Business and Financial Models

Overview

A vital tool for business strategy, a good business model enables a company to experiment with different ideas and scenarios in a safe, low risk environment, to make the best possible business decisions. Financial modeling involves building a financial evaluation from a more abstract business model, enabling hypotheses and scenarios to be translated into numbers.

Business and Financial Models provides an accessible introduction to these essential strategic practices, with ...

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Business and Financial Models

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Overview

A vital tool for business strategy, a good business model enables a company to experiment with different ideas and scenarios in a safe, low risk environment, to make the best possible business decisions. Financial modeling involves building a financial evaluation from a more abstract business model, enabling hypotheses and scenarios to be translated into numbers.

Business and Financial Models provides an accessible introduction to these essential strategic practices, with guidance on using Microsoft Excel for projection and analysis. The book goes through the process of building the model from the initial phase of formulating questions through modeling cash flow, budgets, investment appraisal and "dashboard" tools for monitoring performance. With case studies and online templates, Business and Financial Models includes coverage of new visual thinking techniques, and how these can be incorporated into conventional business modeling.

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Editorial Reviews

From the Publisher

"An excellent book that explains how to visualise and create pertinent and accurate business models within the current economic context. Clive has drawn a straight line from visual thinking and defining the critical questions through to creating useful and relevant financial business models." --Nikki Cole, Council Member, Brunel University

"A highly valuable, totally practical and fully integrated toolkit that makes essential reading for anyone looking to negotiate the turbulent economic climate... If you want to be guided in using business models to underpin practical strategies to develop all aspects of your business then you need look no further than this great book!" --Phil Ryan, MD, The Management Centre, Bangor Business School

"Clive Marsh's book demonstrates that he is a practitioner of the art of Financial Management not just an academic. It is a splendid introduction to the subject with lots of good examples which are easy to grasp and apply. It should improve the strategic financial understanding of managers of companies large and small. It deserves to be widely read." --Angus Cater, Chairman, SFS Group Limited

Council Member, Brunel University - Nikki Cole

"An excellent book that explains how to visualise and create pertinent and accurate business models within the current economic context. Clive has drawn a straight line from visual thinking and defining the critical questions through to creating useful and relevant financial business models."
The Management Centre, Bangor Business School - Phil Ryan

"A highly valuable, totally practical and fully integrated toolkit that makes essential reading for anyone looking to negotiate the turbulent economic climate... If you want to be guided in using business models to underpin practical strategies to develop all aspects of your business then you need look no further than this great book!"
Chairman, SFS Group Limited - Angus Cater

"Clive Marsh's book demonstrates that he is a practitioner of the art of Financial Management not just an academic. It is a splendid introduction to the subject with lots of good examples which are easy to grasp and apply. It should improve the strategic financial understanding of managers of companies large and small. It deserves to be widely read."
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Product Details

  • ISBN-13: 9780749468101
  • Publisher: Kogan Page, Ltd.
  • Publication date: 3/28/2013
  • Series: Strategic Success Series
  • Pages: 296
  • Product dimensions: 5.40 (w) x 8.40 (h) x 0.90 (d)

Meet the Author


Clive Marsh
has been Head of Finance & MIS, Director of Commercial Services, Director of Business Development and Divisional Manager of Corporate Services for Shell, Mobil, IBM UK, Capgemini and Ernst & Young, among others. He is also the author of Financial Management for Non Financial Managers (also published by Kogan Page).

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Table of Contents

Introduction

1 Stages in the development of a business and financial model
Scope
The fundamental question
A step-by-step approach
Skills required
Planning the model
Data quality
Tools
Summary

2 Developing the research question and output definition
The basic question
Output definitions, examples, financial outputs
Summary

3 Visual thinking to develop fundamental questions - contributed by John Caswell and Sarah Gall
Challenging the traditional business model
New methods and approaches — a business model reflecting the world as it is today
Structured Visual Thinking (a trade mark of Group Partners) principles for a dynamic world
An architectural approach to building a future
4D (trade mark of Group Partners) approach
Summary

4 Input definition
Basics of input definition
Important variables
Summary

5 Scenario identification
Determining scenarios
Populating the spreadsheet with input values and formulae
Running different scenarios
Using Excel Scenario Manager for what-if analysis
Scenarios versus projections
Summary

6 Building a simple model
Process
Example
Data extraction using Excel pivot tables
Some reminders of best practice
Reasons for failure of a model and how to avoid them
Summary

7 Using charts
Excel charts
Example
Using charts to help concentrate on the most important variables in an organization
Charts for break-even analysis
Chart tools
Presenting data and charts to communicate clearly
Using Excel pivot charts to show extracted data
Summary

8 Modelling budgets
Planning and budgeting
Departmental budgets and variance analysis
Some key departmental budgets
Capital budgets
Summary

9 Sales budgets
Sales budgets and forecasts are key to other budgets
Elements of a sales budget
Volume assumptions
Summary

10 Production - material, labour and direct overhead budgets
Production budget
Direct materials budget
Direct labour budget
Direct overhead budget
Gross margin and profit budget
Margin and profit sensitivity
Departmental budget spreadsheet
Summary

11 Fixed assets and depreciation
Accounting depreciation, straight line and reducing balance
Additions and disposals of assets
Tax depreciation (capital allowances in the UK)
Summary

12 Managing and modelling cash flow and working capital
The cash flow cycle
Working capital ratio
Optimal stock levels
Debtors
Cash models
Cash budget
Summary

13 Investment appraisal models
Relevant cash flow
Pay-back period
Return on capital
Accounting rate of return
Discounted cash flow and net present value/internal rate of return
Capital rationing
Summary

14 The cost of capital
The average and the marginal costs of capital
Balancing equity and external borrowing
Risk and the cost of capital
Methods of determining the cost of equity
Significance of the cost of capital
Summary

15 Business valuation models
The value of a business and building value
Methods of valuing a business
Who can value a business and what information do they require?
Examples of valuation methods and their appropriateness to valuation reasons
Earnings-based valuations
Cash flow valuation models
Discounted cash flow (DCF) method of valuation
Summary

16 Performance indicators
Dashboards
Key performance indicators
The integrated standard costing system
Activity-based costing
Summary

17 Modelling the company balance sheet, P&L and ratio analysis
Prepare an Excel model
Analysis and financial ratios
Ratio analysis
Summary

18 Financial functions
Financial formulae and using Excel fx functions
Excel financial functions
Summary

19 Building a business model
Modelling a start-up business
Opening balance sheet
Expected returns for risk - proprietors pay, bank interest
Forecast profit and loss and sales requirement
Required marketing and selling activity
Direct costs required
Building a model
Key indicators
Business plan
Summary

20 Modelling projects
What is a project?
Critical path analysis (CPA)
CPA example
Risk and uncertainty
Gantt charts and resource planning
Modelling projects using Excel
Summary

21 Integration, complexity and business models
The level of integration required
Data and systems integration
Cloud computing
Summary

22 Business models for the green economy
Future challenges and opportunities
Production processes
Demand for greener products and services
Investor expectations
Resourcing
Effects of climate change and other factors
Supply chains
Social responsibility
Changing models
Modelling green issues
Summary

Appendix 1 Excel shortcut commands
Appendix 2 Chart for business model build project
Appendix 3 Discounted cash flow tables

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