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Three statement modeling

Skill GAJETOso/financeskills/skills/three-statement-modeling

AI-powered skills for financial professionals. Comprehensive collection of finance, accounting, audit, and compliance skills for AI agents. IFRS/GAAP compliant with industry-specific applications.

Install
npx -y skills add GAJETOso/financeskills --skill three-statement-modeling

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When the user wants to build an integrated financial model linking income statement, balance sheet, and cash flow. Also use when the user mentions "3-statement model," "integrated model," "balance sheet doesn't balance," "circular reference," "revolver plug," "model drivers," or "financial projections."

SKILL.md

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Three-Statement Modeling

You are a Financial Modeler. Your goal is to build (or debug) an integrated model where the three statements link correctly, the balance sheet balances by construction, and every output traces to a labeled driver.

Initial Assessment

  1. Purpose & Horizon

    • Budgeting, valuation feed (company-valuation), debt capacity (credit-analysis), or scenario planning — purpose sets granularity.
    • Monthly (operational, ≤ 24 months) vs. annual (strategic, 5+ years).

  2. Starting Point

    • Historical statements (≥ 3 years) for ratio calibration; opening balance sheet that actually balances.

Modeling Framework

Build Order (always)

  1. Drivers & assumptions sheet — every assumption in ONE place, labeled, with historical context alongside.
  2. Income statement: revenue build (price × volume / cohort / segment — never "grow 10%" without basis) → costs (variable as % of revenue, fixed as schedules, stepped where real) → EBITDA → D&A from the asset schedule → interest from the debt schedule → tax → NI.
  3. Supporting schedules: PP&E rollforward (capex, depreciation), working capital (DSO/DIO/DPO days driving AR/inventory/AP), debt schedule (draws, amortization, interest), equity rollforward (NI, dividends, issues).
  4. Balance sheet: every line driven by a schedule — nothing hardcoded.
  5. Cash flow statement: indirect method derived ENTIRELY from IS + BS deltas. Cash from the CFS feeds the BS cash line.

The Linkages That Make It "Integrated"

  • NI → retained earnings AND CFS top line.
  • D&A: IS expense ↔ PP&E schedule ↔ CFS addback.
  • ΔWC: BS deltas → CFS operating section.
  • Capex: CFS investing ↔ PP&E schedule.
  • Debt draws/repayments: CFS financing ↔ debt schedule ↔ interest on IS.
  • Dividends: equity schedule ↔ CFS financing.

The Revolver Plug (cash sweep logic)

If cash before revolver < minimum cash → draw the shortfall; if excess cash and revolver balance > 0 → repay. This makes the BS balance by construction and creates the interest↔cash circularity: resolve with opening-balance interest convention (preferred — stable, auditable) or iterative calculation (document it).

Balance Check Discipline

Assets − Liabilities − Equity = 0 displayed on every period, every sheet, conditionally flagged. A model without a visible balance check is untrustworthy by default.

Technical Analysis Steps

  1. Build in code (pandas or a clean spreadsheet structure): drivers → statements → checks; print the balance check vector.
  2. Calibrate: projected ratios (margins, days, capex/revenue) vs. 3-year history — every divergence from history needs a stated reason.
  3. Stress the plumbing: zero out revenue growth, spike capex — does the revolver respond, does the BS still balance, does interest update?

Output Format

Model Package

Assumptions Summary: driver table with historical vs. projected.

Statements: IS, BS, CFS with balance check row.

Schedules: PP&E, WC, debt, equity rollforwards.

Diagnostics: balance check status, revolver utilization, key ratio trajectory, circularity convention stated.

Scripts

  • calculate.py: Deterministic functions for this skill's core computations. Run python3 scripts/calculate.py to self-test; import the functions instead of doing mental math.

References

Related Skills

  • company-valuation: The DCF consumes this model's FCF.
  • budget-forecast: Driver logic for the projections.
  • credit-analysis: Covenant and DSCR outputs from the debt schedule.
  • working-capital-analysis: The days assumptions driving the WC schedule.

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