3 Statement Model

Three-Statement Financial Model — Course Description

Income Statement | Balance Sheet | Cash Flow Statement | Fully Integrated

Course Overview

This course builds a complete, fully integrated three-statement financial model from scratch. You will learn how the Income Statement, Balance Sheet, and Cash Flow Statement connect to one another through eight critical linkages — and why getting those linkages right is the difference between a model that works and one that breaks. The course follows IndustrialCo Inc. — a mid-size manufacturing and distribution company — through five years of historical actuals and projected financials.

By the end of this course, you will be able to build a professional-grade three-statement model entirely from scratch, understand why every formula exists and not just what it does, pass the modelling test in an investment banking or private equity interview, and debug any broken model by systematically tracing its linkages.

What You Will Learn

• How the three statements relate to one another and why a change in one always flows through to the others
• How to build a complete Income Statement from revenue to net income, including non-cash items such as depreciation, amortisation, and stock-based compensation
• How to construct a Balance Sheet where every line item is driven by an assumption or a formula — never hardcoded
• Why cash is always the plug and how the Cash Flow Statement closes the loop between the Income Statement and Balance Sheet
• How to apply the Indirect Method to build the Cash Flow Statement correctly, including the sign conventions for working capital changes that most analysts get wrong
• How working capital mechanics work in practice — Days Sales Outstanding, Days Inventory Outstanding, and Days Payable Outstanding — and how to model them
• How to build the PP&E roll-forward and retained earnings roll so that the Balance Sheet always balances
• How to handle circularity: what causes it, why it matters, and two proven methods to resolve it
• How to build four model integrity checks that instantly flag any error in the model
• How to construct a full ratio dashboard covering liquidity, leverage, profitability, and efficiency metrics

Course Structure

ModuleTopic

1. The 3-Statement Framework — Architecture & Linkages

2. Income Statement — Advanced Mechanics

3. Balance Sheet — Stocks, Flows & The Plug

4. Cash Flow Statement — Indirect Method Build

5. The 8 Critical Linkages — Complete Map

6. Working Capital — DSO, DIO, DPO Deep Dive

7. PP&E Roll-Forward & Retained Earnings

8. Circularity, Revolvers & Advanced Mechanics

9. Model Integrity Checks & Ratio Dashboard

10. Excel Model Guide — Before & After Tabs

11. Common Mistakes & Model Errors

12. Q&A Bank — 40 Advanced Interview Questions

13. Glossary — Key Terms & Formulas

Case Study — IndustrialCo Inc.

A mid-size industrial manufacturing and distribution company with FY2024 revenue of $5,040mm, growing at 9% annually through FY2027. Gross margins expand from 41.0% to 42.9% as the product mix shifts toward higher-value distribution contracts. EBITDA margins improve from 15.5% to 22.1% through operating leverage as fixed SG&A spreads over a growing revenue base. The model is projected across four years — FY2024A through FY2027E — with full historical actuals for FY2024 anchoring the projections. Net Income grows from $352mm to $812mm over the forecast period, and the FCF conversion ratio stays consistently above 1.0x, confirming high earnings quality.

Excel Model — What's Included

The course includes a fully built Excel workbook with 13 tabs and 281 formulas:

• Assumptions tab — every driver in one place: growth rates, margins, DSO/DIO/DPO, CapEx%, tax rate
• Before tabs — three separate student practice sheets (IS, BS, CF) with ??? placeholders and formula hints
• After tabs — three complete answer keys with all formulas, cross-sheet links, and correct sign conventions
• Model Check & Ratios tab — four balance checks plus a 16-ratio financial dashboard
• Charts & KPIs tab — visualisations of revenue growth, margin trends, and FCF conversion
• Q&A Bank — 40 questions embedded directly in the model
• Glossary — 30 key terms with definitions and formulas

The Four Model Integrity Checks

One of the most valuable skills in financial modelling is knowing immediately when something is wrong. This course teaches you to build four checks that must all show green before the model is used for any analysis:

• Balance Sheet Check — Assets = Liabilities + Equity every single period
• Cash Flow Reconciliation — CF ending cash matches BS cash balance exactly
• Retained Earnings Roll — RE moves correctly with net income and dividends
• PP&E Roll — Net PP&E reconciles with prior balance, CapEx, and depreciation

Who This Course Is For

• Investment banking and private equity analysts building integrated models for the first time
• Finance professionals who can build individual statements but have never connected all three correctly
• Associates preparing for modelling tests where a three-statement model must be built under time pressure
• MBA students and CFA candidates who want to go beyond theory into hands-on model construction
• Anyone whose Balance Sheet does not balance and cannot figure out why

Prerequisites

A basic understanding of accounting concepts — revenue, expenses, assets, and liabilities — is assumed.

Prior experience building individual financial statements is helpful but not required.

Completion of the Sutras DCF Valuation course is recommended but not mandatory.

Level: Advanced Format: PDF Study Guide + Excel Model (Before/After) Q&A Bank: 40 Interview Questions with Full Model Answers Case Study: IndustrialCo Inc. — FY2024A to FY2027E | Revenue $5.0bn → $6.4bn