The purpose of this website is to provide real-time financial statements evaluating your business based on 5-year forecasts.
The valuation model is that of the Net Present Value of future cash flows generated by your business and the statements provided consist of the Income Statement, Balance Sheet and Cash Flow statement.
To generate the model in real time and make the compilation of the required data accessible to a wide range of users, standard calculations with some assumptions and simplifications were adopted.
This website therefore provides a simplified service and the model presents some approximations.
The reference accounting principles are the IFRS (International Financial Reporting Standards) widely adopted in Europe and in other countries around the world. However, in some cases the model deviates from these principles. Furthermore, local regulations may require different accounting principles.
The model provides forecast data and, while generally compliant with commonly adopted international accounting principles, does not adhere to all the legal principles and regulations required for the preparation of financial statements.
Please note: as of today this web application and its model were developed for sale in the European Union countries, in the EFTA countries and in the United Kingdom.
The model is not applicable to all countries. For example, it includes VAT but not Sales Tax. Click here to see what the model looks like.
Below is a description of the main assumptions and simplifications adopted by the model.
Receipts and payments
The model reports data by year with an equal distribution of receipts and payments over the twelve months of each year.
The reality could be different as there could be delays, exceptions in payment terms, specific arrangements, a seasonality of sales and times of the year in which most purchases take place.
The timing of collections and payments is based on the average collection and payments days you enter in the table.
Payment of payroll expenses together with social security contributions, and other types of expenses shown in the Other costs table, are attributed to the same year in which the cost is reported, without deferral.
Income taxes are assumed to be prepaid in full in the same year as the income to which they relate.
Terminal value
The model does not calculate the terminal value or final value, i.e. it does not report the value of cash flows beyond the 5-year period until the end of the business.
The final value can be a very important element in a business valuation, however the calculation of the final value cannot be easily standardized.
Depending on the method being used, one must know the value of businesses with similar characteristics, or develop long-term estimates, or use mathematical projections that may differ from reality.
Should you need the terminal value for your evaluation, we’d rather leave it to an assessment outside of the data provided through this website.
Financial assets
The model is not currently structured for business activities involving financial investments, such as equity investments in other companies and financing of other companies or individuals. The accounting for the value of these items and the related financial income or expense follows specific principles, depending on the purpose of the investment and the valuation method adopted.
We will consider a further development of our financial modelling application in the future, should we detect the interest among users and potential users in using it for this type of financial evaluations as well.
Leases
Lease payments are reported in the Income Statement as leasing expenses in the same year in which payments take place. There is no reporting of the asset and the liability related to the purchase and financing arrangement.
The downpayment, if applicable, if fully expensed in the year in which it is paid.
Research & Development expenses
Research and development expenses are recognized in full as expenses in the year in which they are incurred.
In some countries local accounting standards, such as IFRS, may require the capitalization and amortization of certain types of research and development expenses over multiple years.
Inventory
If you expect to have products or materials in stock, the inventory at year-end is valued at the last unit purchase cost that you entered in the appropriate table.
Depreciations and Amortizations
The website will ask you to report the useful life of your assets and, for this purpose, you will be provided with some commonly used years to choose from.
Each country has its own rules and depending on the useful life reported in the tables there may be a deviation between the model and local or international standards. In some countries the depreciation and amortization allowed by tax authorities does not correspond to the depreciation and amortization required by accounting principles. Using the years allowed by tax authorities will allow you to calculate your income taxes more appropriately.
VAT
Value Added Tax may be applied differently depending on the country and the type of transaction.
The VAT calculation adopts some simplifications. Specifically:
- you are asked to provide the VAT rates that apply respectively to the sales and purchases of products and raw materials. As for all other expenses, including fixed assets, you are asked to provide a single VAT rate for all, although the applicable rate may vary depending on the case and some costs may not be subject to VAT
- An interim (monthly, quarterly) calculation of the VAT debit or credit balance is not performed. The resulting debit or credit balance for each year is the payable VAT minus deductible VAT calculated on the total annual sales and expenses
Social charges
Each country has its own rules for social contributions due on employees’ salaries.
In most countries, part of the social security contributions is withheld from the employee gross salary, while another part is contributed by the employer and represents an additional cost to the gross salary. You are asked to provide the percentage of the latter ones, i.e. social security contributions which are paid by the employer on top of the gross salary. If you do not enter the percentage, the model will not take this cost into account.
Income taxes
The calculation of taxes on income generated by the business cannot be easily standardized as each country has different regulations and tax rates. The profit before taxes reported in the financial statements does not always correpond to the profit to which taxes are applied.
The model adopts the following simplifications:
- the tax rate that you provide is applied to the profit before taxes in the model and does not take into account any different criteria that the tax authorities may require for deductible costs and taxable income
- deferred taxes are not calculated in the model with the exception of deferred tax assets relating to those years eventually closing with a loss that can be carried forward and be used against future years’ income. You will be asked to choose the carry forward option, if applicable, in the appropriate table.
- if the tax rate is not provided, the model will not calculated income taxes