Advanced Excel · Intermediate level

Intermediate level · Module 3: What-If Analysis and Financial Modelling · Lesson 3 of 3

Building Financial Models

Structure a cash-flow or budget model so it is clear, flexible and checkable, and test its sensitivity.

In this lesson you will

  • Structure a model into inputs, calculations and outputs
  • Run sensitivity analysis and build checks

Key concepts

assumptions sheetcalculation flowcheckssensitivity

The lesson

A good model keeps all assumptions — prices, volumes, costs, exchange rate — on one labelled inputs sheet, calculations in a consistent left-to-right timeline and outputs on a summary sheet.

Build checks that must always be true, such as closing cash equals opening cash plus inflows minus outflows, and flag any failure clearly.

Sensitivity analysis changes key inputs by realistic amounts to show which assumptions matter most. Report results as ranges, not single certain numbers.

Step by step

  1. Create an inputs sheet with labelled assumptions.
  2. Build a six-month cash-flow calculation.
  3. Add balance checks.
  4. Test sensitivity to sales volume and exchange rate.

Practice activity

Build the six-month cash-flow model from the practical activity.

Expected result: A structured model with passing checks and a sensitivity summary.

Check your understanding

  1. Where should assumptions live in a model?

    Show answer

    On one clearly labelled inputs sheet.

  2. What does sensitivity analysis show?

    Show answer

    Which assumptions most affect the results.

Taught live by an instructor — online or in person. Free course lessons are for self-study and do not lead to a certificate — see registration options.