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PRESENTING AND MODELING BUSINESS DATA (2)-unlocked-compressed.pdf Flashcards
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PRESENTING AND MODELING BUSINESS DATA (2)-unlocked-compressed.pdf Flashcards
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1
Question
What is the saying in the airline industry regarding starting a business?
Answer
The best way to make a small fortune is to start with a large one.
2
Question
What catastrophic events have impacted the airline industry?
Answer
Events like 9/11 and the COVID Pandemic.
3
Question
How many airlines filed for bankruptcy in 2023?
Answer
At least a dozen airlines.
4
Question
What is the process of compiling financial numbers and formulae to evaluate various outcomes known as?
Answer
Financial modeling.
5
Question
What is the main purpose of financial modeling?
Answer
To evaluate various outcomes as part of the planning or evaluation process.
6
Question
What is the difference between a budget and a financial model?
Answer
A budget is largely a target plan for revenues and expenses for a defined period, while a financial model is built using inputs that can be changed to test various ideas and scenarios.
7
Question
Which tool is prominently used for financial modeling in this context?
Answer
Excel.
8
Question
What are some important functions in Excel relevant to financial modeling?
Answer
Data tables, Goal Seek, and Solver.
9
Question
What should be included in a financial model, particularly the Statement of Financial Position?
Answer
Standard items such as Cash, Fixed Assets, Prepayments, Accounts Payable, Unearned Revenue, Aircraft Mortgage, Bonds Issued, Share Capital, Dividends Payable, and Retained Earnings.
10
Question
What item is excluded from the financial model for a passenger-only airline?
Answer
Accounts Receivable.
11
Question
Why are wages payable excluded from the model?
Answer
Because there are never wages payable holding over into a New Year.
12
Question
What is the purpose of the financial model discussed in the text?
Answer
To teach financial modeling and to create the knowledge needed to demonstrate Excel and modeling skills.
13
Question
What are the three elements of the modeling process?
Answer
Inputs, decision variables, and outputs.
14
Question
What are inputs in financial modeling?
Answer
Inputs are gathered areas that hold fixed values outside the control of the business, such as fuel prices and landing fees.
15
Question
What are decision variables in financial modeling?
Answer
Values controlled by the business, such as the number of flights per day.
16
Question
What are outputs in financial modeling?
Answer
Results of calculations based on the inputs and decision variables.
17
Question
What aspect of financial modeling must be planned at an early stage?
Answer
The time frame for the model, typically three to five years.
18
Question
What is the significance of color in financial modeling spreadsheets?
Answer
Color is used to distinguish inputs from calculations and to visually represent what can be changed versus what should not be changed.
19
Question
What are 'magic numbers' in financial modeling?
Answer
Hardcoded values that should not be used because they limit flexibility in calculations.
20
Question
What should be avoided when hardcoding values in financial statements?
Answer
Zeroes and magic numbers; they should be treated as inputs.
21
Question
What is one example of a potential hardcoded magic number in financial modeling?
Answer
The number of days in a year (e.g., 365) without accounting for leap years.
22
Question
How can dates be managed in financial models to avoid hardcoding?
Answer
By using an input for the first date and calculating successive increments.
23
Question
What type of documentation should be maintained for inputs in financial models?
Answer
Verify and document all sources of inputs carefully.
24
Question
What is the third rule mentioned in the text?
Answer
The third rule is no daisychaining.
25
Question
What is the danger of daisychaining in financial modeling?
Answer
Daisychaining can lead to complications later if input references rely on previous calculations, especially if underlying assumptions or formulas change.
26
Question
In the example provided, what service does the business plan to subscribe to?
Answer
The business plans to subscribe to an internet service.
27
Question
How often is the payment for the internet service made?
Answer
The payment will be made once a month on the first day of the month.
28
Question
What happens when the internet provider changes its billing practices from monthly to quarterly?
Answer
When the billing practices change, the cash budget needs to be adjusted, which can lead to an incorrect income statement if the cells are daisy-chained.
29
Question
What is the planned duration for building the business model?
Answer
The business model is planned to be built for five years, starting in January 2024.
30
Question
How many sheets will the Excel workbook contain for the business model?
Answer
The model will have ten sheets in one Excel workbook.