When you create a financial model
you must clearly identify what data is driving your model calculations; what input data will cause your financial model output to change.
In other words, you should clearly identify what are the input cells/fields and which cells/fields are calculated.Output
or calculated cells are cells that include either formula or a link to another source of data.Input
cells are the cells where you would hard coded data, type it in.
I format input cells in blue color font and leave all calculated cells in black color.
This way it is always easy for me or for any other user of the financial model to spot what can or should be updated.
Please look at the example below.
This is a Sensitivity Profitability Analysis model that I have listed on this website. Look at the image above. If you will receive such a model, you will clearly see which fields need to be updated in order to make the analysis work and to understand which costs will improve or worsen the bottom line - Net operating income.
For example: If you change assumptions for selling price and (or) for quantity for sale, your net sales, cost of sale and all other variable costs will change automatically. If you change assumptions for quantity for sale and (or) cost of item, cost of sale with change. And so on.