Financial Modeling: Loan Amortization and Cash Flow Analysis
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Loan Amortization Methods
Bullet Method
- OLEY₀ = P
- OLBYt = OLTYt−1 (Same until last year)
- It = EAR · OLBYt (Constant until last year)
- PBt = 0 (Except last year, where PBt = P)
- At = It + PBt (Constant until last year)
- OLEYt = OLBYt − PBt (Must be 0 in the last year)
Straight Line Method
- OLEY₀ = P
- PBt = P/n (Constant every year)
- OLBYt = OLEYt−1 (Decreases every year)
- It = EAR · OLBYt (Decreases every year)
- At = It + PBt (Decreases every year)
- OLEYt = OLBYt − PBt (0 in the last year)
Annuity Method
- OLEY₀ = P
- A = P · EAR · (1 + EAR)ⁿ / ((1 + EAR)ⁿ − 1) (Constant every year)
- OLBYt = OLEYt−1 (Decreases every year)
- It = EAR · OLBYt (Decreases every year)
- PBt = A − It (Increases every year)
- At = It + PBt = A (Constant)
- OLEYt = OLBYt − PBt (0 in the last year)
Net Cash Flow (NCF) Calculation Table
| Concept | How to Calculate | Year 0 | Year 1 | Year 2 | Year n |
|---|---|---|---|---|---|
| Initial investment outlay | Given in the problem | ← here | |||
| Operating Revenue (Sales) | Units sold × price per unit | ||||
| Fixed Operating Costs | Given directly | ||||
| Variable Operating Costs | % of Sales | ||||
| Technical Depreciation | From depreciation table | ||||
| EBIT | Sales − Fixed − Variable − Depreciation | ||||
| Capital Expenditure | It from loan table | ||||
| EBT | EBIT − It | ||||
| Taxes | EBT × tax rate (if EBT > 0) | ||||
| Net Profit | EBT − Taxes | ||||
| Technical Depreciation | Added back | ||||
| Scrap Value | Given (last year only) | ||||
| Financial Amortization | PBt from loan table | ||||
| OCF | Net Profit + Depr + Scrap − PBt | ||||
| Client Adjustment | See formula below | ||||
| Supplier Adjustment | See formula below | ||||
| Tax Adjustment | See formula below | ||||
| Financing | Loan received (P) | ← here | |||
| Loan expenses | Given in problem | ||||
| NCF | OCF + Adjustments + Financing |
Working Capital Adjustments
Client Adjustment
Formula: Sales(t−1) × (days/360) − Sales(t) × (days/360)
If clients pay late, they owe money (negative effect). If no clients existed last year, Year 1 adjustment is always negative.
Supplier Adjustment
Formula: Costs(t−1) × (days/360) − Costs(t) × (days/360)
If suppliers provide payment terms, you retain cash longer (positive effect). Year 1 adjustment is always positive.
Tax Adjustment
Formula: Taxes(t−1) − Taxes(t)
Taxes are paid one year late. If Taxes(t−1) > Taxes(t), the effect is positive. Year 1 is 0 as there are no taxes in Year 0.