Financial Modeling AI Prompts

Build a discounted cash flow (DCF) valuation for this company. Company: {{company}} Financials: {{financial_data}} Forecast horizon: {{horizon}} years Industry: {{industry}} 1. Free Cash Flow (FCF) projection: FCF = EBIT x (1 - Tax Rate) + D&A - Capex - Change in Net Working Capital - Project each component for {{horizon}} years with explicit assumptions - NOPAT margin trajectory: justify the convergence to terminal margin - Reinvestment rate: Capex + Change in NWC / NOPAT (higher growth requires more reinvestment) 2. Discount rate (WACC): WACC = (E/V) x Ke + (D/V) x Kd x (1-T) - Cost of equity (Ke): CAPM = Rf + Beta x ERP - Risk-free rate: current 10-year government bond yield - Equity risk premium (ERP): use Damodaran's current country ERP - Beta: use 2-year weekly regression beta, then Blume-adjusted: Beta_adj = 0.67 x Raw Beta + 0.33 - Cost of debt (Kd): weighted average yield on existing debt, or credit spread + risk-free rate - Capital structure: use target or industry-average leverage, not current (if distorted) 3. Terminal value: - Gordon Growth Model: TV = FCF_terminal x (1+g) / (WACC - g) - Terminal growth rate: should not exceed long-run GDP growth (typically 2-3%) - Sanity check: implied terminal EV/EBITDA multiple vs comparable company multiples - Exit multiple method as cross-check: TV = Terminal EBITDA x EV/EBITDA_peer_median 4. Bridge to equity value: Enterprise Value = PV of FCFs + PV of Terminal Value Equity Value = EV + Cash - Debt - Minority Interest - Preferred Stock Per Share Value = Equity Value / Diluted Shares Outstanding 5. Sensitivity analysis: - 5x5 table: WACC (range ±100bps) x Terminal Growth Rate (range ±100bps) - 5x5 table: WACC x EBITDA Exit Multiple - At what assumptions does the stock look cheap vs expensive vs current price? Return: FCF projection table, WACC calculation, terminal value computation, equity value bridge, and sensitivity tables.

Build a leveraged buyout (LBO) model framework for evaluating this acquisition. Target company: {{target}} Financials: {{financials}} Entry assumptions: {{entry_assumptions}} Holding period: {{holding_period}} years 1. Sources and Uses of Funds: Sources: Senior debt + Mezzanine debt + Sponsor equity = Total Uses: Purchase price (EV) + Transaction fees + Financing fees = Total Sources must equal Uses. Entry multiples: - Entry EV/EBITDA: {{entry_multiple}}x - Purchase price = Entry EV/EBITDA x LTM EBITDA - Debt/EBITDA: {{leverage}}x (split between senior secured and subordinated) 2. Debt schedule: For each debt tranche: - Beginning balance, interest expense, cash sweep / amortization, ending balance - Cash sweep: excess cash flow used to pay down highest-cost debt first - Revolver: drawn when operating cash flow is insufficient to meet obligations - PIK vs cash interest: PIK increases principal (compounds), cash interest reduces free cash 3. Free cash flow and debt paydown: EBITDA - Interest - Taxes - Capex - Change in NWC = FCF available for debt paydown - Project EBITDA with operating improvement thesis assumptions - Tax shield: interest expense x tax rate reduces cash taxes - Debt paydown waterfall: senior debt first, then mezz, then any remaining 4. Exit analysis: Exit EV = Exit EBITDA x Exit Multiple Exit Equity Value = Exit EV - Remaining Debt Sponsor proceeds = Exit Equity Value x Sponsor ownership % 5. Returns calculation: - Money-on-Money Multiple (MoM): Proceeds / Equity invested - IRR: solve for the rate that makes NPV of cash flows = 0 - Target returns: MoM > 2.5x, IRR > 20% for typical PE - Returns bridge: attribute IRR to EBITDA growth, multiple expansion, leverage, and dividends 6. Sensitivity tables: - IRR and MoM: entry multiple vs exit multiple (3x3 or 5x5) - IRR and MoM: entry multiple vs EBITDA growth rate Return: Sources and Uses table, debt schedule, FCF projection, exit analysis, returns calculation, and sensitivity tables.

Build a bottom-up revenue model for this business. Business type: {{business_type}} Revenue streams: {{revenue_streams}} Historical data available: {{historical_data}} Forecast horizon: {{horizon}} years 1. Revenue disaggregation: Break total revenue into its most granular meaningful components: - For SaaS: ARR = Customers x Average Revenue Per Account (ARPA) - New ARR (new logos), Expansion ARR (upsell), Churn ARR (lost customers) - Net Revenue Retention (NRR) = (Beginning ARR + Expansion - Churn) / Beginning ARR - For transactional: Revenue = Transactions x Average Order Value - For subscription: Revenue = Subscribers x Monthly Fee x (1 - Churn Rate) - For services: Revenue = Headcount x Utilization Rate x Billing Rate 2. Forecast each driver separately: For each revenue driver: - Historical trend (last 3 years CAGR) - Management guidance or market growth rate - Internal capacity constraints - Derive the forecast assumption with a clear rationale 3. Bridge from current year to forecast: Revenue(year N+1) = Revenue(year N) + New Business + Expansion - Churn + Price Effect Show each component explicitly so the forecast is auditable. 4. Scenario analysis: - Base case: management guidance or consensus growth rates - Bull case: top quartile of peer growth rates - Bear case: mean reversion or macro headwind scenario - Show the revenue range at each forecast year 5. Sanity checks: - Implied market share: does the forecast require unrealistic market share gains? - Revenue per employee: does it stay within a reasonable range for the industry? - Cohort math: does the model's churn assumption agree with the cohort retention data? Return: disaggregated revenue model, driver-by-driver assumptions, three-scenario table, and sanity check results.

Build a sensitivity and scenario analysis framework for this financial model. Base case model: {{model_description}} Key output metric: {{output}} (e.g. EV, IRR, EBITDA, EPS) Key input assumptions: {{inputs}} 1. One-way sensitivity analysis: For each key input, vary it across a range while holding all others constant: - Range: +/-20%, +/-10%, +/-5% from base case - Show output at each input level - Tornado chart: rank inputs by their impact on the output (largest impact at top) - The top 3 inputs by tornado rank are the most important assumptions to get right 2. Two-way sensitivity table: Select the top 2 most impactful inputs from the tornado chart. Build a 5x5 table: - Rows: Input 1 at 5 levels (base-20% to base+20%) - Columns: Input 2 at 5 levels - Cell values: output metric at each combination - Color code: green = above base case output, red = below 3. Scenario analysis (distinct named scenarios): Base case: current assumptions Upside scenario: best plausible combination of assumptions (not maximum of each) Downside scenario: worst plausible combination (not minimum of each) Stress case: severe downside - what happens in a recession or crisis? For each scenario: - State the 3-5 key assumption changes vs base case - Show the output metric range - Narrative: what business or macro environment drives this scenario? 4. Break-even analysis: - For the primary output metric: at what level of each key input does the output reach breakeven? - Example: 'At what revenue growth rate does the IRR reach our minimum threshold of 15%?' Return: tornado chart description, two-way sensitivity table, scenario comparison table, and break-even levels for each key input.

Audit this three-statement financial model (Income Statement, Balance Sheet, Cash Flow Statement) for errors and best practices. Model description: {{model_description}} 1. Balance sheet balance check: - Total Assets = Total Liabilities + Total Equity in every period? - If not: identify which line items are likely causing the imbalance 2. Cash flow statement reconciliation: - Net income (IS) flows to operating activities (CFS)? - Depreciation and amortization is added back in operating activities? - Changes in working capital are reflected correctly (increase in current assets = use of cash)? - Ending cash (CFS) = Cash line on Balance Sheet for every period? 3. Common modeling errors to check: - Circular references: does the model contain circularity (interest expense depends on debt, debt depends on revolver, revolver depends on cash)? Flag and note the resolution method. - Hard-coded values in formula cells: all assumptions should be in a dedicated inputs section, not embedded in formulas - Inconsistent time periods: are all statements on the same fiscal year/quarter basis? - Incorrect sign conventions: revenue positive, costs negative (or vice versa consistently) - Missing plug: every balance sheet needs a balancing plug (typically revolver draws or cash sweep) 4. Assumption documentation: - Are all key assumptions clearly labeled with their source? - Are growth rates, margins, and working capital ratios clearly separated from formulas? - Is there a sensitivity table for the most important assumptions? 5. Structural best practices: - Color coding: inputs (blue), formulas (black), links from other sheets (green) - No merged cells in data areas - Row and column headers on every sheet - Print-ready formatting: fits on one page per statement per period Return: error list with severity and location, reconciliation check results, and a model quality score (0-100) with justification.