The three-statement model
How the income statement, balance sheet and cash flow lock together.
Every valuation model in this Learning Center sits on top of a three-statement model, whether or not it is drawn explicitly. The three statements are not three views of a business, they are one system with three outputs, joined by rules that leave no discretion. Net income flows to retained earnings and starts the cash flow statement. Depreciation reduces profit and reduces the asset. Cash from the cash flow statement becomes the opening cash on the balance sheet. When those links are correct the balance sheet balances, and when it does not, the model is telling you exactly where the error is. Learning to read that signal is the most transferable skill in financial modelling.
What this course covers
- 01Forecast the income statement down to net income
- 02Build the supporting schedules
- 03Construct the cash flow statement
- 04Roll the balance sheet forward
- 05Check that it balances, and diagnose when it does not
What you will be able to do
- Any forecast where the balance sheet or financing matters, which is most of them
- LBOs, where the debt schedule requires a working cash flow statement
- Credit analysis, where covenant compliance depends on balance sheet ratios
- Any situation where you need to know whether a plan is fundable, not just profitable
Where it does not apply
- Quick valuation triage, where a single-page DCF on margin assumptions is enough
- Early-stage businesses where the balance sheet is trivial and the forecast is a guess
- When you have not been given, and cannot estimate, an opening balance sheet
Predict it first
Not markedA review of the fixed-asset register lengthens some useful lives, and depreciation is restated upward. Cash spending on capex is unchanged, and so is every operating assumption.
ChangeD&A: 4.0% → 7.0% of revenue
How this prepares you for the assessment
This is one of 17 courses, and none of them is required for the Verified Valuation Assessment. The credential is earned on two timed drills, graded by the same engine that checks this course, and the drill score decides what it says you are capable of, from Foundation through to Distinction.
- Distinction90%+Works independently across all three core methods.
- Merit75%+Builds the core models with limited supervision.
- Pass60%+Understands the mechanics; works through a model with guidance.
- FoundationcompletedKnows the vocabulary and the shape of each model.