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Business case

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Learn how to do a Financial Analysis with editable Powerpoint slides and Excel Templates created by former Deloitte Management Consultants

Business case

  1. 1. Create a Business Case Training & Excel Templates By Former Deloitte Management Consultants
  2. 2. 2 www.slidebooks.com2 Objectives of this document “ Learn how to create a Business Case with a training and an Excel template created by former Deloitte Management Consultants ” “ Save your time by using our fully editable PowerPoint slides and Excel Sheets ”
  3. 3. 3 www.slidebooks.com3 Table of content The key concepts to know to build a Business Case How to build a Business Case? 2 3 What is a Business Case?1 How to develop a Financial Model?4
  4. 4. 4 www.slidebooks.com4 Business Case’s goal and objectives The Business case’s goal is to complete a rigorous analysis of a potential project to facilitate the decision on whether the project should be undertaken The business case is a differential analysis that makes a comparison between the current state (As-Is) and the target state as a result of the project (To-Be) Goal Determine the potential value and value drivers of the project Define the costs and expected benefits of the project Determine if the project support the overall business strategy Define the time-phased net cash flow impact, return on investment and payback period of the project Objectives Click here to download the editable PowerPoint and Excel version at www.slidebooks.com
  5. 5. 5 www.slidebooks.com5 Key questions a Business Case should answer 1.What is the project? 2.How much value will it create? 3.What needs to be done?    Description Value Proposition Likely impact(s)    NPV of the investment Resulting cash flow impact IRR and payback period    Organizational changes Process & systems changes Culture changes Go or No Go? 
  6. 6. 6 www.slidebooks.com6 Table of content The key concepts to know to build a Business Case How to build a Business Case? 2 3 What is a Business Case?1 How to develop a Financial Model?4 Click here to download the editable PowerPoint and Excel version at www.slidebooks.com
  7. 7. 7 www.slidebooks.com7 The weighted average cost of capital (WACC) Description Calculation • WACC is calculated by multiplying the cost of each capital component by its proportional weight and then summing Where:  E = market value of the firm's equity ($)  D = market value of the firm's debt ($)  V = E + D ($)  E/V = percentage of financing that is equity (%)  D/V = percentage of financing that is debt (%)  Ce = cost of equity (%)  Cd = cost of debt (%)  Tc = corporate tax rate (%) • The weighted average cost of capital (WACC) is the rate that a company is expected to pay to finance its assets • Assets are financed by either debt or equity. WACC is the average of the costs of these sources of financing, each weighted by its respective use • A project return on investment should be at least equal to the WACC to satisfy its creditors, owners, and other providers of capital WACC = E X Ce + D X Cd X (1-Tc) V V
  8. 8. 8 www.slidebooks.com8 Payback period Description Calculation Payback period is calculated as: • The payback period is the length of time required to recover the cost of an investment or to reach the break-even point • The lower the project’s payback period, the more desirable it is to undertake the project • The time value of money is not taken into account Payback Period = Initial investment Annual Return Click here to download the editable PowerPoint and Excel version at www.slidebooks.com
  9. 9. 9 www.slidebooks.com9 Operating cash flow (OCF) Description Calculation • OCF is calculated as: Operating cash flow = EBIT - Interest - tax + Depreciation & amortization • The Operating cash flow (OCF) refers to the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securities • I can also be called cash flow provided by operations, cash flow from operating activities (CFO) or free cash flow from operations (FCFO)
  10. 10. 10 www.slidebooks.com10 Free cash flow (FCF) Description Calculation • FCF is calculated as: Operating cash flow - Capital Expenditures OR EBIT X (1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure • Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base • FCF gives a clear view of the company’s ability to generate cash Click here to download the editable PowerPoint and Excel version at www.slidebooks.com
  11. 11. 11 www.slidebooks.com11 Net present value (NPV) Description Calculation • The following is the formula for calculating NPV: Where:  Future value = future cash inflows - future cash outflows ($)  r = discount rate  t = number of time period • The Net present value (NPV) is a tool used to analyze the profitability of an investment, taking into account that a dollar earned in the future won’t be worth as much as one earned today • This tool uses a discount rate to determine the present value of future cash inflows and cash outflows • A firm's weighted average cost of capital is often used as the discount rate, but many executives believe that it is appropriate to use higher discount rates to adjust for risk and opportunity cost NPV = Future Value X 1 / (1 + r) t - Initial Investment
  12. 12. 12 www.slidebooks.com12 Internal rate of return (IRR) Description Calculation • The internal rate of return (IRR) is the discount rate that makes the net present value of all cash flows from a particular project equal to zero • The higher the project’s internal rate of return, the more desirable it is to undertake the project • IRR is sometimes referred to as Economic rate of return (ERR) NPV = Future Value X 1 / (1 + IRR) t - Initial Investment = 0 The higher, the better NPV Discount rate 2m 1m 0 -1m -2m 5% 10% 15% IRR = 8% Example of relationship between NPV and Discount rate
  13. 13. 13 www.slidebooks.com13 Economic value added (EVA) Description Calculation • The formula for calculating EVA is as follows: Where NOPAT = Net operating profit after taxes • Economic value added (EVA) attempts to capture the true economic profit of a company • EVA is the profit earned by the firm less the cost of financing the firm's capital EVA = NOPAT – (Capital X Cost of capital)
  14. 14. 14 www.slidebooks.com14 Table of content The key concepts to know to build a Business Case How to build a Business Case? 2 3 What is a Business Case?1 How to develop a Financial Model?4 Click here to download the editable PowerPoint and Excel version at www.slidebooks.com
  15. 15. 15 www.slidebooks.com15 A business case needs to include 3 phases 1.Carry out a benefits / costs analysis 2.Prepare financial statements and model 3.Conduct financial analysis + - X -..
  16. 16. 16 www.slidebooks.com16 Phase 1 - Carry out a cost / benefits analysis 1.Carry out a benefits / costs analysis 2.Prepare financial statements and model 3.Conduct financial analysis 1. Determine benefits  Revenue benefits  Cost benefits 2. Determine additional expenditure  Capital expenditure  One time costs  Recurring costs Key Steps + - X -.. 1. Take into account of both the internal and external factors influencing the financials 2. Create assumptions What is the WACC?  What is the starting year of the project?  What is the benefit realization timeframe?  What is the exchange rate?  What is the annual inflation?  What is the company tax rate?  What is the cost per man-day for external resources?  When do we want to support costs in the P&L?  Are the benefits progressive? 3. List assumptions on an independent Excel sheet Recommendations Click here to download the editable PowerPoint and Excel version at www.slidebooks.com
  17. 17. 17 www.slidebooks.com17 Phase 2 - Prepare incremental financial statements 1.Carry out a benefits / costs analysis 2.Prepare financial statements and model 3.Conduct financial analysis 1. Prepare incremental income statement 2. Prepare incremental balance sheet 3. Prepare incremental cash flow statement 4. Develop a financial model + - X -.. Key Steps Recommendations 1. Structure the financial model based on the value drivers, the inputs and the assumptions 2. Build the financial model using an iterative approach 3. Test the financial model looking for errors
  18. 18. 18 www.slidebooks.com18 Phase 3 – Conduct financial analysis 1.Carry out a benefits / costs analysis 2.Prepare financial statements and model 3.Conduct financial analysis 1. Calculate NPV 2. Calculate IRR 3. Calculate Payback period 4. Calculate the EVA 5. Compare the current situation and the target situation + - X -.. Key Steps Recommendations 1. NPV should be higher than zero, in order to maintain the firms current share price 2. Be aware of the company investment criteria (i.e. what is the minimum levels of NPV and IRR) 3. Use the Pareto principle (the 80 / 20 rule) to make sure you focus on what matters
  19. 19. 19 www.slidebooks.com19 Table of content The key concepts to know to build a Business Case How to build a Business Case? 2 3 What is a Business Case?1 How to develop a Financial Model?4
  20. 20. 20 www.slidebooks.com20 Financial model structure An effective Excel financial model should have the following structure: 1.Project Description sheet 4.Inputs sheet(s) 3.Calcula- tion sheet(s) 4.Outputs sheet(s) + - X -..i 2.Worksheet Description 3.Worksheet Flow Click here to download the editable PowerPoint and Excel version at www.slidebooks.com
  21. 21. 21 www.slidebooks.com21 1.The Project description sheet should include:  The project name  The name of the scenario  A brief description of the project  The model version  The file name  The name of the persons who prepared and reviewed the model  The names of project sponsor and the project leader
  22. 22. 22 www.slidebooks.com22 1.Project description sheet Excel template Project X Version 1 Project Description Scenario X Project Name: Project X Porject Category Category X Business Unit: Business Unit X Model Version: Version 1 Date prepared: 03-Jan-14 Mr Smith Manager Business Unit X Michael Cant Executive Manager Business Unit X Project Leader: Mr Smith Manager Business Unit X Model Prepared By: Project Sponsor: Project Description Insert a brief description of the project Project Details Double click to access the editable Excel spreadsheet Click here to download the editable PowerPoint and Excel version at www.slidebooks.com
  23. 23. 23 www.slidebooks.com23 2.The Worksheet description should include:  The Financial model purpose  A worksheet overview with the name, the type and the description of each sheet  If required, some guidance on how works each sheet  The colour codes and formatting conventions used in the financial model i
  24. 24. 24 www.slidebooks.com24 2.Worksheet description Excel template i Project X Version 1 Worksheet Description Scenario X Sheet Name Sheet Type Assumptions Input Sheet X Calulations Sheet Y Output User Input cells 3,000,000$ Formula amounts 3,000,000$ Cells which you want to draw attention to 3,000,000$ Conditional formatting showing Active Scenario Currency 4,000$ Negative currency (300,000)$ FTE figures (1dp) 1.5 Worksheet Overview Financial Model Purpose Exemple: To calculate the project X expenditure, net benefit and NPV Color Codes Formatting Conventions Description Input your financial model assumptions for up to 5 scenarios. Select the active Double click to access the editable Excel spreadsheet Click here to download the editable PowerPoint and Excel version at www.slidebooks.com
  25. 25. 25 www.slidebooks.com25 3.The Worksheet Flow should include:  A visual representation of the inputs sheet, calculations sheet(s) and outputs sheet(s)  The relationship between each sheet of the document  Links towards each sheet of the document in order to facilitate the navigation
  26. 26. 26 www.slidebooks.com26 3.Worksheet Flow Excel template Project X Version 1 Worksheet Flow Scenario X Assumptions Inputs sheet Project Resources Cost Calculation sheets Financial Summary Outputs sheet Project P&L Project Capex Double click to access the editable Excel spreadsheet Click here to download the editable PowerPoint and Excel version at www.slidebooks.com
  27. 27. 27 www.slidebooks.com27 4.The Inputs sheet should include:  Your company standard assumptions: Assumptions that are used to assess all the projects of the company  Your static assumptions: Assumptions specific to your project and constant over the whole modeling period (e.g. tax rate)  Your dynamic assumptions: Assumptions specific to your project and changing over the whole modeling period (e.g. growth rate)  The source and updated date of all assumptions  The possibility to select your scenario
  28. 28. 28 www.slidebooks.com28 4.Inputs sheet Excel template Project X Version 1 Assumptions Scenario X Scenarios Input Active Scenario Number 4 1 2 3 4 5 Active Scenario Name Scenario X Base Worst Best Scenario X Scenario Y Base Scenario Flag 1 1 General Company Assumptions Base Worst Best Scenario X Scenario Y Company Tax Rate 30% 30% x x x x Cost of Capital 11% 11% 8% x x x Discount Rate 11% 11% 10% x x x CPI (Wage) 3% 3% x x x x CPI (non wage) 3% 3% x x x x Insert assumption x x x x x x Insert assumption x x x x x x Insert assumption x x x x x x Project Static Assumptions Base Worst Best Scenario X Scenario Y Project Start Date 1-Jan-14 1-Jan-14 x x x x Inflation Start Date 16-Jan-14 16-Jan-14 x x x x Benefit Ramp Up Start Date 16-Jan-14 16-Jan-14 x x x x Benefit Ramp Up Duration (Months) 6 6 x x x x Gross Profit Margin per product 40% 30% 40% 40% 40% 40% Insert assumption x x x x x x Double click to access the editable Excel spreadsheet Click here to download the editable PowerPoint and Excel version at www.slidebooks.com
  29. 29. 29 www.slidebooks.com29 Click here to download the comprehensive and editable PowerPoint and Excel version at www.slidebooks.com …

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