Financial Modeling with Spreadsheets: An Introduction to Income Statements and Cash Flows

Welcome to our course on financial modeling with spreadsheets, where we will learn about building models that represent the real world. To get started, let's dive into simple models of business income. Financial modeling has many definitions, but the basic task is to build a model. This model should be a representation of the real world, which means creating documents with financial information from each year of business.

We can use numbers like stock prices to examine trends across time or predict future values. In this first lesson, we will focus on income statements and cash flows. Income statements allow a business to track their income and expenses across years. They can be modeled in many ways but traditionally include the following information: first, our sales made to customers either in goods or services and they associated costs of those Goods. EBIT or earnings before interest and taxes accounts for administrative costs and depreciation, which is the cost of the people in the business and the decreasing value of assets over time.

Taxes are imposed on the money made, and a net income is calculated by subtracting expenses including taxes from profits made. Finally, dividends are money that is paid to shareholders on the net income. Here is an example of an income sheet, which you can see the key components mentioned previously like EBIT, sales, and cost of sales. The layout here is a suggestion as business needs may dictate different information.

You will often see financial models formatted so that the expenses or negative numbers are in parentheses. You can easily convert your sheet into that format by highlighting the number cells, clicking on "Format Number", and then selecting the "Financial" option. Because we formatted our expenses as negative numbers, we can now calculate our income and EBIT by simply totaling the values in the previous section above it. Therefore, for gross operating income in B8, you would type equals sum, then open parentheses highlight the numbers for sales and cost of sales in B6 and B7 to sum them up and close parentheses for EBIT.

We will use the sum function to add gross operating income to the values in that section, and so on for the rest of the income sheet. To complete our model, we will want to copy these formulas over for the rest of the years. You can copy and paste the first year's formula into each of the other years or use the fill handle, which is the small square at the bottom right of a cell.

If you click on this square, you can drag and drop the formula to the adjacent cells. Let's practice these concepts by completing our first income sheet.

"WEBVTTKind: captionsLanguage: enwelcome to the course you will learn about financial modeling with spreadsheets and to get us started let's dive into simple models of business income financial modeling has many definitions but the basic task is to build a model this model should be a representation of the real world and this means that we might create documents with financial information from each year of business with that information we can use numbers like stock prices to examine trends across time or predict future values in this first lesson we will focus on income statements and cash flows income statements allow a business to track their income and expenses across years they can be modeled in a lot of ways but traditionally include the following information first our sales made to customers either in goods or services and they associated costs of those Goods EBIT or earnings before interest and taxes accounts for administrative costs and depreciation which is the cost of the people in the business and the decreasing value of assets over time taxes are imposed on the money made a net income is calculated by subtracting expenses including taxes from profits made finally dividends are money that is paid to shareholders on the net income here is an example of an income sheet you can see the key components mentioned previously like EBIT sales and cost of sales the layout here is a suggestion as business needs may dictate different information you will often see financial models formatted so that the expenses or negative numbers are in parentheses you can easily convert your sheet into that format by highlighting the number cells clicking format number and then selecting the financial option because we formatted our expenses as negative numbers we can now calculate our income and EBIT by simply totaling the values in the previous section above it therefore for gross operating income in b8 you would type equals sum then open parentheses highlight the numbers for sales and cost of sales in b6 and b7 to sum them up and close parentheses for EBIT we will use the sum function to add gross operating income to the values in that section and so on for the rest of the income sheet to complete our model we will want to copy these formulas over for the rest of the years you can copy and paste the first years formula into each of the other years or use the fill handle which is the small square at the bottom right of a cell if you click on this square you can drag and drop the formula to the adjacent cells let's practice these concepts by completing our first income sheetwelcome to the course you will learn about financial modeling with spreadsheets and to get us started let's dive into simple models of business income financial modeling has many definitions but the basic task is to build a model this model should be a representation of the real world and this means that we might create documents with financial information from each year of business with that information we can use numbers like stock prices to examine trends across time or predict future values in this first lesson we will focus on income statements and cash flows income statements allow a business to track their income and expenses across years they can be modeled in a lot of ways but traditionally include the following information first our sales made to customers either in goods or services and they associated costs of those Goods EBIT or earnings before interest and taxes accounts for administrative costs and depreciation which is the cost of the people in the business and the decreasing value of assets over time taxes are imposed on the money made a net income is calculated by subtracting expenses including taxes from profits made finally dividends are money that is paid to shareholders on the net income here is an example of an income sheet you can see the key components mentioned previously like EBIT sales and cost of sales the layout here is a suggestion as business needs may dictate different information you will often see financial models formatted so that the expenses or negative numbers are in parentheses you can easily convert your sheet into that format by highlighting the number cells clicking format number and then selecting the financial option because we formatted our expenses as negative numbers we can now calculate our income and EBIT by simply totaling the values in the previous section above it therefore for gross operating income in b8 you would type equals sum then open parentheses highlight the numbers for sales and cost of sales in b6 and b7 to sum them up and close parentheses for EBIT we will use the sum function to add gross operating income to the values in that section and so on for the rest of the income sheet to complete our model we will want to copy these formulas over for the rest of the years you can copy and paste the first years formula into each of the other years or use the fill handle which is the small square at the bottom right of a cell if you click on this square you can drag and drop the formula to the adjacent cells let's practice these concepts by completing our first income sheet\n"