Stage 4 · Prove the business works financially · Lesson 1 of 2

The financial model an analyst can argue with

A financial model is a list of assumptions you are prepared to defend in a meeting, one by one. This lesson shows how to build one an analyst can test, then has you work out whether your business can repay its loan.

KWritten by the KAPEX team from credit and investment committees in Port Louis, Antananarivo and Paris. The worked example is made up for the exercise; market rates and facts are dated in the text. Updated 13 October 2026.

The analyst’s question

“Where are your assumptions? And if you sell a quarter less, can you still repay?”

Those are often an analyst’s first two questions, with your file open in front of them. They do not start with the charts. They look for the page where every starting figure is written down, with its source. Then they change one, to see when the repayment stops working.

A well-built model answers both in a few minutes. If the figures are typed into the middle of formulas, it cannot, even when the project is sound. Then it is the file that gets put aside.

This lesson follows a worked example, made up for the exercise: a poultry-feed maker in Madagascar. It is asking for a loan of 1,000 million ariary (M Ar), about USD 228,000, for a second production line.

Three linked statements

A model produces three statements, and they have to tie out with each other

What comes out of one goes into the next. Many files contain only two, and the missing one is almost always cash.

1Income statementWhat you earned and spent over the period, even if the money has not moved yet. A March invoice counts in March, paid or not. It ends with net profit.
2Balance sheetWhat you own and what you owe, on a given date. Net profit is added to equity. Stock, customer invoices and supplier debts sit here.
3Cash flow statementThe money that actually entered and left the account. It starts from net profit, adjusts for balance-sheet movements, and adds capital spending and loans. It ends with the bank balance.

The linkage test: the closing balance of the cash flow statement is exactly the bank line on the balance sheet. If not, a formula is broken somewhere.

A lender is repaid with money in the bank, not with net profit. So the cash flow statement is the one they open first. The next lesson, “Profit on paper, empty till”, explains the gap between the two and how to build a month-by-month cash-flow forecast. Here we use that statement for one question only: is there enough money left to pay the loan?

The Assumptions tab
From assumption to repayment
Can you repay?
Three cases side by side
What makes a model uncheckable
The model built backwards
In your file
What to remember

The rest of the lesson

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The words of this lesson

Each word links to its full definition in the glossary.

Income statement: The year’s table: everything you sold, minus everything you spent, equals the profit or loss.
Balance sheet: The company’s snapshot on one date: what it owns on one side, what it owes on the other.
EBITDA: What your business generates before interest, tax and the wear on your machines.
DSCR: What you earn, divided by what you must repay this year.
Sensitivity: Redoing the sums with one assumption changed (lower sales, weaker currency) to see whether the plan still holds.
Financial model: A sheet projecting your revenue, costs and cash over three to five years.
Cash-flow statement: Tracking the money coming into and going out of the account, month by month, to know whether enough will remain.
Assumptions sheet: The page where you write down your plan’s assumptions (prices, volumes, timing) and where each one comes from.
Working capital: The money stuck in your stock and in invoices your customers have not yet paid.
Grace period: The first months where you pay interest only, not principal.
Monthly spending: Everything that leaves the account in a month, without deducting what comes in.

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