Excel flowcharts are powerful tools for visualizing and analyzing financial investments. By mapping out key cash flows like revenues, costs, taxes, debt payments, capital expenditures etc., excel flowcharts enable investors to model the financial performance of potential investments. This provides the foundation for further analysis using discounted cash flow (DCF) models and scenario planning. Properly structured excel flowcharts improve transparency and allow sensitivities to be tested easily. This article will provide an in-depth guide on constructing useful excel flowcharts for financial investments, including formatting tips, best practices, and example templates. With excel flowcharts, investors can better evaluate investment risks and returns across multiple scenarios.
Set up excel flowchart structure with proper formatting
The key to a useful excel flowchart is a clear logical structure. This starts with separating flows by type – operating, investing and financing. Use color coding and borders to distinguish. Operating flows like revenue and costs should be grouped. As should investing items like capex and acquisitions. Financing includes equity and debt. Also separate historical flows from forecasts. Apply number formatting to figures – currency, percentages etc. Right align all numbers. Use a bigger font for totals. These tips will make the flowchart cleaner and easier to follow.
Link excel flowchart to revenue and cost drivers
Don’t just list financial flows in the excel flowchart. Link them to operational metrics and assumptions. For example, tie revenue to units sold and pricing. Link costs to production volumes and fixed vs variable classification. This connects the flowchart to the real business drivers. Scenario analysis on these operational levers then feeds through to the financial flows. This enables testing of upside/downside cases and identifies which assumptions are critical.
Model debt repayment schedule and interest costs
The flowchart should clearly show debt drawn, principal repayments, and interest costs for any loans or bonds. Principal repayment schedule can be modeled based on loan terms like tenor, amortization profile etc. Interest expenses are then calculated based on the debt outstanding each period and the interest rate. This modeling allows testing of different debt levels and terms in scenario analysis.
Use waterfall charts to map priority of payments
For some investments, certain payments have priority over others – like debt service being paid before dividends. Waterfall charts are perfect for mapping these payment cascades – the output of one flow becomes the input of the next according to the priority. This enables modeling complex financial structures like loans with cash sweeps.
Validate excel flowchart outputs match financial statements
The acid test of an excel flowchart is whether the calculated periodic cash flow also generates correct income statement and balance sheet outputs. Build in checks that net income equals revenue minus costs, free cash flow matches the cash flow statement, and ending cash balances ties to the forecast balance sheet. This validation ensures integrity across all financial statements.
Excel flowcharts are powerful tools for financial modeling and investment analysis. They visually map cash flows, enable scenario testing, and validate model integrity. Follow best practices on structure, formatting, validation, and operational linkage to build robust models. Excel flowcharts provide transparency into investment drivers and improve decision making.