5.1 Building Dynamic Financial Models (The Core Framework)

Why Financial Modeling is a $100K+ Skill

• Top-tier salaries:

  • Investment Banking Analysts: $130K+

  • FP&A Managers: $150K+

  • Startup CFOs: $200K+ equity

• Dealmaking power: Models directly influence valuations (DCF, LBO, M&A)

The 3-Statement Model (Accounting Engine)

1. Income Statement

• Revenue drivers:

  • SaaS: MRR Growth, Churn

  • Retail: Same-Store Sales

• COGS structure: Variable vs. fixed costs

2. Balance Sheet

• Circular references:

  excel

• =Cash_Rev - Cash_Exp + Prior_Cash  // Revolver automation

• Working capital dynamics:

  • DSO, DPO, DIO adjustments

3. Cash Flow Statement

• Direct vs. indirect method

• CapEx depreciation schedules

Assignment:

• Build a 5-year 3-statement model for a mock SaaS company with:

  • Revenue tiers (Basic/Premium)

  • Churn rate assumptions

  • Debt covenant checks