Introduction to the cash flow statement
Following our agenda, the next stage is the preparation of the cash flow statement:
- Record the historical P&L and Balance Sheet.
- Calculate the historical growth drivers.
- Project the growth drivers for P&L and Balance Sheet.
- Build up projected P&L and Balance Sheet.
- Prepare asset and depreciation schedule.
- Prepare debt schedule.
- Prepare cash flow statement.
- Ratio analysis.
- DCF valuation.
- Other valuations.
- Scenario analysis.
You will recall that we created a visual check in Chapter 2, Steps for Building a Financial Model, to indicate when the balance sheets are in or out of balance. If they are out of balance, the check cells will be red, but the moment they fall in balance, the cells will turn green, as shown in the following diagram.
Figure 8.1 illustrates the position with the forecast years out of balance. The historical balance sheets will of course be in balance:
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