Discounted cash flow (DCF) model is one of the most used valuation methods to determine the value of a company or any cash flowing asset. Normally, a DCF model is an add-on to an existing, working financial model as to calculate the net present value by discounting the projected cash flows. There are three important elements that you need to consider when calculating the DCF value. • Free Cash Flow to Firm (projected cash flows) • Weighted Average Cost of Capital (discount rate) • Time period used for valuation The main concept of the DCF Model is to consider the time value of money. As you already know, as time passes by, the value of money constantly changes. Basically, what used to be less might be more in the future and vice versa. The DCF Model will be helpful in calculating of what could be expected in the future such as potential investment opportunities and other interests. Most users prefer using the DCF Model due to its straightforward approach on calculating the present value. For example, if a company purchases an asset with an expected life of 5 years, the model will then calculate the future value of said asset by discounting it to find the present value. In cases for business acquisition, the need to determine a terminal value is essential as to put an end period of the DCF Model. Though it may sound simple enough to build a DCF model, you would still need the required know-how as to ensure that the model is according to the state of the economy, trends, and other factors that could affect the variables in the model. To get a better understanding on how to build a DCF Model, you can take a look at eFinancialModels. There, you’ll be able to acquire and download industry-specific DCF model templates which you can use as a reference once you build your very own DCF valuation model.
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Creating a business plan is, for all cases, a very important factor for attaining financial success. Though it doesn’t completely guarantee that thought, it at least, paves the path for your business to go to. Of course, your business plan will only have meaning if it is backed up by a solid financial plan. The financial plan will need to realize factors such as: • Where you will generate revenues / income • Which costs you expect to spend • Why and how much profit the business should generate • Where the funding comes from • Where to take the funds from • How to allocate the funds to maximize profitability • And many more factors in regards to the management of funds Usually, a detailed financial model expresses the assumptions in the projected income statement, balance sheet, and cash flow statement, over a minimum number of forecasting period which is usually around 3 years for a financial plan. These components are useful references as to make sense of what’s stated in the business plan. The report will also further solidify the credibility of the business plan and ensure that the model is not completely made-up and reliable. That’s why a financial plan should clearly explain the expected financial projections of a business going forward. Business plans can go up to 5 years, but to build a sound financial plan, a 3 year financial projection is enough as a minimum. This is due to the fact that normally after 3 years, it can be very difficult to justify what will happen to the business. Meaning, longer projections are very difficult to come up because the range of scenario outcomes will increase after three to five years. As a result, the best-educated guess normally will focus on a normalized profit the business can generate and is bound to manipulation at a certain point. To help you with building a financial model which is good for 3 years, you can use a 3 Year Cash Flow Projection Template provided at eFinancialModels. A 3 year financial projection template can be especially useful when considering the theoretical “what-if” scenarios to simulate any change in assumptions on the forecasted cash flow over time. You can also use other financial model templates for building a financial plan designed for specific industries so you’re free to choose which one fits your business model. No more building a financial model from scratch. All you have to do is apply the figures as to customize the model to fit the financial standing of your business. Creating a financial model for determining potential investments is vital especially if you want to ensure profitability and financial feasibility. But, creating a financial model is not as easy as it sounds like. You would need the necessary financial modeling skills and at the same time, a substantial know-how regarding different industries and other factors that will help create a reliable and accurate financial model. There’s nothing to fret about though, for you can simply download an Excel Financial Model Template to use as the base for your model. Hiring a professional financial modeler to create a financial model for you mostly cost you high fees depending on the modeler you hired. Therefore, it is better to acquire an Excel financial model template first since it will cost you for a fixed small amount. You won’t have to prepare a model from scratch anymore and you won’t have to blindly create a model on your own. Simply apply the figures needed in the model, customizing it as to fit the financial position of your business or investment, and ensure that the logic of the model makes sense. In cases where you need to conduct a valuation, you can use an Excel valuation template to use as a base for the valuation model. Using an excel valuation template will help you save time, learn more about valuation, and even decide which valuation method you want to focus on. For example, at eFinancialModels, a platform for industry specific financial model templates to help you work efficiently with building a Valuation model. If you’re looking for Excel Valuation Templates specifically, you can also checkout our recommended financial model templates in Excel for Valuation. No more spending too much time and money when creating a financial model, by simply using the templates, building a model becomes a less troublesome task from now on. When conducting a Commercial Real Estate Valuation, you will need a solid model to ensure that you’re not losing out with your investment. Basically, you want to determine the most probable price which a commercial property should bring in a competitive and open market under all conditions that requisite a fair sale. The determined value out of the commercial real estate valuation represents the value of the projected future income stream that you can expect to obtain out of the investment. That is to say, if the valuation value is lower than the price given, then that means the investment is a bad one. Thus, it is clear to see, conducting a commercial real estate valuation model first is very useful to determine if the investment is a good one. But, planning to build a model is one thing, while creating one is another. It is oftentimes a very complex task which needs a lot of calculation of certain ratios that will determine the profitability of a property. It is a good thing that you can simply use a financial model template to create a commercial real estate valuation model, so you won’t have to create a model from scratch. To give you an idea on what’s included in the template, the following elements are provided: • Executive Summary which contains the result of the DCF valuation and also contains the summaries and charts of the projected rental income, key metrics e.g. yields, and key assumptions • Estimated Rent Roll over the next 10yrs • Calculation of remaining Contracted Rent (to calculate the WAULT) • Calculation of the key metrics such as Revenues, OPEX, NOI, Free Cash Flows (Terminal Value calculation), Gross and Net Yields, etc. • Debt Schedule to simulate how much of the valuation can cover up the existing debt • Calculation of Net Fixed Assets and Taxes • Levered Cash Flows and Yield Analysis • Financial Statements (Income Statement, Balance Sheet, and Cash Flow Statement) You can also use other real estate model templates at eFinancialModels, which has a wide range of industry-specific financial model templates made by professional financial modeling experts with a substantial experience and know-how in different industries. |
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January 2021
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