Profit— This is the final profit after deducting all expenses and taxes.

All this information derived from the income statement helps in profitability analysis and revenue/cost projections during financial modelling.

Balance Sheet

This provides the financial position of your business at a specific point in time. It includes three sections of great importance.

• Assets— List all the things that your business owns, from machinery to properties. It helps in assessing the base of your firm’s resources.
• Liabilities— It is the list of everything the company owes, which can either be short-term or long-term. It helps you understand the debt and financial requirements of your company.
• Shareholder’s Equity— This section of the balance sheet shows how much shareholders can claim after liabilities are deducted from assets. This helps understand the value of the business over time.

This statement forms the foundation for assets, liabilities and equity and ensures the accuracy of the financial model.

Cash Flow Statement

This is the most important document required by a professional for financial modelling. This is because it shows the movement of cash to and from the business. It also has three main components.

• Operating— Shows the cash used or generated from the core operations for your business. It indicates how much your firm has generated through its everyday activities.
• Investing— This includes all the cash that has been used for investment purposes. It also contains cash that has been brought into the business by investments or sales.
• Financing— It shows all the money that has been used to fund your business’s financing activities, like debt issuance, stock issuance, dividend payment, etc., which could either be through debt or equity.

This gives insight into cash generation, capital needs, and business liquidity, which is essential for financial modelling.

Conclusion

Financial modelling is a crucial process to determine whether your business is doing well or not. Make sure that you have the statements mentioned before so that the professional can help you create a financial model for your business.