Guide to Evaluating Investments: Modeling new capital in your … · 2019-04-30 · Guide to Evaluating Investments: Modeling new capital in your financial model These instructions

Guide to Evaluating Investments: Modeling new capital in your financial model These instructions walk you through the process of modeling different types of capital so that you can see the impact on your bottom line and be prepared to negotiate. For each vehicle, these instructions include:

Step-by-step modeling instructions Areas of caution Areas of negotiation Examples

The instructions within are for an annual model. If you are using a month-by-month model, you should be able to easily adapt the instructions. If you’re using the Smart Impact Capital Financial Model: Our model is set up to manage both straightforward as well as more complex scenarios. These instructions specifically map to our financial model, and include examples with screen shots from that model. If you are using your own financial model: the instructions on entering investment data, the notes on what to look for, and the tips on where you can negotiate will still be relevant. Click any of the links below to get started with your specific type of capital. Modeling Instructions:

Debt………………………………………………………………………………………………………………………… 2-4 Convertible Debt…………………………………………………………………………………………………… 5-6 Recoverable Grant……………………………..………………………………………………………………… 7-9 Variable Repayment Debt…………………………………………………………………………………… 10-12 Crowdfunding Debt…………………………………………………………………………………..…………. 13-14 Loan Guarantee………………………………….………………………………………………………………… 15 Grant…………………………………………………….………………………………………………………………… 16 Crowdfunding Donation…………………………………………………………………………………….… 17 Pay for Success………………………………………………………………………………………………….… 18 Equity…………………………………………………………………….………………………………………………. 19-20

Additional Resources: Inside Financial Statements: Where do grants, debt, and equity appear? …. 21 Cash Flows Explained………………………………………………………………………………………… 22

DISCLAIMER: This guide is not a substitute for professional accounting advice, but is rather to help you model projections as one part of your evaluation process.

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Modeling DEBT When considering debt, you must understand the economic impacts of the investment. Can you afford to take on the debt, and make the interest and principal payments on schedule? Your financial model projections are one helpful variable in making a decision about, and negotiating, a potential investment.

Before modeling, you need to have in hand: • Amount of loan • Timing of principal payment(s): Will you repay in one or multiple installments? Make note of the timing

and amounts of repayment. If you are using an annual financial model and payments will occur over various quarters, calculate the total amount to be paid in any one year to enter into the model.

• Percentage and timing of interest payments: Will you pay interest starting immediately and regularly thereafter, or will it be deferred to future years? Make note of the timing and amounts of the expected interest payments. If you are using an annual model and interest will be paid monthly or quarterly, calculate the total amount paid in any one year to enter into the model.

Modeling Instructions: 1. Open Tab 4. Debt and scroll down to the New Loans cells in purple. 2. Enter your principal payment(s):

a. One installment. Enter the full principal amount, the year it is received, and the maturity date in the appropriate fields.

b. Multiple installments. Treat each tranche payment as a separate loan (in its own row) in the model. For each tranche, enter principal due in Amount field, enter year received, and enter year the particular tranche is due in the Maturity Date field.

3. Enter your interest rate: a. Pay interest immediately, no deferral. Enter your interest rate in the field. If you have broken your

principal into multiple tranches, enter the interest rate into each of those rows. The interest paid will calculate automatically in the light purple cells on the right side of the page.

b. Deferred interest (no interest paid until future years). Calculate the amount of each year’s interest payment separately and manually enter that amount in the light purple cells on the right side of the page. If your principal is broken into multiple tranches, calculate and enter the interest due on each of the tranches separately.

Note: The model assumes principal is paid at the end of the year. If you will make a principal payment earlier in the year, the discount on your interest for the remainder of the year will not calculate automatically in the model. Instead, you can calculate the interest schedule separately given outstanding principal and enter the appropriate interest payments manually in the light purple cells. See the third example below for an illustration.

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Caution! What to look out for: Can you afford to take on this debt – both the interest and principal payments? You need to be able to pay both and still have breathing room for your venture. Take a look at Tab 8. Cash Flow Statement after you have modeled in the debt. (Refer to Cash Flow Explained for help understanding these line items.) • Do you still have “breathing room” (generally 3-6 months of operating expenses) in Ending Cash, even after

paying the interest and/or principal? • Are your operating cash flows (Total cash from operating activities) increasing over time, so they can

contribute to the repayment of the loan?

Can you meet covenants (if any) your investors require, such as interest coverage ratios?

Debt investors have the highest claim on the assets of your company and will be paid before any equity holder - including you.

Areas of Negotiation: If you have too little breathing room in your ending cash after making payments, you can try to negotiate on:

• Interest rate. Try different rates in your model to see what your business can handle, and demonstrate this to your investor. (“I do not have enough cash to do 6% safely, but I could do 4.5%.”)

• Timing of interest payments. If your business needs more time to generate enough cash flow to pay interest, you can ask to defer interest. Note that your interest payments will accrue over the period of deferral, so you will need to consider that in your model. You can also negotiate the timing – whether monthly, quarterly, or annually – of your interest payments.

• Maturity date. If you will need additional time to generate the cash to pay back principal, try to negotiate a longer-term loan.

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Examples:

Example 1: Three year $100,000 loan with 4% annual interest, paid monthly to investor. Full principal amount is due at the end of year 3 (maturity date).

Example 2: Five year $100,000 loan with 8% deferred annual interest. Full principal amount and full interest due at end of year 5 (maturity date).

Example 3: Three year $100,000 loan with 8% annual interest, paid quarterly to investor. Twenty-five percent of principal is due in each of months 18, 24, 30, and 36.

Interest Calculations: Since there are principal payments mid-year, the interest should be calculated separately to take into account a mid-year lowered principal amount. See table below to compare the correct interest amounts and the default calculated by the model).

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Modeling CONVERTIBLE DEBT Even if you anticipate a successful equity round during the timeline of the projections, whereby your provider of convertible debt could opt to convert the balance to an equity investment, you should be conservative and model the convertible debt as regular debt through the lifetime of your projection to be sure you can service it if the equity round is delayed or does not occur.








principal into multiple tranches, enter the interest rate into each of those lines. The interest paid will calculate automatically in the light purple cells on the right side of the page.

b. Deferred interest (no interest paid until future years). Calculate the amount of each year’s interest payment separately and manually enter that amount in the light purple cells on the right side of the page (Interest Paid (annual or deferred)). If your principal is broken into multiple tranches, calculate and enter the interest due on each of the tranches separately.

Note: The model assumes principal is paid at the end of the year. If you will make a principal payment earlier in the year, the discount on your interest for the remainder of the year will not calculate automatically in the model. Instead, you can calculate the interest schedule separately given outstanding principal and enter the appropriate interest payments in the light purple cells. See the Modeling Debt Instructions for an example.

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Caution! What to look out for: Can you afford to take on this debt – both the interest and principal payments? You need to be able to pay both and still have breathing room for your venture. Look at Tab 8. Cash Flow Statement after modeling debt: • Do you still have “breathing room” (generally 3-6 months of operating expenses) in Ending Cash, even after



Can you meet covenants (if any) your investors require, such as interest coverage ratios?

Debt investors have highest claim on company assets and will be paid before equity holders, including you.

If/when the debt converts to equity, it converts with the amount of the principal balance (unless otherwise negotiated).

Be sure to consider the terms of the optional conversion to equity. See the Convertible Debt and Equity Primers in Module 4: Types of Capital.

Areas of Negotiation: Debt terms. If you have too little breathing room in ending cash after making payments, try negotiating on: • Interest rate. Try different rates in your model to see what your business can handle, and demonstrate

this to your investor. (“I do not have enough cash to do 6% safely, but I could do 4.5%.”) • Timing of interest payments. If you need more time to generate enough cash flow to pay interest, you can

ask to defer interest. Note that interest payments will accrue over the period of deferral, so consider that in your model. You can also negotiate the timing (monthly, quarterly, or annually) of interest payments.

• Maturity date. If you need additional time to generate cash to repay principal, try for a longer-term loan.

Equity conversion. Consider ownership implications upon conversion to equity. Terms frequently provide a share price discount to investors upon conversion; discount amount is negotiable, but a good rule of thumb is 20-25% off the equity valuation. Convertible debt typically has a cap on the valuation at which it converts.

Example:

Example 1: Three year $100,000 convertible debt with 8% interest; principal due at maturity. Investor has optional conversion to equity with a 20% discount off the share price negotiated by institutional investors.

See Modeling Debt Instructions for additional examples. 6


Modeling RECOVERABLE GRANT Ask your accountant how you should account for your recoverable grant, as there are no hard and fast rules. Here we provide instructions to model the recoverable grant as debt, as funders expect repayment if certain milestones are met, and you should know how repayment would impact your cash flow. In this scenario, the recoverable grant is considered a liability until it is repaid or written off as a grant. Before modeling, you need to have in hand: • Amount of recoverable grant • Metric to trigger repayment: Do you anticipate meeting the milestone trigger for repayment during the

time period of your projections? Triggers can be new investment, a free cash flow threshold, a revenue threshold, etc.

If yes: Model the recoverable grant as a loan with maturity dates as they would occur. If no: Enter the recoverable grant as a loan with a maturity date in the future (beyond the years of the projection) based on your best guess.

• Timing of principal payments during repayment: Will you repay in one or multiple installments? Make note of the timing and amounts of repayment. If you are using an annual model and payments will occur over various quarters, calculate the total amount to be paid in any one year to enter into the model.

• Percentage and timing of interest payments (before and during repayment): Will you pay interest starting immediately and regularly thereafter, or will it be deferred to future years? Make note of the timing and amounts of the expected interest payments. If you are using the annual model and interest will be paid monthly or quarterly, calculate the total amount paid in any one year for entry into the model.


a. One installment. Enter principal amount, year received, and maturity date in the appropriate fields. b. Multiple installments. Treat each tranche payment as a separate loan (in its own row) in the model.

For each tranche, enter principal due in Amount field, year received, and year the particular tranche is due in the Maturity Date field.



b. Deferred interest (no interest paid until future years). Calculate the amount of each year’s interest payment separately and manually enter that amount in the light purple cells on the right side of the page (Interest Paid (annual or deferred)). If your principal is broken into multiple tranches, calculate and enter the interest due on each of the tranches separately.

Note: The model assumes principal is paid at the end of the year. If you will make a principal payment earlier in the year, the discount on your interest for the remainder of the year will not calculate automatically in the model. Instead, you can calculate the interest schedule separately given outstanding principal and enter the appropriate interest payments in the light purple cells. See the Modeling Debt instructions for an example. 7

Caution! What to look out for: When you achieve the milestone that triggers repayment, can you afford the interest and principal payments? Look at Tab 8. Cash Flow Statement after you have modeled in the debt: • Do you still have “breathing room” (generally 3-6 months of operating expenses) in Ending Cash, even after



Areas of Negotiation: Milestone triggering repayment. Be sure that the milestone occurs at a point when you could safely service the debt. Present your projections to the investor to demonstrate the point at which you could service the debt, and try to negotiate a milestone around that target.

Debt terms. Once milestone occurs, if you will have too little breathing room in your ending cash after making payments, you can try to negotiate on: • Interest rate. Try different rates in your model to see what your business can handle, and demonstrate

this to your investor. (“I do not have enough cash to do 6% safely, but I could do 4.5%.”) • Timing of interest payments. If your business needs more time to generate enough cash flow to pay

interest, you can ask to defer interest. Note that your interest payments will accrue over the period of deferral, so you will need to consider that in your model. You can also negotiate the timing – whether monthly, quarterly, or annually – of your interest payments.

• Maturity date. If you will need additional time to generate the cash to pay back principal, try to negotiate a longer-term loan.

Milestone triggering conversion to grant. Your recoverable grant will likely be viewed as a liability on your balance sheet until the time it is repaid or converted to a grant. Be sure that you are comfortable with the timing of conversion to grant in the case that you are not able to repay it.

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Examples:

Example 1: Three year $100,000 recoverable grant with 3% interest, and a milestone trigger of revenues exceeding $1,500,000. Project that revenues will exceed that amount in year 2, triggering repayment of the principal and interest over years 2 and 3.

Example 2: Ten year $100,000 recoverable grant with 0% interest, and a milestone trigger of an outside investment. Project milestone trigger to occur in year 9, which is outside of 5 year projection. The cash impact of possible repayment is not included in the 5 year projection, but the recoverable grant does remain as a liability on your balance sheet.

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Modeling VARIABLE REPAYMENT DEBT Variable repayment debt is essentially a loan where repayments are linked to an agreed-upon measure of your venture’s financial performance, such as revenue or EBITDA. Our instructions cover a common way in which such financing is structured – whereby the repaid amount above the principal is treated like interest (and therefore tax deductible to the venture), the core liability is the principal, and the principal is paid last. Since there are so many variables with this type of financing, consider the modeling exercise an approximation to understand the potential implications of the capital on your venture. If you have a different structure that should be accounted for as equity, or with different tax or liability implications, consult your accountant for implications in modeling.

Keep in mind the implications of repayment being based on a top-line (e.g. revenue) versus bottom-line (e.g. EBITDA or free cash flow) metrics. Bottom-line metrics take into account your expenses in any given period, but top-line metrics only take into account revenues; it could be difficult to afford top-line-based payments if you have major increases in expenses during a particular time period.

Before modeling, you need to have in hand: • Amount of loan • Repayment metric and calculation: Will your repayment be based on revenue, EBITDA, free cash flow, or

other? How exactly will these be calculated? • Timing of payments: Complete calculations to determine likely repayment schedule based on your terms. • Repayment cap: What is the total amount of cash to be returned to the investor? (For example, 3x the

original investment.) • Grace period, if any: Is there a grace period before which payments begin? Or is there a milestone that

triggers the start of repayment?

Modeling Instructions: 1. Complete some calculations to determine the likely repayment schedule, based on your deal terms. If you

have a grace period or milestone trigger before repayment, take that into account. Note that if you are using a yearly model but paying investors monthly or quarterly, your estimated payments in the model will be based on your annual data as opposed to monthly/quarterly. Complete calculations for the financial metric on which your repayment is based. For example:

a. For Free Cash Flow: See the FCF line in the Summary Tab. If you are paying back the loan as 20% of FCF, calculate 20% of that metric for each year until you reach the cap. [Note: we calculate FCF as operating cash minus capital expenditures. If your agreement uses a different definition, calculate based upon that definition.]

b. For Revenue or EBITDA: Find the appropriate line in your Income Statement. If you are paying back the loan as 10% of revenue or EBITDA, calculate the payment amount for each year based on your projections until you reach the cap. [Note: Total Sales Revenue doesn’t include grants/ contributions.]

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2. Open Tab 4. Debt and scroll down to the New Loans cells in purple. Our model assumes you repay principal last. Based on your estimated repayment schedule from the step above, identify the timing and payment of principal tranches and enter each tranche in a separate row in the model. Enter the same Year Received for all tranches, and enter “0” for interest rate since payments beyond principal will be entered separately.

3. Manually enter the “interest” you will owe (calculated in Step 1) in the light purple cells of the Interest Paid section. You can enter all interest due in each year next to just one of the principal payment tranches; the goal is to be sure your model calculates the repayments excluding the principal as tax deductible.

Caution! What to look out for: Can you afford to take on this variable repayment debt? You need to be able to maintain breathing room for your venture while making payments. Look at Tab 8. Cash Flow Statement after you have modeled payments: • Do you still have “breathing room” (generally 3-6 months of operating expenses) in Ending Cash, even after

paying the interest and/or principal? • Are your operating cash flows (Total cash from operating activities on top half of sheet) increasing over

time, so they can contribute to the repayment of the loan?

Debt investors have the highest claim on the assets of your company and will be paid before any equity holder - including you.

Areas of Negotiation: You can try to negotiate all of the levers of variable repayment debt: • Repayment metric • Repayment cap • Grace period or milestone trigger Demonstrate how different terms affect your cash flow to make the case to an investor about the smartest terms for your mutual success.

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Examples:

Example 1: (Demand Dividend) $100,000 loan repaid as 25% of monthly free cash flow, with a one year grace period. Repaid up to a cap of 3x the original investment ($300,000).

Example 2: (Revenue-Based Financing) $100,000 loan repaid as 5% of monthly revenues, up to 1.5x of the original investment ($150,000).

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Modeling CROWDFUNDING DEBT Crowdfunding debt has the same economic implications as regular debt, and is modeled the same way. However, you also need to include any fees for the crowdfunding platform, and understand the breadth of services that the platform provides (e.g. administration of loans, tax documents). Since you set the debt terms, you can set them to maximize the benefits to your business.




• Crowdfunding platform fees.






b. Deferred interest (no interest paid until future years). Calculate the amount of each year’s interest payment separately and manually enter that amount in the light purple cells on the right side of the page. If your principal is broken into multiple tranches, calculate and enter the interest due on each of the tranches separately.

Note: The model assumes principal is paid at the end of the year. If you will make a principal payment earlier in the year, the discount on your interest for the remainder of the year will not calculate automatically in the model. Instead, you can calculate the interest schedule separately given outstanding principal and enter the appropriate interest payments in the light purple cells. See example in Modeling Debt Instructions.

4. Calculate the crowdfunding platform fees you will owe each year and enter them as a fixed cost (under General & Admin Expenses, non-personnel) in the Fixed Cost tab.

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Caution! What to look out for:

Can you afford to take on this debt? You get to set the terms for crowdfunding debt, so be sure to set terms that work for you. You need to be able to pay both interest and principal and still have breathing room for your venture. Look at Tab 8. Cash Flow Statement after you have modeled in the debt: • Do you still have “breathing room” (generally 3-6 months of operating expenses) in Ending Cash, even after

paying the interest and/or principal? • Are your operating cash flows (Total cash from operating activities on top half of sheet) increasing over

time, so they can contribute to the repayment of the loan?

Debt investors have the highest claim on company assets and are paid before any equity holder - including you.

Understand the services that the crowdfunding platform is offering. For example, if it will be up to you to administer the loans and/or manage the tax documents (1099-INT forms, for example), you will need to budget time and resources for these activities.

Areas of Negotiation: None – you set the terms.

Example:

Example 1: Three year $100,000 loan with 4% deferred interest, and full principal and interest repaid at end of year 3 (maturity). Crowdfunding platform fee of $2,000/year.

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Modeling LOAN GUARANTEE While the loan guarantee itself will not show up in your model, you may have initial and annual fees associated with the guarantee (typically 0-4.5% of the guarantee). Additionally, the guarantor will need to understand the economic implications of the loan they are guaranteeing, which you can demonstrate by entering the loan in the financial model.

Before modeling, you need to have in hand: • Amount and timing of fee to guarantor (if any)

Modeling Instructions: 1. If you will be paying a fee to your guarantor, calculate the dollar value per year of that fee and enter it as a

fixed cost (under General & Admin Expenses, non-personnel) in the Fixed Costs tab.

Caution! What to look out for: There are no specific economic implications in your model from the loan guarantee, but there are implications from the debt. Be sure to see the debt modeling instructions to look for any red flags.

Areas of Negotiation: Guarantee fee. You may be able to negotiate the annual fee for the loan guarantee, but some guarantors have a firm fee percentage.

Example:

Example 1: Guarantee on a $100,000 5-year loan, with an annual fee of 2% the amount of the guarantee.

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Modeling GRANT Grants are often seen as “free money,” as they do not need to be paid back. But grants can have significant administrative and reporting burdens, and use of funds can be restricted. Since grants are accounted for as revenues, they have the potential to distort metrics in your financial statements as they mix with earned income and other key revenue streams.

Before modeling, you need to have in hand: • Amount of grant • Timing of grant disbursements

Modeling Instructions: 1. Enter new grants into the purple New Grants & Contributions row in the Equity & Grants tab. If you will

receive the grant in tranches, account for each tranche in the year in which it will be received.

Caution! What to look out for: Grants can distort financial metrics. Grants are accounted for as revenue for your business, so could potentially distort the following metrics in your financial statements.

• Revenue • Net Income • Gross Profit

• EBITDA • Net Profit • Operating Cash Flow

• Operating Profit Margin • Total cash flow

Be sure that you still understand how the engine of your venture is operating without the addition of the grant funds.

Areas of Negotiation: Timing of grant payments. Be sure you understand the planned timing of the grant payments, and any delays that could be anticipated on the part of the funder.

Reporting. Be sure you can manage the required/requested reporting.

Example:

Example 1: $100,000 grant paid in 2 tranches over 2 years.

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Modeling CROWDFUNDING DONATIONS Donations collected through crowdfunding platforms are modeled as grants. You also need to account for costs related to crowdfunding platform fees and costs associated with gifts or products you offer donors. Before modeling, you need to have in hand: • Amount of donation. • Crowdfunding platform fees. • Costs for any gifts to donors.

Modeling Instructions: 1. Enter new grants into the purple New Grants & Contributions row in the Equity & Grants tab. If you will

receive the grant in tranches, account for each tranche in the year in which it will be received. 2. Calculate the crowdfunding platform fees you will owe over the lifetime of the projection, and enter them

year by year as a fixed cost (under General & Admin Expenses, non-personnel) in the Fixed Costs tab. 3. Calculate the costs of any gifts you provide donors and enter as fixed costs under General & Admin

Expenses, non-personnel in the Fixed Costs tab. Alternately, if you provide a product free of charge, you can include the variable costs/COGS associated with the product, but with no associated revenue.

Caution! What to look out for: Donations and grants can distort financial metrics. Donations and grants are accounted for as revenue for your business, so could potentially distort the following metrics in your financial statements.

• Revenue • Net Income

• Gross Profit • EBITDA

• Net Profit • Operating Cash Flow


Be sure you still understand how the engine of your venture is operating without grant funds.

Areas of Negotiation: None – you set the terms.

Example:

Example 1: $10,000 crowdfunding donations, with 7% platform fee and donor gift (costing the business $15 each) for donors contributing above $200 (estimated to be 30 donors).

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Modeling PAY FOR SUCCESS Pay for Success (PFS) for a social enterprise is generally a payment for services, with the money often coming up front. We recommend modeling PFS funding as revenue. PFS contracts often require robust monitoring, so be sure to include those associated costs, along with costs to deliver the required services. Before modeling, you need to have in hand: • Amount of contract and timing of payments. • Costs for implementing contract

Modeling Instructions: 1. Enter the pay for success funding into a revenue line item in the Volume-based revenue and variable costs

section, partway down the page in the Revenue and Variable Costs tab. 2. Be sure to include expenses associated with providing the services for the PFS contract in your model. 3. If you will require additional resources to conduct monitoring for the contract, include those in the model.

Caution! What to look out for: See the Pay for Success Primer in Module 4 for general words of caution about PFS contracts.

Areas of Negotiation: PFS is generally a contract for services, so you may be able to negotiate the quantity, cost, timing, etc. Example:

Example 1: $100,000 contract to provide services over a three-year period; total amount of funding paid up-front. Will require a 20% increase in regular monitoring activities.

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Modeling EQUITY Ownership is the most significant variable when taking on equity. The financial model does not track ownership percentages; you will need to manage those separately. For most early to mid-stage social ventures, equity investors will not draw dividends; there can be exceptions, however, and any investors receiving preferred shares will receive dividends.

Before modeling, you need to have in hand: • Amount of equity investment • Percentage and timing of dividend payments, if any

Modeling Instructions: 1. In the Equity & Grants tab, enter the name of the investor, and the dollar amount of the investment under

the year in which the investment will be received. 2. If you will be paying a dividend to the investor, manually enter the amount that you will pay in the Dividend

row, in the appropriate years that it will be paid.

Caution! What to look out for: Dividends owed to investors are the only financial implications on your model from an equity investment. If you are paying a dividend, look at your cash flow and ending cash balance to be sure that you have sufficient funds to cover them (and maintain a cushion for your business).

Ownership is the most significant variable when taking on equity. Refer to the Equity Primer in Module 4 for more information about the implications of bringing on equity investment.

Areas of Negotiation: Ownership percentage, governance, and other rights. Refer to the Equity Primer in Module 4.

Dividend. If you have a dividend, you can try to negotiate the dividend percent and timing. For example, you may negotiate a grace period before which you begin to pay a dividend.

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Examples:

Example 1: $100,000 equity investment for 10% ownership, with no dividend.

Example 2: $100,000 equity investment for 10% ownership, with a 5% dividend paid quarterly.

Example 3: $100,000 equity investment for 10% ownership, with a 5% dividend paid quarterly but deferred for three years.

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Additional Resources: Inside Financial Statements: Where do grants, debt, and equity appear? Grants Grants are accounted for as revenue for your business, so could potentially distort the following metrics in your financial statements:

• Revenue • Net Income

• Gross Profit • EBITDA

• Net Profit • Operating Cash Flow


Be sure that you still understand how the engine of your venture is operating without the addition of the grant funds. Grants are specifically listed in the following place in your financial statement projects: • Income Statement: Grants and Contributions. Notice that grants are accounted for as revenue, and are

included in the Total Revenue line item. Debt Debt and interest expenses are reflected in the following places in your financial statement projections: • Income Statement: Interest Expense recorded on bottom half of statement • Balance Sheet: Principal balance recorded in Liabilities section as Short-Term Debt or Long-Term Debt • Cash Flow Statement: Interest expense is included in Net Income calculation; incoming cash from new

debt raised and outgoing cash for repayments on debt are reflected in Cash from Financing Activities Equity Equity and dividends paid are reflected in the following places in your financial statement projections: • Income Statement: Dividends Paid at the bottom of the sheet. • Balance Sheet: Under the Owners Equity section, Invested Equity shows the cumulative equity invested in

the business up to that point in time. • Cash Flow Statement: Under Cash From Financing Activities, a change in equity is shown in

Increase/(decrease) in Invested Equity, and dividends are shown in the Dividends Paid line.

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Cash Flow Explained

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Guide to Evaluating Investments: Modeling new capital in your … · 2019-04-30 · Guide to Evaluating Investments: Modeling new capital in your financial model These instructions