Financial Modeling training courses are all around the web and there has been lot written about learning Financial Modeling, however, most of the financial modeling courses are exactly the same. This goes beyond the usual gibberish and explore practical Financial Modeling as used by Investment Bankers and Research Analysts.

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Financial Modeling training courses are all around the web and there has been lot written about learning Financial Modeling, however, most of the financial modeling courses are exactly the same. This goes beyond the usual gibberish and explore practical Financial Modeling as used by Investment Bankers and Research Analysts.

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Financial Modeling training courses are all around the web and there has been lot written

about learning Financial Modeling, however, most of the financial modeling courses are exactly

the same. This goes beyond the usual gibberish and explore practical Financial Modeling as used

by Investment Bankers and Research Analysts.

In this Free Online Financial Modeling Training Course, I will take an example of Colgate

Palmolive and will prepare a full integrated financial model from scratch.

This Financial Modeling Course Tutorial guide is over 6000 words and took me 3 weeks to

complete. Save this page for future reference and dont forget to share it

Financial Modeling TrainingRead

me First

Step 1Download Colgate Financial Model Template. You will be using this template for the

tutorial

http://www.wallstreetmojo.com/wp-content/uploads/2015/05/Colgate-Palmolive-FinancialModel-2.png

Unsolved Colgate Palmolive Financial

Model 2) Solved Colgate Palmolive Financial Model

Step 3- You will be working on the Unsolved Colgate Palmolive Financial Model Template.

Follow the step by step Financial modeling Training instructions to prepare a fully integrated

financial model.

Step 4Happy

Learning!

In addition to financial modeling course, you can also take advantage of this Free Investment

Banking Course.

I have made an easy to navigate table of contents for you.

What is Financial Modeling?

How to build a financial model?

#1Colgates

Financial ModelHistorical

# 2Ratio

Analysis of Colgate Palmolive

#3Projecting

the Income Statement

#4- Working Capital Schedule

#5Depreciation

Schedule

#6Amortization

Schedule

#7Other

Long Term Schedule

#8Completing

the Income Statement

#9Shareholders

Equity Schedule

#10Shares

Outstanding Schedule

#11Completing

the Cash Flow Statements

#12- Debt and Interest Schedule Recommended

Financial Modeling Course

Free Financial Models

Wikipedia defines Financial Modeling as follows

Financial modeling is the task of building an abstract representation (a model) of a real world

financial situation. This is a mathematical model designed to represent (a simplified version of)

the performance of a financial asset or portfolio of a business, project, or any other investment.

Financial modeling is a general term that means different things to different users; the reference

usually relates either to accounting and corporate finance applications, or to quantitative finance

applications.

In simple terms, financial modeling means forecasting the future of the company or an asset by

way of an Excel Model that is easy to understand and perform scenario analysis. In the context of

our discussion here, we will discuss Financial Modeling with respect to the forecasting of the

future financials of the company. This free financial modeling training course will help you

forecast the financial statements of the company i.e. Income Statement, Balance Sheet and Cash

Flows. The excel model is also known as an Integrated Financial Statements Model.

How to build a financial model?

Now that we know what Financial Modeling is, let us look at how a financial model is build

from scrath. This detailed free financial modeling training course will provide you with a step by

step guide to create a financial model. The primary approach taken in this financial modeling

course isModular. Modular approach essentially means that we build core statements like

Income Statement, Balance Sheet and Cash Flows using different modules/schedules. The key

focus is to prepare each statement step by step and connect all the supporting schedules to the

core statements on completion. I can understand that this may not be clear as of now, however,

you will realize that this is very easy as we move forward. You can see below various Financial

Modeling Schedules / Modules

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/12/modeling-warmup.png

Please note the following

The core statements are the Income Statement, Balance Sheet and Cash Flows.

The additional schedules are the depreciation schedule, working capital schedule, intangibles

schedule, shareholders equity schedule, other long term items schedule, debt schedule etc.

The additional schedules are linked to the core statements upon their completion

In this financial modeling course, we will build a step by step integrated financial model of

Colgate Palmolive from scratch.

#1Colgates

Financial ModelHistoricals

Step 1ADownload

Colgates 10K Reports

Financial models are prepared in Excel and the first steps starts with knowing how the industry

has been doing in the past years. Understanding the past can provide us valuable insights related

to the future of the company. Therefore the first step is to download all the financials of the

company and populate the same in an excel sheet. For Colgate Palmolive, you can download the

annual reports of Colgate Palmolive from their Investor Relation Section.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-10K-ReportDownloads.png

Once you click on Annual report, you will find the window as shown below

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-10K-Download-theexcel.jpg

Step 1BCreate

the Historical Financial Statements Worksheet

If you download 10K of 2013, you will note that only two years of financial statements data is

available. However, for the purpose of Financial Modeling, the recommended dataset is to have

last 5 years of financial statements. Please download the last 3 years of annual report and

populate the historical.

Many a times, this tasks seems too boring and tedious as it may take lot of time and energy to

format and put the excel in the desired format.

However, one should not forget that this is the work that you are required to do only once for

each company and also, populating the historicals helps an analyst understand the trends and

changes that were made in the financial statements.

So please do not skip this, download the data and populate the data (even if you feel that this is

donkeys work

If you wish to skip this step, you can directly download Colgate Palmolive Historical Model

here.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Historical-IncomeStatement.png

Colgate Income Statement with historical populated

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Historical-IncomeStatement.png

Colgate Balance Sheet Historical Data

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Balance-Sheet.png

# 2Ratio

Analysis of Colgate Palmolive

A key to learning Financial Modeling is to be able to perform fundamental analysis. If

fundamental analysis or Ratio Analysis is something new for you, I recommend that you read a

bit on the internet. I intend to take an indepth ratio analysis in one of my upcoming posts,

however, here is a quick snapshot of the Colgate Palmolive ratios

Step 2AVertical

Analysis of Colgate

On the income statement, vertical analysis is a universal tool for measuring the firms relative

performance from year to year in terms of cost and profitability. It should always be included as

part of any financial analysis. Here, percentages are computed in relation to net sales which are

considered to be 100%. This vertical analysis effort in the income statement is often referred to

as margin analysis, since it yields the different margins in relation to sales.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Ratio-AnalysisVertical-Analysis.png

Vertical Analysis Results

Gross Profit Margin has increased by 240 basis points from 56.2% in 2007 to 58.6% in 2013.

This is primarily due to decreased Cost of Sales

Operating Profit or EBIT has also shown improved margins thereby increasing from 19.7% in

2007 to 22.4% in 2012 (an increase of 70 basis points). This was due to decreased Selling

general and administrative costs. However, note that the EBIT margins reduced in 2013 to 20.4%

due to increase Other expenses

Net Profit Margin increased from 12.6% in 2007 to 14.5% in 2012. However, Net Profit

Margin in 2013 decreased to 12.9%, primarily due to increased other expenses.

Earnings Per share has steadily increased from FY2007 until FY2012. However, there was a

slight dip in the EPS of FY2013

Also, note that the Depreciation and Amortization is separately provided in the Income

Statement. It is included in the Cost of Sales

Step 2BHorizontal

Analysis of Colgate

Horizontal analysis is a technique used to evaluate trends over time by computing percentage

increases or decreases relative to a base year. It provides an analytical link between accounts

calculated at different dates using currency with different purchasing powers. In effect, this

analysis indexes the accounts and compares the evolution of these over time. As with the vertical

analysis methodology, issues will surface that need to be investigated and complemented with

other financial analysis techniques. The focus is to look for symptoms of problems that can be

diagnosed using additional techniques. Let us look at the Horizontal analysis of Colgate

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Ratio-AnalysisHorizontal-Analysis.png

Horizontal Analysis Results

We see that the Net Sales has increased by 2.0% in 2013.

Also note the trend in Cost of Sales, we see that they have not grown in the same proportion has

Sales.

These observations are extremely handy while we do financial modeling

Step 2CLiquidity

Ratios of Colgate

Liquidity ratios measure the relationship of the more liquid assets of an enterprise (the ones

most easily convertible to cash) to current liabilities. The most common liquidity ratios are:

Current ratio Acid test (or quick asset) ratio Cash Ratios

Turnover Ratios like Receivables turnover, Inventory turnover and Payables Turnover

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Ratio-AnalysisLiquidity-Ratios.png

Key Highlights of Liquidity Ratios

Current Ratio of Colgate is greater than 1.0 for all the years. This implies that current assets

are greater than current liabilities and maybe Colgate has sufficient liquidity

Quick Ratio of Colgate is in the range of 0.60.7, this means that Colgates Cash and

Marketable securities can pay for as much as 70% of current liabilities. This looks like a

reasonable situation to be in for Colgate.

Cash Collection Cycle has decreased from 43 days in 2009 to 39 days in 2013. This is

primarily due to the reduction in receivables collection period.

Step 2DOperating

Profitability Ratios of Colgate

Profitability ratios measure a companys ability to generate earnings relative to sales, assets and

equity

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Ratio-AnalysisOperating-Profitability-1.png

Key HighlightsProfitability

Ratios of Colgate

As we can see from the above table, Colgate has an ROE of closer to 100%, which implies great

returns to the Equity holders.

Step 2ERisk

Analysis of Colgate

Through Risk Analysis, we try to gauge whether the companys will be able to pay its short and

long term obligtations (debt). We calculate leverage ratios that focu on the sufficiency of assets

or generation from assets. Ratios that are looked at are

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Ratio-Analysis-RiskAnalysis.png

Debt to Equity Ratio

Debt ratio

Interest Coverage Ratio

Debt to Equity Ratio has steadily increased to a higher level of 2.23x. This signifies increased

Financial Leverage and risks in the market

However, the Interest Coverage Ratio is very high signifying less risk of Interest Payment

Default.

#3Modeling

and Projecting the Income Statement

The very first step in the Income Statement is to model the Sales or Revenue items.

Step 3ARevenues

Projections

For most companies revenues are a fundamental driver of economic performance. A well

designed and logical revenue model reflecting accurately the type and amounts of revenue flows

is extremely important. There are as many ways to design a revenue schedule as there are

businesses. Some common types include:

Sales Growth: Sales growth assumption in each period defines the change from the previous

period. This is simple and commonly used method, but offers no insights into the components or

dynamics of growth.

Inflationary and Volume/ Mix effects: Instead of a simple growth assumption, a price

inflation factor and a volume factor are used. This useful approach allows modeling of fixed and

variable costs in multi product companies and takes into account price vs volume movements.

Unit Volume, Change in Volume, Average Price and Change in Price: This method is

appropriate for businesses which have simple product mix; it permits analysis of the impact of

several key variables.

Dollar Market Size and Growth: Market Share and Change in ShareUseful

for cases where

information is available on market dynamics and where these assumptions are likely to be

fundamental to a decision. For Example: Telecom industry

Unit Market Size and Growth: This is more detailed than the preceding case and is useful

when pricing in the market is a key variable. (For a company with a price-discounting strategy,

for example, or a best of breed premium priced niche player) e.g. Luxury car market

Volume Capacity, Capacity Utilization and Average Price: These assumptions can be

important for businesses where production capacity is important to the decision. (In the purchase

of additional capacity, for example, or to determine whether expansion would require new

investments.)

Product Availability and Pricing

Revenue driven by investment in capital, marketing or R&D

Revenue based on installed base (continuing sales of parts, disposables, service and add-ons

etc). Examples include classic razor-blade businesses and businesses like computers where sales

of service, software and upgrades are important. Modeling the installed base is key (new

additions to the base, attrition in the base, continuing revenues per customer etc).

Employee based: For example, revenues of professional services firms or sales-based firms

such as brokers. Modeling should focus on net staffing, revenue per employee (often based on

billable hours). More detailed models will include seniority and other factors affecting pricing.

Store, facility or Square footage based: Retail companies are often modeled based on the

basis of stores (old stores plus new stores in each year) and revenue per store.

Occupancy-factor based: This approach is applicable to airlines, hotels, movie theatres and

other businesses with low marginal costs.

Projecting Colgate Revenues

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-SegmentInformation.png

Let us now look at Colgate 10K 2013 report. We note that in the income statement, Colgate has

not provided segmental information, however, as an additional information, Colgate has

provided some details of segments on Page 87

SourceColgate

201310K, Page 86 Since, we do not have any further information about the

segments, we will project the future sales of Colgate on the basis of this available data. We will

use the sales growth approach across segments to derive the forecasts. Please see the below

picture. We have calculated year-over-year growth rate for each segment.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-RevenueProjections.png

Now we can assume a sales growth percentage based on the historical trends and project the

revenues under each segment. Total Net sales is the sum total of Oral, Personal & Home

Careand Pet Nutrition Segment.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Revenue-Projectionscomplete.png

Step 3BCosts

Projections

Percentage of Revenues: Simple but offers no insight into any leverage (economy of scale or

fixed cost burden

Costs other than depreciation as a percent of revenues and depreciation from a separate

schedule: This approach is really the minimum acceptable in most cases, and permits only partial

analysis of operating leverage.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Cost-Projections-Part1.png

Variable costs based on revenue or volume, fixed costs based on historical trends and

depreciation from a separate schedule: This approach is the minimum necessary for sensitivity

analysis of profitability based on multiple revenue scenarios

Cost Projections for Colgate

For projecting the cost, the vertical analysis done earlier will be helpful. Let us have a relook at

the vertical analysis

Since we have already forecasted Sales, all the other costs are some margins of this Sales.

The approach is to take the guidelines from the historical cost and expense margins and then

forecast the future margin.

For example, Cost of Sales has been in the range of 41%-42% for the past 5 years. We can look

at forecasting the margins on this basis.

Likewise, Selling, General & Administrative Expenses have been historically in the range of

34%-36%. We can assume future SG&A expense margin on this basis. Likewise, we can go on

for other set of expenses.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Cost-Projections-Part2.png

Using the above margins, we can find the actual values by back calculations.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Cost-Projections-Part3a.png

For calculating the provision for taxes, we use the Effective Tax Rate assumption

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Cost-Projections-Part4.png

Also, note that we do not complete the Interest Expense (Income) row as we will have a

relook a the Income Statement at a later stage.

Interest Expense and Interest Income is covered in the Debt Schedule.

We have also not calculated Depreciation and Amortization which has already been included in

the Cost of Sales

This completes the Income Statement (atleast for the time being!)

#4- Working Capital Schedule

Now that we have completed the Income statement, the next step in this Financial Modeling

training course is to look at the Working Capital ScheduleBelow

are the steps that are to be

followed for Working Capital Schedule

Step 4ALink

the Net Sales and Cost of Sales

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Workng-Capital-Part1a.png

Step 4BReference

the Balance Sheet Data related to working capital

Reference the past data from the balance sheet

Calculate net working capital

Arrive at increase/ decrease in working capital

Note that we have not included short term debt and cash and cash equivalents in the working

capital. We will deal with debt and cash separately.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Workng-Capital-Part2.png

Step 4CCalculate

the Turnover Ratios

Calculate historical ratios and percentages

Use the ending or average balance

Both are acceptable as long consistency is maintained

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Workng-Capital-Part3.png

Step 4DPopulate

the assumptions for future working capital items

Certain items without an obvious driver are usually assumed at constant amounts

Ensure assumptions are reasonable and in line with the business

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Workng-Capital-Part4.png

Step 4EProject

the future working capital balances

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Workng-Capital-Part5.png

Step 4FCalculate

the changes in Working Capital

Arrive at Cash Flows based on individual line items

Ensure signs are accurate!

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Workng-Capital-Part5.png

Step 4GLink

up the forecasted Working Capital to the Balance Sheet

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Workng-Capital-Part7.png

Step 4HLink

Working Capital to the Cash Flow Statement

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Workng-Capital-Part8.png

#5Depreciation

Schedule

With the completion of the working capital schedule, the next step in this Financial Modeling

Training Course is the project the capital expenditure requirements of Colgate and project the

Depreciation and Assets figures.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-10K-Depreciation.png

Colgate 201310K, Page 49

Depreciation and Amortization is not provided as a separate line item, however it is included in

the cost of sales

In such cases, please have a look at the Cash flow statements where you will find the

Depreciation and Amortization Expense Also note that the below figures are 1) Depreciation 2)

amortization. So what is the depreciation number?

Ending Balance for PPE = Beginning balance + CapexDepreciationAdjustment

for Asset

Sales (BASE equation)

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-10K-Depreciation-inCash-flow-statements.png

Step 5ALink

the Net Sales figures in the Depreciation Schedule

Set up the line items

Reference Net Sales

Input past capital expenditures

Arrive at Capex as a % of Net Sales

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Depreciation-Schedule-Part1.png

Step 5BForecast

the Capital Expenditure Items

In order to forecast the Captial expenditure, there are various approaches. One common

approach is to look at the Press Releases, Management Projections, Management Discussion and

Analysis sections to understand the companys view on future capital expenditure

If the company has provided guidance on future capital expenditure, then we can take those

numbers directly.

However, if the capex numbers are not directly available, then we can calculate it crudely using

Capex as % of Sales (as done below)

Use your judgment based on industry knowledge and other reasonable drivers

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Depreciation-ScheduleColgate-Part-2.png

Step 5C- Reference Past Information

Adjustment for Asset Sales (BASE equation)

It is very difficult to reconcile past Property Plant and Equipment (PPE) data due to

restatements, asset sales etc

It is therefore recommended not to reconcile the past PPE as it may lead to some confusions.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Depreciation-ScheduleColgate-Part-3.png

Depreciation Policy of Colgate

We note that Colgate has not explicitly provided detailed breakup of the Assets. They have

rather clubbed all assets into Land, Building, Machinery and other equipments

Also, useful lives for machinery and equipment is provided in range. In this case, we will have

to do some guesswork to come to the average useful life left for the assets

Also, guidance for useful life is not provided for Other Equipments. We will have to estimate

the useful life for other Equipments

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-10K-DepreciationPolicy.png

Colgate 201310K, Page 55

Below is the breakup of 2012 and 2013 Property, Plant and Equipment Details

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-10K-DepreciationBreakup.png

Colgate 201310K, Page 91

Step 5DEstimate

the breakup of Property Plant and Equipment (PPE)

First find the Asset weights of the Current PPE (2013)

We will assume that these asset weights of 2013 PPE will continue going forward

We use this asset weights to calculate the breakup of estimated Capital Expenditure

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Depreciation-Breakup-forFuture-Years-Part-4a.png

Step 5EEstimate

the Depreciation of Assets

Please note that we do not calculate depreciation of Land as land is not a depreciable asset

For estimating depreciation from Building improvements, we first make use of the below

structure.

Depreciation here is divided into two parts1)depreciation

from the Building Improvements

Asset already listed on the balance Sheet 2) depreciation from the future Building improvements

For calculating the depreciation from building improvements listed on the asset, we use the

simple Straight Line Method of depreciation

For calculating future depreciation, we first transpose the Capex using the TRANSPOSE

function

We calculate the depreciation from asset contribution from each year

Also, the first year depreciation is divided by 2 as we assume the mid year convention for asset

deployment

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Depreciation-Breakup-forFuture-Years-Part-5.png

Total Depreciation of Building Improvement = depreciation from the Building Improvements

Asset already listed on the balance Sheet + depreciation from the future Building improvements

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Depreciation-Breakup-forFuture-Years-Part-6.png

The above process for estimating depreciation is used to calculate the depreciation of 1)

Manfacturing Equipment & Machinery and 2) other Equipments as shown below.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Depreciation-Breakup-forFuture-Years-Part-7-Machinery-Equipment.png

Other Equipments

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Depreciation-Breakup-forFuture-Years-Part-8-Other-Equipment.png

Total Depreciation of Colgate = Depreciation (Building Improvements) + Depreciation

(Machinery & Equipments) + Depreciation (other equipments)

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Total-Depreciation-Part-9.png

Once we have found out the total depreciation figures, we can put that in the BASE equation as

show below

With this we get the Ending Net PP&E figures for each of the years

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Depreciation-Net-PPE-Part9a.png

Step 5FLink

the Net PP&E to the Balance Sheet

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Depreciation-ScheduleLinking-to-the-BS-a.png

#6Amortization

Schedule

The next step in this Free Financial Modeling Training Course is to forecast the Amortization.

We have two broad categories to consider here1)

Goodwill and 2) Other Intangibles.

Step 6AForecasting

Goodwill

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Amortization-Goodwill-fromColgate-10K.png

Colgate 201310K, Page 61

Goodwill comes on the balance sheet when a company acquires another company. It is

normally very difficult to project the Goodwill for future years.

Goodwill is however, subject to impairment tests annually which is performed by the company

itself. Analysts are in no position to perform such tests and prepare estimates of impairments

Most analysts dont project goodwill, they just keep this as constant and this is what we will

also do in our case.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Amortization-ScheduleLinking-Goodwill-a.png

Step 6BForecasting

Other Intangible Assets

As noted in Colgates 10K Report, majority of the finite life intangible is related to the Sanex

acquisition

Additions to Intangibles are also very difficult to project

Colgates 10K report provides us with the details of next 5 years of amortization expense.

We will use these estimates in our Financial Model

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Other-Intangible-fromColgate-10K.png

Colgate 201310K, Page 61

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Amortization-Forecasts.png

Step 6CEnding

net intangibles are linked to the Other Intangible Assets

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Amortization-Schedule-OtherIntangible-Assets-to-Balance-Sheet-a.png

Step 6Dlink

Depreciation and Amortization to Cash Flow Statements

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Linking-Depreciation-andAmortization-to-Cash-Flows.png

Step 6ELink

Capex & Addition to Intangibles to Cash flow statements

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Linking-Capex-andIntangible-to-Cash-Flows.png

#7Other

Long Term Schedule

The next step in this Financial Modeling Training course is to prepare the Other Long Term

Schedule. This is the schedule that we prepare for the left overs that do not have specific

drivers for forecasting. In case of Colgate, the other Long Term Items (left overs) were Deferred

Income Taxes (liability and assets), Other assets and other liabilities.

Step 7AReference

the historical data from the Balance Sheet

Also calculate the changes in these items.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Other-Long-Term-SchedulePart-1.png

Step 7BForcast

the Long Term Assets and Liabilities

Keep the Long Term items constant for projected years in case of no visible drivers

Link the forecasted long term items to the Balance Sheet as shown below

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Other-Long-Term-SchedulePart-2.png

Step 7CReference

Other Long Term Items to the Balance Sheet

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Other-Long-Term-SchedulePart-3.png

Step 7DLink

the long term items to Cash Flow Statement

Please note that if we have kept the long term assets and liabilities as constant, then the change

that flow to the cash flow statement would be zero.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Other-Long-Term-SchedulePart-4.png

#8Completing

the Income Statement

Before we move any further, we will actually go back and relook at the Income Statement

Populate the historical basic weighted average shares and diluted weighted average number of

shares

These figures are available in Colgates 10K report

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Completing-the-IncomeStatement-Part-1.png

Step 8AReference

the basic and diluted shares

At this stage, assume that the future number of basic and diluted shares will remain the same as

they were in 2013.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Completing-the-IncomeStatement-Part-2.png

Step 8BCalculate

Basic and Diluted earnings per share

With this we are ready to move to our next schedule i.e. Shareholders Equity Schedule.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Completing-the-IncomeStatement-Part-3.png

#9Shareholders

Equity Schedule

The next step in this Financial Modeling Training Course is to look at the Shareholders Equity

Schedule. The primary objective of this schedule is to project equity related items like

Shareholders Equity, Dividends, Share Repurchase, Option Proceeds etc.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-1a.png

Colgates 10K report provides us with the details of common stock and treasury stock activities

in the past years as shown below

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Treasury-stockactivity.png

Colgate 201310K, Page 68

Step 9AShare

Repurchase: Populate the historical numbers

Historically, Colgate have bought back shares as we can see the schedule above.

Populate the Colgates shares repurchase (millions) in the excel sheet.

Link the historical EPS (diluted) from the Income Statement

Historical Amount Repurchased should be referenced from the cash flow statements

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-2.png

Step 9BShare

Repurchase: Calculate the PE multiple (EPS multiple)

Calculate the implied average price at which Colgate has done share repurchase historically.

This is calculated as Amount Repurchased / Number of shares

Calculate the PE multiple = Implied Share Price / EPS

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-4.png

Step 9CShare

Repurchase: Finding Colgates Share Repurchased

Colgate has not made any official announcement of how many shares they intend to buyback The

only information that their 10K report shares is that they have authorized a buy back of upto 50

million shares.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Sharerepurchase.png

Colgate 201310K, Page 35

In order to find the number of shares bought back, we need to assume the Share Repurchase

Amount. Based on the historical repurchase amount, I have taken this number as $1,500 million

for all the future years.

In order to find the number of shares repurchased, we need the projected implied share price of

the potential buy back.

Implied share price = assumed PE multiple x EPS

Future buy back PE multiple can be assume on the basis of historical trends. We note that

Colgate has bought back shares at an average PE range of 17x25x

Below is the snapshot from Reuters that helps us validate PE range for Colgate

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Valuation-RatiosReuters.png

www.reuters.com

In our case, I have assumed that all future buybacks of Colgate will be at a PE multiple of 19x.

Using the PE of 19x, we can find the implied price = EPS x 19

Now that we have found the implied price, we can find the number of shares repurchased = $

amount used for repurchase / implied price

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-5.png

Step 9DStock

Options: Populate Historical Data

From the summary of common stock and shareholders equity, we know the number of options

exercised each year.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Historical-StockOptions-Exercised.png

In addition, we also have the Option Proceeds from the cash flow statements (approx)

With this, we should be able to find the effective strike price

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Stock-OptionProceeds.png

Colgate 201310K, Page 53 Also, note that the stock options have contractual terms of six years

and vest over three years.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Stock-OptionVesting-Period.png

Colgate 201310K, Page 69 With this data, we fill up the Options data as per below

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-6.png

We also note that the weighted average strike price of stock options for 2013 was $42 and the

number of options exercisable were 24.151 million

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Stock-Option-StrikePrice.png

Colgate 201310K, Page 70

Step 9EStock

Options: Find the Option Proceeds

Putting these numbers in our options data below, we note that the option proceeds are $1.014

billion

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-7.png

Step 9FStock

Options: Forecast Restricted Stock Unit Data

In addition to the stock options, there are Restricted Stock Units given to the employees with the

weighted average period of 2.2 years

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Restricted-StockUnits.png

Colgate 201310K, Page 81 Populating this data in the Options data set

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-9.png

For simplicity sake, we have not projected options issuance (I know this is not the right

assumption, however, due to lack of data, I am not taking any more option issuances going

forward. We have just taken these as zero as highlighted in the grey area above. Additionally, the

restricted stock units are projected to be 2.0 million going forward.

Step 9G- Dividends: Forecast the Dividends

Forecast estimated dividends using

Fixed dividend outgo

Per share payout

From the 10K reports we extract all past information on dividends

With the informatio of dividends paid, we can find out the Dividends payout ratio = Total

Dividends Paid / Net Income.

I have calculated the dividends payout ratio of Colgate as seen below

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-10.png

We note that the dividends payout ratio has been broadly in the range of 50%-60%. Let us take

an assumption of Dividends payout ratio of 55% in the future years.

We can also link the projected Net Income from the Income statement

Using both the projected Net Income and the dividends payout ratio, we can find the Total

Dividends Paid

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-11.png

Step 8HForecast

equity account in its entirety

With the forecast of share repurchase, option proceeds and dividends paid, we are ready to

complete the Shareholders Equity Schedule. Link all these up to find the Ending Equity Balance

for each year as shown below.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-12.png

Step 9ILink

Ending Shareholders Equity to the Balance Sheet

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-13.png

Step 9JLink

Dividends, Share repurchase & Options proceeds to CF

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Shareholders-EquitySchedule-Part-14.png

#10Shares

Outstanding Schedule

The next step in this online financial modeling training is to look at the Shares Oustanding

Schedule. Summary of Shares Outstanding Schedule

Basic Sharesactual

and average

Capture past effects of options and convertibles as appropriate

Diluted Sharesaverage

Reference Shares repurchased and new shares from exercised options

Calculate forecasted basic shares (actual)

Calculate average basic and diluted shares

Reference projected shares to Income Statement (recall Income Statement Build up!)

Input historical shares outstanding information

Note: This schedule is commonly integrated with the Equity Schedule

Step 10AInput

the historical numbers from the 10K report

Shares issued (actual realization of options) and shares repurchased can be referenced from the

Shareholders Equity Schedule

Also, input weighted average number of shares and effect of stock options for the historical

years.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/shares-outstanding-schedulePart-1.png

Step 10BLink

share issuances & repurchases from Share Equity Schedule.

Basic Shares (Ending) = Basic Shares (Beginning) + Share IssuancesShares

Repurchased.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/shares-outstanding-schedulePart-2.png

Step 10CFind

the basic weighted average shares,

we find the average of two years as shown below.

Also, add the effect of options & restricted stock units (referenced from the shareholders equity

schedule) to find the Diluted Weighted Average Shares.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/shares-outstanding-schedulePart-3.png

Step 10DLink

Basic & diluted weighted shares to Income Statement

Now that we have calculated the diluted weighted average shares, it is time for us to update the

same in the Income Statement.

Link up forecasted diluted weighted average shares outstanding to Income Statement as shown

below

With this we complete the Shares Oustanding Schedule and time to move to our next set of

statements.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/shares-outstanding-schedulePart-4.png

#11Completing

the Cash Flow Statements

It is important for us to fully completed the cash flow statements before we move to our next and

final schedule i.e. the Debt Schedule Until this stage, there are only a couple of things that are

incomplete

Income Statementinterest

expense/ income are incomplete at this stage

Balance Sheetcash

and debt items are incomplete at this stage

Step 11ACalculate

Cash Flow for Financing Activities

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/cash-flow-statement-cashflow-for-financing.png

Step 11BFind

net increase (decrease) in Cash & Cash Equivalents

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/cash-flow-statement-netchange-in-cash.png

Step 11C = Complete the cash flow statements

Find the year end cash & cash equivalents at the end of the year.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/cash-flow-statement-cash-andcash-equivalents-at-the-end-of-the-year.png

Step 11DLink

the cash & cash equivalents to the Balance Sheet.

Now we are ready to take care of our last and final schedule, i.e. Debt and Interest Schedule

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/cash-flow-statement-linkingto-the-BS.png

#12- Debt and Interest Schedule

The next step in this Online Financial Modeling Training Course is to complete the Debt and

Interest Schedule. Summary of the Debt and InterestSchedule

Step 12ASet

up a Debt Schedule

Reference the Cash Flow Available for Financing

Reference all equity sources and uses of cash

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/debt-schedule-part-1.png

Step 12BCalculate

Cash Flow from Debt Repayment

Reference the Beginning Cash Balance from the Balance Sheet

Deduct a minimum cash balance. We have assumed that Colgate would like to keep a minimum

of $500 million each year.

Skip Long Term Debt Issuance/ Repayments, Cash available for Revolving Credit Facility and

Revolver section for now

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/debt-schedule-part-2.png

From Colgates 10K report, we note the available details on Revolved Credit Facility

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Revolving-creditfacility.png

Colgate 201310K, Page 35 Also provided in additional information on Debt is the committed

long term debt repayments.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Long-Term-DebtObligations.png

Colgate 201310K, Page 36

Step 12CCalculate

the Ending Long Term Debt

We use the Long Term Debt repayment schedule provided above and calculate the Ending

Balance of Long Term Debt Repayments

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/debt-schedule-part-3.png

Step 12DLink

the long term debt repayments.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/debt-schedule-part-4.png

Step 12E -Calculate the discretionary borrowings/paydowns

Using the cash sweep formula as shown below, calculate the discretionary borrowings /

paydowns.

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/debt-schedule-part-5.png

Step 12FCalculate

the Interest Expense from the Long Term Debt

Calculate the average balance for Revolving Credit Facility and Long Term Debt

Make a reasonable assumption for an interest rate based on the information provided in the 10K

report

Calculate Total Interest Expense = average balance of debt x interest rate

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/debt-schedule-part-6.png

Find the Total Interest Expense = Interest (Revolving Credit Facility) + Interest (Long Term

Debt)

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/debt-schedule-part-8.png

Step 12GLink

Principal debt & Revolver drawdowns to Cash Flows

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/debt-schedule-part-9.png

Step 12HReference

Current and Long Term to Balance Sheet

Demarcate the Current Portion of Long Term Debt and Long Term debt as show below

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/debt-schedule-part-10.png

Link the Revolving Credit Facility, Long Term Debt and Current Portion of Long Term Debt to

the Balance Sheet

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/debt-schedule-part-11.png

Step 12ICalculate

the Interest Income using the average cash balance

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/debt-schedule-part-12.png

Step 12JLink

Interest Expense and Interest Income to Income Statement

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Colgate-Completing-theIncome-Statement.png

Perform the Balance Sheet check : Total Assets = Liabilities + Shareholders Equity

Step 12KAudit

the Balance Sheet

If there is any discrepancy, then we need to audit the model and check for any linkage errrors

http://d13j905swfdft3.cloudfront.net/wp-content/uploads/2014/11/Completing-the-BalanceSheet.png

Recommended Financial Modeling Course

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through our expert video lectures, you may also look at our Financial Modeling Training

Course

Financial Modeling Training Course Highlights

Resources Financial Modeling Training Highlights 83 Excel, 63 Videos, 29 PDFs Financial

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Course Content

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