Financial Modelling Handbook

Circular models will not calculate. Therefore if you have a circularity in your model, there are three main options. Option 1: Switch on iterative calculations. You'll find this under Options / Formulas. What we're doing here is asking Excel to continue to calculate until the values converge

Our tax calculations actually create two separate circularities: Circularity 1: Debt sizing Circularity 2: Disallowable debt interest If we want to avoid circularities in our model, we will have to ensure that we break both of these. But why do we want to avoid circularities in our model in the

In most jurisdictions, tax losses don't result in the government giving us money.

Companies are financed with a mixture of debt and equity. This financing is also sometimes referred to as the company's "capitalisation" Thin capitalisation refers to the situation where a company has a high level of debt compared to its equity. Since interest is often deductible for

Generally, tax authorities specify what companies can deduct for plant and equipment and other depreciable assets. In some places, this has names like "capital allowances". In others, it's just plain "tax depreciation". You'll often find different depreciation rates for different kinds of

Now that we have our helpful Tax memo, we can model the Tax payments for Aurelius Power. When we calculate Taxable profit, it's common to start from Profit Before Tax, add back the accounting items that are not deductible for tax purposes, then deduct the accounting items. Although

Whenever you are required to model corporate income tax, these are some of the questions you will want to ask

Let's define some terms that we will use throughout this section. This section only talks about "corporate income tax" - a tax on company profits. For simplicity, I will refer to it just as "tax". Tax paid Tax paid is the tax amount going

Every reader of this book will face different tax problems, in different tax jurisdictions, with different tax rules.

Uncovering problems like this are why we build models.