Assignment for you

 

Financing and cash balance

This can be a difficult part of linking the three statements and requires some extra scheduling. Financing events, such as debt disbursement, affect the three statements in the following ways: Interest expense appears on the income statement, the amount of debt owed is on the balance sheet, and changes in the amount owed are reflected in cash. From the financing section of the cash flow statement.
In this section it is often necessary to model the debt schedule to build the necessary details.

Cash balance

This is the final step in linking the three financial statements. When all of the above items are properly linked, the total amount from the transaction, cash from investments, and cash from financing is added to the period prior to the closing of the cash balance and the result will be the current period of Closing cash on the balance sheet. .

This is the time of truth when you find out if your balance sheet is rich or not!


How to answer questions in an interview

If you get an interview question along the lines of "How are the three financial statements linked?" In the interview, you should not go into the above details, but instead, type the following key points:

Net income from the income statement, balance sheet, and cash flow statement

Depreciation is added back and CapEx is deducted on the cash flow statement that defines the PP&E on the balance sheet.

Most financing activities affect the balance sheet and cash from completion, with the exception of interest shown on the income statement.

The sum of the last cash balance in the most recent period, plus the gain from investment and financing operations, is the closing cash balance on the balance sheet.

If you would like to see a video-based example, watch the CFI Workshop on Linking the Three Statements.

How to attach financial statements for financial model

If you are creating a financial model in Excel, it is necessary to quickly connect the three statements. To do this, there are some basic steps to follow:

1. Include at least 3 years of historical financial information for all 3 financial statements.
2. Calculate the driver/ratio of the business for the historical period.
3. Enter the assumption of what the driver will be like in the future.
4. Prepare and link financial statements in accordance with the principles discussed above.
The main pattern is the inverse where the historical period is hardcoded for statements and calculations for drivers and then the forecast is hardcodes for drivers and calculations for financial statements.
Check out IPI step-by-step courses to learn how to create financial models in Excel.