Corporate and Project Finance Modeling

Chapter 7Structuring Time Lines

When filling out applications, applying for a license, and evaluating your performance in various tasks ranging from sporting competitions to employment, one of the first items of information that you are generally asked for is your birth date. The same general notion applies to companies or projects where dates, ages, and life stages go a long way in the programming of a model and in constructing a valuation analysis. This implies that the first thing to program in a well-structured financial model is a carefully designed time line. Presenting the time line in a financial model is like showing the most fundamental facts of a person's life on his or her tombstone, which are the date of birth and the date of death.

Efficiently structuring time periods in a model ensures that you can gauge the effect of valuation issues such as the length of the holding period in an acquisition or real estate project, delays in the construction of a large project or lengthening the concession period in project finance, or evaluating effects of the amount of time before which a stable growth rate is achieved for a corporation. Carefully setting up time periods allows flexible and accurate calculations of items such as interest during construction, terminal value, depreciation and amortization, debt repayments, gain on sale of assets and many other items. An efficient time line also allows you to smoothly move from the historic period to the projected period in a ...