Build a Dynamic 3 Statement Financial Model From Scratch

Create a three statement model linking the income statement, balance sheet, and cash flow statement into a dynamic financial model used for valuation (discounted cash flows, M&A models, LBOs etc.) as well as financial analysis (scenario analysis, sensitivity analysis etc.)
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Find the FREE downloadable template of the 3 statement model below:
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This type of financial model is often used as the foundation for more complex models like a discounted cash flow (DCF). Here's the key steps in the process:
1. Firstly, we’ll organize and build our income statement using a set of assumptions
2. Next, we’ll create schedules to model out more complex line items like CapEx and Depreciation)
3. Following that, we’ll build out our balance sheet
4. Lastly build up the cash flow statement and link the 3 statements together
Along the way I'll explain the 3 financial statements and their key line items. I'll also explain the types of assumptions we'll be making to forecast figures for future years. Lastly, we'll learn some financial modelling best practices such as font colors, formulas, and custom formatting.
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Chapters:
0:00​ -​ Intro
1:00​ -​ Formatting the Income Statement
3:01​ - Building the Income Statement
11:06​ - Fixed Assets Schedule
15:42​ - Formatting the Balance Sheet
16:49​ - Building the Balance Sheet
27:05​ - Building the Cash Flow Statement
31:10​ - Linking the 3 Statement Model
Disclaimer: I may receive a small commission on some of the links provided at no extra cost to you.

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This was really well done. My first attempt at connecting all three statements. Great teacher!

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Hi Kenji Great video! I love how the simplicity you use to explain this! Very easy to learn!

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I LOVE THIS REVIEW

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Still in business?

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One of the best instructors. Great work!

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Pretty cool, easy, and intuitive stuff that I feared until I saw this video and implemented simultaneously. Thanks, Kenji!

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simple and easy to follow. Thank you for putting this video.

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Hi Kenji Am impressed by the very good presentation. It has helped me in a lot of my financial models in Excel.

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For the first time in my life, I could match a Balance Sheet. I feel, I have conquered the Mount Everest. God Bless You, Brother!

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[@nupurmahajan5396]

Hi Kenji, any video with details on how to forecast items like revenue, capex, COGS etc.? Also i loved this video and made the financial model too

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Best tutorials out there! Keep it up Kenji

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[@mohammadhammad7974]

Very informative and great video. Three comments: 1. the CFO is wrong; you should add the net income to it, 2. and the cash balance should never be minus! In this case, more short-term borrowing should be modeled. 3. the fully depreciated assets should be removed from the fixed assets, and accumulated depreciation balances

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[@isaacbatterham9952]

Best I’ve seen. Can you make one where you just build it from absolute scratch; like what you’d expect in an interview

[@shannongraham8048]

Hi Kenji, thank you so much for walking us through your 3 way model. You template and explanation was so very helpful. I have a quick question regarding key drivers, how do you integrate these into the model? or do you normally leave this in another tab? Thank you!

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[@KenjiExplains]

Thank you for this comment :)

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Great work Kenji👍

[@SerdarArcoglu]

This video is quite helpful for new starters. Thank you for sharing it, one comment: Cash balance shouls always be above zero. There might be one more control for it, negative cash balance shall be cured i) capital increase ii) borrowing or iii) asset sale iv) or NWC management.

[@SolidHelion]

Really good explanation without unnecessary info and complexity. I think you should include the net income when you calculate the Cashflow from Operations as it is obviously an "operational factor". Just my 2c. Keep up the good work!

[@KenjiExplains]

Thank you! And yes I agree not sure why I had it as a separate item there…luckily doesn’t affect the overall calculation

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Great work on the video. How do you anticipate if a cell changes e.g life value change if you lock different cells?

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hello kenji, your video is exactly what I'm looking for, but I'm a beginner and you speak faster...

[@kevweokagbare3260]

For the assumptions, when do you use Revenue versus Net Revenue? You used both throughout this example.

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[@oriolverdenyvilalta85]

Dear @KenjiExplains, Thanks for sharing this nice video on how to connect the three financial statements, it was nicely done! Concerning the Cash Flow Statement: shouldn’t the Operating Cash Flow (OCF) be = Net Income +/- all the adjustments (i.e., Operating Activities)? Why do you let Net Income outside the formula (29:22)? I would add Net Income in the OCF calculation and not in the final calculation to obtain the Net Cash Flow. The final value of Net Cash Flow would be the same in both cases. Nevertheless, by not adding Net Income to the OCF it gives the impression that OCF is smaller than it should be.

[@jeanemmanuelgnanzou529]

Hello Kendji ! Very useful video. I've an issue about the computation of "Operating Cash Flow". Why did you not added the Net Income ?

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I appreciate that!

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Yess another Excel video, thank you Kenji! :) these help a lot!

[@KenjiExplains]

Happy to hear that!

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Great info!

[@SuperFarhan6]

Thank you! Kenji, it took me several videos to understand, but your clip was sufficient. Can you pls share the excel working file or perhaps completed file from this video. I downloaded the base file w/o data in it.

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[@nicholash566]

Quick fix to this model in 2022 he estimates negative cash balance, obviously that cant happen or the company would go bankrupt, so an easy fix is to have a increase of capital (increasing common stock and cash by the same amount) so you don't go bankrupt. In the cash flow it would be a new row for capital raise or something along those lines. Great model!

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Thank you, Kenji for the great content that you provide us every week! Can you please make a video next time about assessment tests for job interviews and give us some tips? Thanks

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Thank you, I'll put the suggestion on my list!

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Thank you for the tempalate

[@thuyvu-gm6hi]

Thanks for your video. I have a question, is the money item less than 0 unreasonable?

[@ra4872]

Thank you very much Kenji. You're awesome! But can you please explain how possibly you can have a negative cash balance as of year end 2023 ? Just because it is an estimate or forecast?

[@geri8355]

He added the cash for those years in the end because he needed the cash flow statement to determine the amount of cash.

[@wooddog007]

Very helpful lesson. People who don't pay for this kind of help should be embarrassed. Thanks Kenji. But ... @29:20 ... but I think OCF should be NI + (Operating Activites) ... not just OA? No? What you have summed is just the adjustments to reconcile net income to net cash. And finally, I am not sure a negative cash balance @31:35 in 2022 is right.

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I like your models and really like your explanations. Great video Kenji!

[@KenjiExplains]

Glad you like them, thanks for watching Roland!

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great course, Kenji. regarding current asset, I notice you dont have any inventory there? assuming Just In Time, I suppose ? how do you account and calculate for inventory item if we are not using JIT?

[@JakeStormhunter]

Your videos have been helping me a lot with my undergrad classes. Thank you so much!! Question though: Is there a specific reason you use ctrl c and ctrl v for dragging your formulas instead of highlighting and using ctrl r or ctrl d?

[@KenjiExplains]

Thank you! Yeah the shortcuts you mention don’t work on my computer haha that’s why im sticking to the ctrl c v 😂

[@JakeStormhunter]

@@KenjiExplains ok Thanks!!

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Just great!

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This is great

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this is great kenji cant thank you enough

[@KenjiExplains]

Thanks for watching Will!

[@kidze31]

Hi Kenji thanks for the detailed guide. I have a question: how do you go about determining how much a company reinvest its earning from the previous year into this year invested capital? Would you use use last year’s net income? NOPAT? Or net income - dividend paid? And how can you tell how much % of that does the company keep to reinvest in the next year’s balance sheet? I hope the question is clear.

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I think this is a subjective call and depends on the life cycle stage at which the company is at.

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This will be decided by management or boards.....

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Outstanding