Disappointing situations to witness with financial modelers is when they have built an elegant, mathematically correct model, but fail to set up a system for explaining results. These situations cause confusion among analysts who must interpret model results. Even worse are ensuing perceptions of skepticism toward a model model results. Even worse are ensuing perceptions of skepticism toward a model that is difficult to understand, often rendering the model useless. To mitigate against such a circumstance, we implement a strong output reporting system to explain our results.
A good reporting system organizes core assumptions, analytical results, and financial metrics in an easy-to-read format. While our financial model may have created formulas to optimize calculation, the output reporting optimizes understanding. An example of this difference is decimal places. Throughout our example model we used numbers without regard to the place value. Although the calculations work well, the readability is impaired because it is difficult to understand the actual values of the results. The output reporting system should make this clear.
Further, we might want graphical representations of results. These are easily created in Excel by using the Chart functionality. We can then enhance these charts with tools that allow us to quickly change the data in a graphical way. Also, to ease the updating of pertinent information, we might also want to tap into Excel’s ability ...