Finance
by Simon Benninga
What if sales grow more slowly?
Every financial plan rests on guesses. Simon Benninga's book shows how to build them into Excel models where you change one assumption and watch the forecast, the valuation or the risk respond. It covers company forecasts, cost of capital, portfolios, options and bonds, each built cell by cell.
Hear a sample · read by Laura
Benninga's company models start from sales. Most other lines, such as costs, stock, money owed by customers and fixed assets, are set as a percentage of sales. Forecast how fast sales will grow, and the income statement and balance sheet follow from it.
A forecast balance sheet won't balance by itself. Benninga lets one item, usually cash or debt, act as the plug. It soaks up whatever is left over, so assets always equal liabilities plus equity, and any change elsewhere in the model flows through to it.
Interest depends on how much the firm borrows. Borrowing depends on profit, and profit depends on interest. Excel flags this as a circular reference. Benninga shows how to switch on iterative calculation, so the spreadsheet goes round the loop until the numbers settle.
The forecast gives you free cash flows. Turn them into today's money at the firm's cost of capital, add a terminal value for the years beyond the forecast, and you have the value of the firm. Add its cash, subtract its debt, and what's left belongs to shareholders.
Benninga leans on Excel's Data Table feature to show how a result moves when an input does, such as a firm's value across different growth rates or an option's price across different volatilities. One grid replaces dozens of reruns by hand.
Spreadsheets
Finance ideas make more sense once you build them in a spreadsheet and watch the numbers move.
Forecasts
Model a firm by projecting its accounts from a few drivers, like sales growth, and let the rest follow.
Valuation
Value a company by estimating its future free cash flows and discounting them back to today.
What if
Change one input at a time with a data table to see which assumptions really drive the answer.
Options
Option prices can be worked out step by step with a binomial tree, or in one go with Black-Scholes.
One thing to try
Make a twelve-month budget in a spreadsheet. Put your monthly income, monthly spending and how fast spending grows in three cells at the top, and work out every other number from them. Then raise spending growth by one point and see what happens to your balance by December.
Knotd has the key ideas from 250+ non-fiction books, each in a few minutes, in plain words. Financial Modeling comes with a Name That Idea round to make it stick.
Get the whole book on KnotdOpen in the appWhat if sales grow more slowly? Every financial plan rests on guesses. Simon Benninga's book shows how to build them into Excel models where you change one assumption and watch the forecast, the valuation or the risk respond. It covers company forecasts, cost of capital, portfolios, options and bonds, each built cell by cell.
Sales drive the forecast; Something has to balance; A loop Excel can solve; From forecast to value; Tables of answers.
Make a twelve-month budget in a spreadsheet. Put your monthly income, monthly spending and how fast spending grows in three cells at the top, and work out every other number from them. Then raise spending growth by one point and see what happens to your balance by December.
Yes. Knotd has the key ideas from Financial Modeling in a few minutes, in plain words, plus a Name That Idea round to test them. It's one of 250+ non-fiction books in the app.
