Decide whether to sell or divest assets or business units. This may combine a number of models including: 

Merger Model (M&A)

This model is more advanced than the “three statement” and DCF models. It is used to assess the pro forma accretion and dilution of a merger or acquisition. In the spreadsheet, each tab represents a company. The consolidation of all companies results in the “merged company.”

Leveraged Buy-Out Model (LBO)

The LBO model is an advanced form of financial modeling. Since it is very detailed, this model is the most challenging. Multiple layers of financing have circular references and need cash flow waterfalls.

Sum of the Parts Model

This model consolidates various DCF models. Then, there is the addition of business components that may not be suitable for DCF analysis. Marketable securities are not ideal for DCF analysis since they are valued based on the market.

Summing up the parts will result in the Net Asset Value.
Net Asset Value = Value of business unit (A) + Value of business unit (B) + Investments (C) – Liabilities (D)

Consolidation Model

The consolidation model is similar to the “sum of the parts model,” wherein many business units are additions into a single model. In the spreadsheet, each business unit has its tab, and a consolidation tab sums up all business units.

Capital needs and equity calculations around capital may combine any number of models, including: 

Budget Model

This model’s purpose is to create a budget for the future year(s). The budget model is dependent on the income statement and is designed based on monthly or quarterly figures.

Forecasting Model

Users compare the results of the forecasting model and the budget model. They are either combined in one worksheet or separate spreadsheets.

Option Pricing Model

Factors determining the value of an option include current stock price, the intrinsic value, when the option will expire, also known as time value, dividends paid and interest rates. The option pricing model commonly uses complex formulas such as binomial or trinomial trees or the Black-Scholes formula.

The cost, value and return of potential acquisitions may use any number of models, including but not limited to: 

Three Statement Model

Under this basic model, the three financial statements – income statement, balance sheet, and cash flow – are linked together with formulas in the spreadsheet. Accounts are set up and connected. Inputting a set of assumptions drives the financial model.

Discounted Cash Flow (DCF) model

Using the three statement model, the DCF model evaluates a company based on the NPV (net present value) of the company’s future cash flow. It takes the cash flow financial statement, makes the necessary adjustments, and then uses the discounting function (XNPV function in Excel) to discount them back to the business’ current day’s Weighted Average Cost of Capital (WACC).

Merger Model (M&A)

This model is more advanced than the “three statement” and DCF models. It is used to assess the pro forma accretion and dilution of a merger or acquisition. In the spreadsheet, each tab represents a company. The consolidation of all companies results in the “merged company.”

Initial Public Offering (IPO)

IPO models are used to value the business before going public in the stock market. It involves comparative company analysis, based on assumptions on how much investors will be willing to pay for the company under assessment. Valuation in this model includes an IPO discount – this will ensure that the stock will trade well even in secondary markets.

Leveraged Buy-Out Model (LBO)

The LBO model is an advanced form of financial modeling. Since it is very detailed, this model is the most challenging. Multiple layers of financing have circular references and need cash flow waterfalls.

Sum of the Parts Model

This model consolidates various DCF models. Then, there is the addition of business components that may not be suitable for DCF analysis. Marketable securities are not ideal for DCF analysis since they are valued based on the market.

Summing up the parts will result in the Net Asset Value.
Net Asset Value = Value of business unit (A) + Value of business unit (B) + Investments (C) – Liabilities (D)

Consolidation Model

The consolidation model is similar to the “sum of the parts model,” wherein many business units are additions into a single model. In the spreadsheet, each business unit has its tab, and a consolidation tab sums up all business units.

Compare a business’ value against peers in the same industry. This can include Three Statement Models and a variety of valuation models.

Cost, growth, return for expanding with greater reach or pursuing new markets. This can leverage a combination of models including: 

Budget Model

This model’s purpose is to create a budget for the future year(s). The budget model is dependent on the income statement and is designed based on monthly or quarterly figures.

Forecasting Model

Users compare the results of the forecasting model and the budget model. They are either combined in one worksheet or separate spreadsheets.

Sum of the Parts Model

This model consolidates various DCF models. Then, there is the addition of business components that may not be suitable for DCF analysis. Marketable securities are not ideal for DCF analysis since they are valued based on the market.

Summing up the parts will result in the Net Asset Value.
Net Asset Value = Value of business unit (A) + Value of business unit (B) + Investments (C) – Liabilities (D)