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A few basic rules in financial modeling (3/3)

Dec, 17, 2015

Checking your model is a must do to make sure it is a reliable, coherent and user-friendly.
For example, a figure must be the same everywhere it appears even if it’s calculated in different ways. You should also setup a range of visual controls enabling you to make a quick revision of the general coherence of the model.

 

Read the first part of “A few basic rules in financial modeling”

Read the second part of “A few basic rules in financial modeling”

Double checking your financial model is essential

Checking your model is a must do to make sure it is a reliable, coherent and user-friendly.
For example, a figure must be the same everywhere it appears even if it’s calculated in different ways. You should also setup a range of visual controls enabling you to make a quick revision of the general coherence of the model.

Some examples of visual controls:
• Check that your KPIs (turnover, EBITDA, EBIT, net revenue…) complete well from a tab to another. You can create control lines to materialize it (filling a formula displaying “WRONG” if your KPIs are different).
• Check that your balance sheet is balanced. This basic control should be available at the top left of each tab.
• Check that the sum of your percentages reach 100% and that you don’t count twice any subtotals.
• Don’t hesitate to use “flags” to warn you and to help you identify mistakes: you can use conditional formatting for that.

financial modeling

Top priority of your model: be user friendly

Put yourself in place of a user discovering the model:
• For a complex model you should insert quick access buttons to ease navigation between tabs
• Insert a table of contents at the beginning of your workbook
• Do not forget to add comments to detail the most complex cells: instead of using the “insert comment” feature or the “data validation” put them in a dedicated column: it will make it more readable, especially on a printed format.

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