The three financial statements are used as the base report for the Three Statement Model. By using these three financial statements, you will be able to create a more precise model of a business’ or an asset’s future financial projections. What is a three statement model? A three statement model is the general financial model structure. The term itself refers to the detailed and precise forecast of the three financial statements: Income Statement, Balance Sheet, and Cash Flow Statement, which are all required to better understand any business.
- Balance Sheet – This is where you’ll see the Assets, Liabilities, and Equity of the entity as of the reporting date. The format of the report shows that all Assets will be equal to the total of all the Liabilities and Equity; this is what we know as the basic Accounting Equation.
- Income Statement – This is where the Revenues or Sales, Expenses, and Profits or Losses presented, which is generated during the reporting period. Others call this statement as the Profit and Loss Account, which shows how it derived the net income of the business over a stated period.
- Statement of Cash Flows – This is where all the Cash inflows and outflows caused by the business’s activities during the reporting period. All the changes in the business’s cash flows will be presented here and used to provide a useful base to compare in the income statement.
The three financial statement are critical components in a three statement financial model to further prove the feasibility and validity of the projected values. It helps with determining the ability of a business to yield income, where and how they derived using the cash and how it will be distributed, whether the business is capable of paying back debts, whether the business is financially healthy or not, and many more benefits that one can get by simply building using the financial statements.
You can learn more in detail about the three financial statements used as a major component for the Three Statement Model financial modeling structure as well as acquire several financial model templates with financial statements here: Three Statement Model | Three Financial Statements. You can also download industry-specific financial model templates ready-made by financial modeling experts at eFinancialModels, a platform offering templates and services to those who are in need of assistance with building financial models and other related tasks.
