Bottom up financial modeling is a process of developing a financial statement (income statement, balance sheet, cash flow, etc.) that reflects the individual income sources and expenses that go into the bigger picture. This type of model allows the user to measure the impact of their decisions across different areas of the business, while providing a more holistic perspective than top down financial modeling.
Presenting bottom up financial modeling results requires practice, experience, and skill. However, there are some fundamental tips that can help ensure that the results of the models are properly communicated to stakeholders.
In this blog, we will look at 5 tips for presenting bottom up financial model results. We will discuss the importance of communicating results in an accurate, professional, and organized manner, as well as the importance of taking the time to explain the assumptions that were used in the model.
- The importance of presenting results in an accurate, professional and organized manner.
- How to explain the assumptions that were used in the model.
- The significance of taking the time to explain the model.
- The implications of the results on different areas of the business.
- The holistic perspective of bottom up financial modeling.
Choosing Relevant KPIs
When presenting financial model results to an audience, it is important to choose relevant, meaningful key performance indicators (KPIs) to illustrate the desired results. Here are some tips for choosing KPIs that are best suited to the audience and the model.
Know Your Audience
It is important to know the audience’s business objectives, as well as the audience’s preferences in terms of the KPIs that they prefer to use. This will help determine which KPIs are most relevant and useful to the specific audience you’re presenting to.
Review Commonly Used KPIs
It’s always helpful to review the KPIs commonly used in financial models when selecting KPIs for a presentation. Here are some of the most commonly used KPIs:
- Net Present Value (NPV)
- Internal Rate of Return (IRR)
- Return on Investment (ROI)
- Discounted Cash Flows (DCF)
- Projected Investment Payback Period
- Cost of Capital
It’s also a good idea to review the KPIs that are trending in the industry right now. There may be certain KPIs that are more relevant and interesting to the audience that you’re presenting to.
Importance of Detail
Business modeling enables us to assess how different aspects of the business – such as sales, costs and profits – change over a given period of time. Presenting such a model to stakeholders requires a thorough explanation of the assumptions and decisions behind it. Here are some tips on how to properly explain bottom up financial model results.
Including Assumptions Used to Derive Results
Providing insight into the assumptions made while constructing a model helps to create a complete picture of the results and makes it easier for stakeholders to understand. It’s important to explain the rationale behind each assumption to avoid potential confusion. Additionally, if there is a higher degree of uncertainty within a particular assumption it’s important to highlight it, discuss the potential effects of such uncertainty, and where possible provide alternative scenarios.
Outlining Rationale for Key Decisions
Explaining the decisions included in the model is equally important in the presentation. For example, if you lagged a certain variable, it’s important to explain why that was necessary. These key decisions should be covered in enough detail to give stakeholders a full understanding of the model. It’s also important to note any contingencies or decisions that could be changed or reversed at a later date.
Overall, when presenting bottom up financial model results it is important to provide a thorough explanation of the assumptions and key decisions that were made while constructing the model. Doing so allows stakeholders to gain an understanding of how these decisions and assumptions impact the model results so that they can provide sound feedback.
Understand the Underlying Drivers
When presenting bottom up financial models, it is important to understand the underlying drivers in the model and how they are connected to the model’s outputs. This will give the presenter a better understanding of the results and will allow for more meaningful interpretation and communication of the results.
Identifying key drivers to results
The key drivers of the financial model results should be identified prior to presenting the results. It is important to understand the drivers of revenue and cost within the model, such as the average selling price, production costs, and operating costs. Once these are identified, they can be used to explain the results of the financial model and to provide context to the audience.
Ensure assumptions are capable of being tested
When presenting financial model results, it is essential to ensure that the assumptions used in the model are capable of being tested. This involves ensuring that the assumptions are reasonable and logical, and verifying that they can be tracked and tested over time. By ensuring that the assumptions are testable, the presenter can provide more meaningful and confident analysis of the results and can better explain the underlying drivers to the audience.
Lastly, it is important to remember that understanding the underlying drivers of the financial model results is key to providing a meaningful and informed presentation. Making sure that the assumptions used in the model can be tested is an important step in providing accurate results and communicating these results effectively to the audience.
Structuring of Information
When presenting bottom up financial model results, it is important to structure the information to ensure understanding by the audience. A few tips to help with this process include utilizing visual aids such as graphs and maintaining a clear path from the assumptions to the end result.
Utilizing Visual Aids Such as Graphs
A great way to display bottom up financial model results is to make use of visual aids. Graphs, charts and tables are especially helpful in communicating important information. Graphs are commonly used in business presentations, as they make the data easily digestible and can help the audience understand findings faster. Visual aids also make results more visually interesting, which can help keep the audience engaged while presenting.
Maintaining a Clear Path from Assumptions to the End Result
When presenting bottom up financial modeling results, it is important to ensure that the audience understands how the assumptions have been used to arrive at the end result. This can be done by clearly highlighting each step taken to get to the final answer. If a multi-step financial model needs to be presented, it is best to draw the audience's attention to the key drivers and how they have been used.
- Start off by outlining the key drivers and assumptions of the model.
- Highlight the key calculations and equations used throughout the model.
- Break down each step of the process into a logical sequence.
- Ensure all questions related to the assumptions and calculations are answered.
As a financial modeler, you must understand the importance of qualifying and presenting your findings. While the bottom up financial model should include the detailed projections and calculations, it is equally important to provide additional context and analysis when presenting the results. To help ensure that the report is well presented, there are a few tips to follow.
Highlighting Unexpected Areas or Sensitivities
While the bottom up financial model may contain a number of expected results, you should also highlight any other areas that may be surprising. This could include any areas where there are unexpected sensitivities, such as in specific costs or incomes that may be more heavily weighted than other aspects of the model. Highlighting these unexpected areas or sensitivities can help the reader better understand the results and draw conclusions from the model.
Outlining both Positive and Negative Points
In addition to highlighting any unexpected results, you should also make sure to outline both the positive and negative points from the bottom up financial model. For example, if the model is projecting a revenue growth for the next year, make sure to outline this along with any potential risks or complexities that could negatively impact those projections. By presenting both the positive and negative points, the reader will have a more comprehensive picture of the results and be able to draw better conclusions.
Presenting the bottom-up financial model results can be a challenging task. It is important to understand the model, the assumptions made, and the variables used. Making sure all of the components are in place and are transparent is key to presenting sound results. The tools discussed in this blog post can provide an efficient way to present the results, and help simplify the task and explain the story behind the results.
The five key points to remember when presenting bottom-up financial model results are:
- Understand the model and underlying assumptions
- Include all the relevant variables and data points
- Clearly refine and explain the results
- Take advantage of tools such as tables, graphs, and visuals
- Reiterate the story behind the results
By following these steps and tips, you can ensure your bottom-up financial model results accurately reflect the story you want to tell. Understanding the model and results are crucial in order to present clear, accurate, and actionable information in any field.