Part 3 - Debt Service and Investment
Two key components of your cash flow are 1) what happens to your debt (new borrowings, repayments, interest) and 2) spending money on stuff that doesn’t show up on the income statement right away (Investment / Capital Expenditures).
There is where you put assumptions about new borrowings, principal repayments, and interest payments.
You may not separate the interest expense out on your books by category of debt. I’ve seen a lot of companies with one interest expense account on the Income Statement, but then maybe 5 or 6 loan accounts on the Balance Sheet. If this is the case, the model won’t calculate a good historical interest rate for you. You’ll have to estimate what it is for each category of debt; or just calculate one rate overall and use that same rate for all categories.
NOTE:
Borrowings are entered as POSITIVE NUMBERS.
Principal repayments are entered as NEGATIVE NUMBERS.
Interest is entered as an ANNUAL INTEREST RATE for each category of debt.
If you plan to pay off $5,000 in credit card debt in July, 2008: click on that cell, enter -5000.
After you hit ENTER, the value is accepted by the grid, and the model updates the calculated values such as “(Princ Repay) – Total”, “Credit Card Debt – Balance”, and “Total Debt.”
Scroll down a little more to enter the “Interest Rate” for your credit card debt. Typing an asterisk (*) before the number indicates you want to use the same number for all remaining months.
The Interest Rate is entered as an annual percentage rate. You should use a whole number (e.g. 23.99 not 0.2399 to indicate 23.99%). The model divides by 12, and applies this monthly rate to the prior month’s ending balance to compute Interest Expense for each month.
Investments / Capital Expenditures