Financial modelling and valuation

  1. Financial Modelling
    1. Financial Modelling Introduction
    2. Financial Modelling Tools & steps
    3. How to Make a Financial Model and choose the best Company and Excel Workbook Setup?
    4. How to build a financial model Step-by-Step Guide to Excel Sheet Setup?
    5. Financial Statements: A Step-by-Step Guide to Extracting Historical Data
    6. Financial modelling excel
    7. Learn financial modelling Balance Sheets, P&L, and Assumptions Know About
    8. What is financial modelling Assumptions and Projections?
    9. Financial modelling and valuation
    10. Investment decision calculation
    11. The balance sheet’s asset side reveals the company’s line items.
    12. Revenue Model & Growth Rate in in P&L Assumptions
    13. Basics of financial modelling CAPEX and Asset Schedule
    14. Financial Analysis: Gross Block and CAPEX
    15. Gross block & Capex: Constructing the Asset Schedule
    16. Depreciation : Connecting P&L and Balance Sheet for Accurate Asset Forecasting
    17. depreciation expense : Exploring Different Methods in Financial Modeling
    18. Debt Management: Connecting P&L and Balance Sheet for Accurate Liability Projection
    19. Interest Rate Calculation & Debt Schedule
    20. Share Capital & Reserves
    21. IPOs and Under subscription : Bata’s Share Capital Dynamics
    22. Reserves & Surplus understanding Bata schedule
    23. Reserves and surplus schedule How to Build on Excel
    24. Financial modelling projections
    25. Balance Sheet Projections and Completing Reserves Schedule
    26. Cash Flow Statements Analysing Operations, Investments, and Financing Activities
    27. What Is Valuation for Investor
    28. Free Cash Flow Key Components, Formulas and How to Calculate?
    29. FCFF and FCFE uses in Mastering Free Cash Flow Calculation
    30. WACC Weighted Average Cost of Capital Analysis
    31. Market Risk Premium analysis
    32. Tax Shield and its Impact on Equity Holder Returns
    33. Weighted Average Cost of Capital and Terminal Growth in Valuation
    34. Terminal Value Understanding Perpetual Cash Flow Projections in DCF Model
    35. Learn Financial Modelling
    36. Free Cash Flow to the Firm (FCFF) Calculation with examples
    37. Stock Valuation DCF Model & Stock Market Value
Marketopedia / Financial Modelling / Financial modelling and valuation

Assumptions Part 2

– Deferred tax

I trust you’ve already reviewed the P&L and Balance Sheet in a way that makes it convenient to use it in our model. With that taken care of, let’s proceed from where we left off before.

The last chapter was an exercise in calculating the deferred tax’s growth rate from Y2 to Y5 and showing its average from Y6 to Y10, but this leads to volatile figures. I suggest we consider a more advantageous solution.

Comprehending deferred tax reveals the connection between it and depreciation since the latter is treated in a particular way. Therefore, deferred tax and depreciation are linked.

Rather than looking at the growth rate of deferred taxes, it would be wise to think about how much deferred tax equates to in terms of depreciation.

In Year 2, the deferred tax amount is 16.95Cr, and the depreciation is 121.73 Cr. Therefore, the deferred tax expressed as a percentage of depreciation for Year 2 is –


= 13.92%

We can keep this going across Y3, Y4, and Y5 in Excel.

As can be seen, the figures are much more stable. I urge you to adapt your model accordingly. As for projections, you should take the rolling average. Y6’s rolling average should comprise of Y2-Y5; for Y7 it’s Y3-Y6 and so on.

The resulting figure is quite constant.

Before you moan and groan at me for making you retake the postponed taxes part, I’d like to inform you that the growth rate approach for presumptions is essential, and it will be employed in the next chapter when we discuss P&L assumptions.