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Lecture Learning Objectives

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Course Sections

1

How the Three Statements Connect

Overview of statement interrelationships

  • The three-statement model framework
  • Information flow between statements
  • Key linking items and their roles
  • Building order: which statement first?
  • Common integration pitfalls
⏱ 30 min Start β†’
2

Income Statement Links

Connecting the IS to BS and CF

  • Net income β†’ Retained earnings
  • Revenue and expense drivers
  • Depreciation and amortization flow
  • Interest expense from debt schedule
  • Tax expense and deferred taxes
⏱ 35 min Start β†’
3

Balance Sheet Links

Roll-forward mechanics and balances

  • Retained earnings roll-forward
  • PP&E net fixed assets roll-forward
  • Working capital balance changes
  • Debt balances from debt schedule
  • Goodwill and intangible assets
⏱ 40 min Start β†’
4

Cash Flow Statement Construction

Building the CF from IS and BS changes

  • Operating cash flow from IS + NWC changes
  • Investing cash flow from capex and asset sales
  • Financing cash flow from debt and equity
  • Net change in cash reconciliation
  • Indirect method construction
⏱ 35 min Start β†’
5

Balancing the Model

Error-checking, plugs, and validation

  • The balance sheet balancing equation
  • Identifying and fixing imbalances
  • Cash as the natural plug
  • Revolver as balancing mechanism
  • Quality checks and model auditing
⏱ 40 min Start β†’

πŸ“₯ Download Practice Files

Download these files to follow along with the hands-on exercises

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lecture-08-integration-data.csv
Sample financial data for integration
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lecture-08-integration-template.csv
Blank template for three-statement model
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Practice Exercises Guide
Step-by-step exercises with solutions
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Key Formulas Quick Reference

Retained Earnings Roll-Forward

Ending RE = Beginning RE + Net Income βˆ’ Dividends
Net Income = Revenue βˆ’ COGS βˆ’ SGA βˆ’ D&A βˆ’ Interest βˆ’ Tax
Excel: =Beg_RE + Net_Income - Dividends

PP&E Roll-Forward

Ending PP&E = Beg PP&E + CapEx βˆ’ Depreciation
CapEx = % of Revenue (forecast assumption)
Depreciation = % of Beg PP&E or useful life

Balance Sheet Check

Assets = Liabilities + Equity
Check = Total Assets βˆ’ Total L&E
Must equal 0 every period
BS Check: =IF(Check=0,"βœ“ Balances","βœ— ERROR")

Cash Flow Build-Up

Operating CF = Net Income + D&A + Ξ” NWC
Investing CF = βˆ’CapEx + Asset Sales
Financing CF = Debt Issued βˆ’ Repaid βˆ’ Div
Ending Cash = Beg Cash + Total CF
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