Investment analysis involves multiple steps like financial modeling, valuation, sensitivity analysis etc. Creating a flow chart is crucial to visualize the end-to-end workflow and ensure all key analyses are completed. Excel provides some great features to design investment flow charts that help analysts structure their modeling process. In this article, we will look at how to create detailed investment flowcharts in Excel using SmartArt graphics, shapes and connectors. A well-structured flow chart is the foundation of error-free and efficient modeling. Investment analysts should master flow chart creation as a key Excel skill.
Set up model structure and key assumptions sheet
The first step is setting up the model structure which outlines the high level sections. This gives a blueprint for the model layout. It is also useful to have a Key Assumptions sheet that consolidates all the inputs that drive the model. For example, the revenues growth rate, operating margin, capital expenditure as a % of revenue etc. This ensures that the assumptions can be easily modified from one place and the impact flows through the integrated model.
Build linked financial statements
The next stage is to create the three core financial statements – Income Statement, Balance Sheet and Cash Flow Statement. The historical statements are populated first followed by the projections. The statements are dynamically linked through formulas that connect revenues, expenses, assets, liabilities and cash flows. Building error checks is also vital to ensure the statements are balance and reconcile.
Conduct valuation analysis
Valuation models like DCF and multiples determine the investment’s fair value. The projections from the financial model are utilized to forecast free cash flows. These are discounted back at the weighted average cost of capital to derive a net present value. Trading and transaction comps provide benchmark valuation multiples like EV/EBITDA to assess relative valuation for the investment.
Perform sensitivity analysis
Running sensitivity analysis is crucial to test the key value drivers. This involves varying revenue growth rates, profit margins, capital intensity, discount rates, exit multiples etc. to determine their impact on valuation. Sensitivity table and scenario analysis quantify the upside/downside valuation risk from changes in core assumptions.
Summarize returns analysis
The returns analysis pulls together the implied valuation, purchase price, financing structure and ownership % to evaluate equity returns like IRR. This determines if the investment achieves the required hurdle rate. Waterfall analysis shows the sequence of distribution of proceeds to various stakeholders like common and preferred equity.
Creating detailed investment flowcharts in Excel provides a structured framework to build integrated financial models. The flowchart connects the key modeling steps from projections to valuation and returns analysis. Using SmartArt, shapes and connectors improves flowchart visibility. Investment analysts should prioritize learning flowchart creation to enhance modeling efficiency and minimize errors.