After Editing - Stress Check
- 01:49
Explaining the stress check after each model edit, changing figures and checking what is supposed to come out, does come out
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Transcript
A stress check or a stress test means changing your numbers and see what happens. So we might change an assumption, bigger changes are easier to see so instead of changing your depreciation rate from 5% to 6% of beginning balance, maybe change it from 5% to 50% and see what happens. Isolated changes like that are best. However sales growth well that impacts too many line items. So if you change sales you're going to have 50 different changes happening very difficult to find any errors there. Second up check that the model behaves as expected has PP&E gone up and cash gone down at the same time. If you're spending cash on PP&E you'd expect that to be the relationship. Thirdly, make sure you undo that stress test make any necessary changes and then recheck the changes are correct, two more things to talk about firstly always stress test zero line items to ensure they work when populated. Interest expense is a classic here we often have a circular switch with it turned off. So the interest expense doesn't create a circular while we're building or editing a model you may have designed interest expense to be a negative number and it all of a sudden you try to use it and you find it's a positive so something's gone wrong there and it needs investigating. This leads us nicely onto the last point always stress test line items which can be either positive or negative. So instead of interest expense you might have net interest expense. If it's a negative, it's an expense. But if it's a positive, it's an income make sure that it can go both ways and any subtotals that are including that cell can deal with that.