Model Sense Check - Strange Trend 2
- 01:53
Understand how to deal with hockey sticks in the balance sheet
Glossary
Hockey SticksTranscript
We start our error checking by going to the bottom of the balance sheet to see if it balances And I go through the historical, into the forecast periods and it does, it balances just fine So we now need to go looking for any other errors So guys, have a look around see if you can find any figures that seems to be moving in a slightly strange fashion To tee you up, there is one error in the balance sheet You may want to pause the recording now and have and look on your own So the line item I'm going to focus on is current operating assets. I can see in the historical period it goes from 15,000 down to 14 up to 17 So slightly unusual there, I check it out. That's absolutely fine But we then see that as we go into the forecast period, it goes from 17 down to a dramatically low 12,000 And then it grows nice and consistently upwards again It doesn't actually get back to the 17,000 again. That's another 4 years later So what's going on there? I want to investigate that 12,654.4 It says it's coming from cell F58 multiplied by F25. Let's have a look at F58 And I can see that in F58, that is the assumption for capex. Capex is a percentage of revenues, it's 15% of revenues I'm doing capex, I'm doing current operating assets. If we go to the cell above Ahh that's what it should be linking to, it should be linking to F57. So let's go back down, let's change that formula Instead of F58, let's change that to F57 Does that look a bit more sensible now, well if we go back and have a look historically, it goes 14, 17, 20. That does look better! I'll now copy it to the right, 20, 23, 26,000. Fantastic, I've found my error!