One of the hardest parts of building a financial model is getting the balance sheet to balance, meaning the basic equation of Assets = Liabilities + Shareholder’s Equity is true.
The balance sheet itself is not the problem, it is usually the cash flow statement that introduces the error.
Here are some tips to make sure your cash flow statement is correct to ensure you calculate the correct ending cash balance.
For a working model, start with the basic financial model.
Make sure you rebuild the historical cash flow statement with formulas, that’s the only way to ensure you’ve accounted for all numbers and everything will flow going forward.
All line items on the balance sheet must be used in the cash flow statement. [Read more…]