Financial Modeling and Forecasting

Financial Modeling & Forecasting

Jason MacMorran www.pncpa.com

Presentation Outline

I. Introduction and Learning Objectives II. Definitions and Standards Overview III. Uses for Financial Models IV. Basics of Financial Modeling V. Basics of Financial Analysis VI. Sensitivity and Scenario Analysis VII. Conclusion

Learning Objectives

Understand accounting standards related to prospective information. Discuss uses and applications for financial models, including uses as decision making tools. Understand basic design and creation of a financial model. Understand uses for financial analysis and sensitivity analysis.

Definitions and Standards Overview

Definitions and Standards Overview

The words projection, forecast, pro forma, model, etc., are often used interchangeably relative to prospective information. In an accounting context, they have different meanings. Generally speaking, the projection, forecast, pro forma or budget will be the ‘output’, and the financial model will include the ‘inputs’ and ‘output’. This section is not intended to be authoritative or a detailed look at standards, but a general overview of what to look for and where to find it!

Key Accounting Terms

Forecast – presents an entity’s expected financial position, results of operations, and cash flows, based on responsible party’s assumptions reflecting conditions it expects to exist and actions it expects to take. Projection – presents an entity’s financial position, results of operations, and cash flows, based on one or more hypothetical (what ifs) assumptions provided by a responsible party. Hypothetical Assumption - an assumption used to present a condition or course of action that is not necessarily expected to occur, but is consistent with the purpose of the projection (i.e. expansion scenario).

Key Accounting Terms

Financial Analysis – practitioner develops assumptions, analyzes results, and recommends a course of action. Partial Presentation – a presentation of...