Common Errors in a Financial Model due to Poor Knowledge of Finance Industry

Even after taking care of excel related errors in a financial model, it can still give you undesired results because of errors creeping into the financial model due to poor knowledge of finance industry. This article gives in brief the common errors that you can find in a financial model

1. Negative cash

2. Depreciation exceeding asset cost

3. Margins or growth numbers – outlier values

4. Extra-ordinary items, non-recurring items

5. Gross v/s Net

6. Focus on the larger picture i.e. industry knowledge, sanity checks and common sense

7. Cash is king – No undue importance to the projections of below the line items in P&L account, contingent liabilities and certain disclosures

One can encounter many other errors as well in a model, but these are the most common errors occurring on account of insufficient conceptual knowledge of finance, accounting and industry.

The following video will make it more clear to you