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Effective Model Building Techniques Using the FAST Standard & ICAEW 20 Principles

Build an Entire Business Case Model from Scratch

Effective Model Building Techniques Using the FAST Standard & ICAEW 20 Principles

A two-day course

  • Learn about best practice in the model building: the FAST standard and ICAEW 20 Principles
  • Build an entire business case model from scratch
  • Practical hands-on modelling under the guidance of expert financial modeller
  • Decision-making: how to assess a business case
  • Learn about funding the business case with debt or equity
  • Understand return on investment measures
  • Learn to do sensitivity analysis using Excels built-in tools

  • Build up, in manageable stages, an entire, integrated financial model for a business case, including:
    • Best practice in model structures and logic
    • Flexibility to accommodate change
    • Design which minimise errors
  • Simple ways to add inflation and growth into models
  • Build up revenue and cost forecasts that are relevant to the business case
  • Adding financial structures with debt and equity mixes to the business case
  • Learn to calculate the weighted average cost of capital (WACC)
  • Learn to add income statements and balance sheets to make an integrated model
  • Learn about bank ratios and debt covenants, and how to calculate them in the model
  • Include decision-making measures such as accounting returns and discounted cash flow measures in the model
  • Use Excel tools such as goal seek, data tables and scenario manager, using sensitivity analysis to highlight risk areas

Introduction

  • Modelling style
  • Modelling standards: FAST and ICAEW 20 Principles for Good Spreadsheet Practice
  • Case study outline
  • Required inputs and outcomes
  • Risk factors
  • Planning the model

 Best Practice Modelling

  • Best financial modelling practice
  • Importance of flexibility in the model
  • Logic flow within the model
  • Separation of inputs, calculations and outputs
  • Use of flags to control timing factors
  • Use of switches to allow option selection
  • Keeping control of versions
  • Use of corkscrews
  • Making the model robust
  • Common mistakes
  • Demonstrations of all of the above
  • Exercise – from a simple model, identify examples of poor modelling style

 Revenue and Costs

  • Operational revenue
  • Volume drivers
  • Flags to control timings of changes
  • Consistent coding techniques to enable flexibility
  • Fixed and variable costs
  • Fixed asset schedule
  • Depreciation calculations
  • Real vs nominal costs
  • Adding inflation & growth into a model
  • Concept of relevant costs in a business case
  • Building switches in Excel to turn options on or off
  • Exercise – build a simple cash flow model for a business case with revenues, fixed and variable costs, flags and switches

 Financial Structure

  • Capital structure
  • Debt and equity funding
  • The weighted average cost of capital (WACC)
  • Debt amortisation calculations
  • Dealing with circular references
  • Exercise – add a capital structure to the previous model, with debt and equity injections, interest costs, debt amortisation and constrained dividend payments

 Adding Profit & Loss Statement & Balance Sheet

  • Cash flow schedule
  • Adding a basic profit and loss account (income statement)
  • Basic balance sheet
  • Integrity checks
  • Exercise – add a simple income statement and balance sheet to the previous model

 Returns

  • Accounting returns
  • Adding a terminal value
  • Debt coverage ratios – DSCR, LLCR
  • Discounted cash flow measures: NPV, IRR, XNPV, XIRR
  • Comparing projects to assess the most attractive choice
  • Exercise – add accounting returns, project ratios and discounted cash flow measures to the previous model

 Sensitivity Analysis

  • Purpose of sensitivity analysis
  • Sensitivity analysis:
    • Goal seek
    • Watch window
    • Data tables
    • Scenario manager
  • Exercise – add sensitivity analyses to the previous model

 Reviewing the Model

  • Executive Summary and Audit
  • Model checks & robustness
  • Basic audit techniques
  • Executive summary
  • Charts
  • Shortcomings of Excel models
  • Exercise – add an executive summary and charts to the previous model

 Workshop Summary

  • Summary of what has been learned
  • Key points
  • Other learning materials
  • Workshop actions

The trainer has over 30 years’ experience in a wide range of roles in finance. He has delivered training courses on behalf of a number of international training companies since 2005.

He trained as a Chartered Accountant at KPMG in South Africa and New Zealand, before moving into industry with Ford Motor Company. He held various positions there in financial analysis, budgeting and forecasting, until he was appointed sales planning manager, responsible for forecasting models, production planning and supply logistics. He joined a multinational private consultancy group in Australia, as their general manager (finance); in this role, he guided the group through a period of major change and financial turnaround.

For the past 21 years, he has worked as a freelance financial modeller, analyst and trainer for a range of blue-chip clients. Assignments have included financial modelling for two major LNG projects in the Middle East, numerous renewable energy projects in both Europe and developing countries, structured financing for a large-scale property development, restructuring and outsourcing projects in the retail gas sector, and PPP transactions in the utilities, health and support services sectors.

With an extensive accounting background, he brings accounting knowledge and analytical skills to transactions and financial modelling. He has built up a great deal of experience in financial modelling in numerous sectors, including gas production, electricity generation, energy retailing, waste processing and property development sectors, as well as building financial models in central government departments, retail enterprises and high-volume online environments. He has built, developed and used models to support commercial negotiations, analyse risk, test scenarios and forecast results.

He has trained others in his specialism of financial modelling, and runs public courses on behalf of major training companies all around the world.

The course director also teaches Basic Financial Modelling in Excel and Project Finance Modelling For Renewable Energy.

The workshop starts with a discussion of modelling techniques and methods.  Each session reviews the next stage of the model in terms of the financial theory, modelling techniques and potential difficulties; the delegates then build the model in stages on their own computers.

 

This is an intensive workshop and delegates will be spending the majority of the time on practical model building tasks. With the help of the Course Director and through a proven step-by-step approach, delegates will leave this intensive two-day workshop with the confidence and ability to apply advanced modelling techniques in Excel effectively.

 

Workshop Methodology:

This programme will be delivered through a practical and interactive case study and worked examples, demonstrating how and why each technique is used; the case study is gradually worked-up into a full model using techniques learned in each module.  Delegates will be able to share their screens with the Course Director to discuss issues as they build up the model, and can raise questions using a chat facility or directly using their microphones.  Each exercise building up model will also have a model answer, so participants can compare their work to a suggested solution.  Emphasis is placed on the delegates gaining practical, hands-on experience of the design and construction of financial models in Excel.

Attendees will also benefit from formal presentations, demonstrations and group discussions.  Comprehensive product notes and the final fully worked-up model will be provided for future reference.

 

Pre-requisite:

Attendees need basic Excel skills to be able to participate fully in the modelling workshops.  For example:

  • Opening and closing Excel files
  • Excel screen menu and standard ribbon menus
  • Moving around a worksheet and between different worksheets in a file
  • Creating files and individual sheets
  • Changing column width and row height
  • Chart wizard
  • Entering labels
  • Cell references
  • Centring titles and merging cells
  • Simple cell and number formatting
  • Changing font sizes and colours
  • Copying, cutting and pasting cell contents
  • Previewing worksheets
  • Printing documents and ranges

 

Basic Excel functions and the ability to insert functions:

  • Basic Excel formulas – SUM, SUMIF, MAX, MIN
  • Basic financial functions - NPV, IRR, PMT
  • Basic logic functions - IF, AND, OR

 

Each participant must have a laptop or PC with Excel 2007 (or later version) during the course to facilitate modelling work.

Have this course presented In-House

  • On a date, time and in a location of your choice
  • Topics expanded or deleted to your bespoke requirements
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Have this course pre-recorded

  • Full course recording edited exclusively for your company
  • Files converted to enable housing on your LMS
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