Financial Modeling: Case Study to Spreadsheet
A guide for business students on building 3-statement models, DCFs, and pro forma forecasts.
Get Financial Modeling HelpFrom Case Study to Cell A1
I remember my first finance case study. I had a 10-page document and a blank Excel spreadsheet. I stared at cell A1, paralyzed. “Where do I even start?” This feeling is common. Financial modeling bridges business strategy and hard numbers, and it’s a challenging skill to master.
Financial modeling is the process of translating a company’s story, strategy, and historical data into a structured forecast of its future performance. It’s not just “Excel skills”; it’s a way of thinking. For business students, this is where theory becomes practice. Your courses will require these models to justify decisions: Should we acquire this company? Launch this product? Is this stock overvalued?
This guide is for students overwhelmed by these assignments. We will demystify the process, breaking down core models (like the 3-Statement Model and DCF) and providing a step-by-step guide. This is a critical skill and the core of our accounting homework help services.
The Bedrock: The 3-Statement Model
You can’t build a complex valuation model without mastering the 3-Statement Model. It’s the “engine” of all financial modeling, linking the Income Statement, Balance Sheet, and Statement of Cash Flows into one dynamic spreadsheet.
1. The Income Statement (P&L)
This shows profitability over a period. You start by forecasting revenue (e.g., 5% growth) and then expenses (e.g., COGS as a % of revenue). The final line, Net Income, is the crucial link.
2. The Balance Sheet
This is a “snapshot” of what a company owns (Assets) and owes (Liabilities) at a point in time. The links are key:
- Net Income from the Income Statement flows into Retained Earnings on the Balance Sheet.
- Depreciation from the Cash Flow Statement reduces Property, Plant & Equipment (PP&E).
- The final Cash balance from the Cash Flow Statement flows to the top of the Balance Sheet.
This creates a circular reference. A 2024 article from the Journal of Business Finance & Accounting discusses the importance of accurate forecasting.
3. The Statement of Cash Flows
This is the “checkbook.” It bridges Net Income (which includes non-cash expenses) and the actual cash generated. It’s broken into three parts:
- Cash Flow from Operations (CFO): Starts with Net Income, adds back non-cash items, and adjusts for working capital.
- Cash Flow from Investing (CFI): Includes capital expenditures (CapEx) and acquisitions.
- Cash Flow from Financing (CFF): Includes issuing or repurchasing debt and equity.
The sum of these three, plus beginning cash, gives you your ending cash. If your ending cash flows to the Balance Sheet and Assets = Liabilities + Equity, your model balances.
Key Valuation Models
Discounted Cash Flow (DCF) Model
This is the most rigorous valuation method. A company’s value is the sum of its future cash flows, discounted to today’s value.
Step 1: Forecast Free Cash Flow (FCF). Forecast financials for 5-10 years and calculate unlevered FCF (cash flow available to all investors).
Step 2: Calculate WACC. You need a discount rate. This is the Weighted Average Cost of Capital (WACC), the blended cost of debt and equity. A guide from the Corporate Finance Institute breaks down the WACC calculation.
Step 3: Calculate Terminal Value. The Terminal Value (TV) represents the company’s value beyond the forecast period.
Step 4: Discount to Present Value. Use the WACC to discount all future FCF and the TV back to today. The sum is the “Enterprise Value.”
Comparable Company Analysis (“Comps”)
This is a “relative valuation.” You value a company based on what the market is paying for similar companies, like valuing a house by checking comps on the same street.
- Step 1: Find a “peer group” of similar public companies.
- Step 2: Calculate their valuation multiples (e.g., P/E or EV/EBITDA).
- Step 3: Apply the median of these multiples to your target company’s earnings to find its value.
6-Step Case Study Guide
Here is how to tackle a finance case study assignment.
- Deconstruct the Prompt: What is the actual question? Are you recommending a “buy” or “sell”? Your model must answer this question.
- Set Up Excel: Create separate tabs: “Assumptions,” “Historical Data,” “IS,” “BS,” “CFS,” and “Valuation.”
- Build Assumptions: This is the most important tab. Read the case and pull every assumption (e.g., “revenue growth is 5%”). This is the “art” of modeling.
- Build the 3-Statement Model: Link your assumptions to your pro forma (forecasted) Income Statement. Let the P&L drive the Balance Sheet and Cash Flow Statement.
- Perform the Valuation: On your valuation tab, pull the forecasted cash flows and build your business valuation models.
- Write the Recommendation: Your report or presentation uses your model’s output as evidence for your recommendation. This is where our business writing services can help.
Common Modeling Pitfalls
- Balance Sheet Doesn’t Balance: The #1 problem. It’s almost always a linking error. Check Retained Earnings and the final cash link.
- Circular References: Common with interest expense, which depends on debt, which depends on cash flow, which depends on interest expense. Use Excel’s iteration setting to fix.
- Unrealistic Assumptions: Your model is only as good as your assumptions. You must justify every one (e.g., “Revenue growth is set at 3%, in line with the industry average…”). A 2025 article in the International Journal of Scientific Innovation explores how AI is being used to improve forecasting.
Our Finance & Accounting Experts
Our writers, with MBAs, DBAs, and real-world finance experience, can help you build your model and write your analysis.
Michael Karimi
DBA, Strategic Management
Michael’s background in business and finance is perfect for helping with complex valuation models, DCF analysis, and strategic case studies.
Julia Muthoni
Data Analysis & Public Health
Julia’s expertise in statistical analysis is invaluable for the quantitative side of finance, including regression analysis for forecasting and interpreting data sets.
Zacchaeus Kiragu
PhD, Research & Writing
Zacchaeus is a master of scholarly writing and can help you structure your final report, ensuring your analysis is presented clearly and professionally.
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Financial Modeling FAQs
Why doesn’t my balance sheet balance?
This is the #1 problem. It’s almost always a linking error. Common mistakes: (1) Net Income not flowing to Retained Earnings, (2) Depreciation not reducing PP&E, or (3) The final cash balance from the CFS not linking to the “Cash” line on the Balance Sheet.
What is a “circular reference” and how do I fix it?
A circular reference happens when a formula depends on its own result (e.g., interest expense affects debt, which affects interest expense). Most models use an “iteration” setting in Excel to solve this, or a simple “plug” to toggle the calculation.
DCF vs. Comps: What’s more important?
A DCF provides intrinsic value (what a company should be worth). Comps provide relative value (what the market is paying for similar companies). Both are used together. A “Football Field” chart is often used to show the valuation range from multiple methods.
How do I forecast revenue?
You must justify your growth rate. You can use a historical average, analyst estimates, or a bottom-up build (e.g., price per unit * number of units sold). Your assumption must be defended in your report.
What is a “sensitivity analysis”?
A sensitivity analysis shows how your valuation changes when key assumptions (like revenue growth or WACC) change. It shows the range of possible outcomes.
What software do I need?
Microsoft Excel. 99% of financial modeling is done in Excel. Master its functions (like XNPV, IRR) and shortcuts (like F5 -> Go To Special -> Constants) to become efficient.
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