Financial Modelling for Project Finance E-Book

MrExcel's Holy Macro! Books

• Herausgeber: Packt Publishing
• Kategorie: Lebensstil
• Sprache: Englisch

Seitenzahl: 483

Veröffentlichungsjahr: 2024

Beschreibung

This book is a practical guide for mastering financial modeling in project finance, providing a clear journey from foundational concepts to advanced techniques. It begins by introducing project finance, its significance, and how it differs from other finance structures. Readers will learn key Excel functions, data validation, and layout strategies essential for creating accurate and dynamic models.
As the journey progresses, the book emphasizes best practices for building transparent, flexible, and robust models. It covers linked financial statements, cash flow waterfalls, debt structuring, and valuation techniques. A comprehensive case study walks readers through the construction of a full project finance model, separating construction and operational phases while integrating advanced concepts like scenario planning, sensitivity analysis, and ratio metrics.
Designed with a logical flow, this book equips readers with practical skills to tackle real-world financial challenges. From Excel tips to project valuation and funding strategies, it provides actionable insights for analysts, finance professionals, and project managers seeking to excel in project finance modeling.

Leseprobe

Financial Modelling for Project Finance

Dr. Liam Bastick with Oscar Hagan

Copyright © 2024 SumProduct Pty Limited.

Published in 2024 by SumProduct Pty Limited. Ground Floor, 470 St Kilda Road, Melbourne, Vic 3004, Australia. Simultaneously published in USA by Holy Macro! Books, PO Box 541731, Merritt Island, FL 32953

All rights reserved.

Authors: Dr. Liam Bastick with Oscar Hagan

Editor: Kathryn Newitt

Indexer: Cheryl Lenser

Compositor: Bronkella Publishing

Cover Design: Shannon Travise

Distributed by Independent Publishers Group, Chicago, IL

ISBN 978-1-61547-086-0 Print, 978-1-61547-172-0 Digital

Library of Congress Control Number: 2024939388

Version 20240524A

No parts of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, without either the prior written permission of the publisher, or authorisation through payment of the appropriate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the publisher, SumProduct Pty Limited, Ground Floor, 470 St Kilda Road, Melbourne, Vic 3004, Australia, tel: [phone], email: [email protected].

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering public services. If professional advice or other expert assistance is required, the services of a competent professional person should be sought. SumProduct (www.sumproduct.com) is such an organisation that undertakes both tailored training and consulting services. Neither the author nor the publisher is liable for any actions prompted or caused by the information presented in this book. Any views expressed or implied herein are those of the author and do not represent the views of the organisations he works for.

Microsoft and Excel are registered trademarks of the Microsoft Corporation.

About the Authors

Dr. Liam Bastick FCA FCMA CGMA MVP

Starting off as a university lecturer, Liam has over 30 years’ experience in financial model development / auditing, valuations, mergers and acquisitions, project finance, public private partnerships, strategy, training and consultancy. Indeed, he has been appointed as an independent expert for the courts of New York (US) and Victoria and New South Wales (Australia).

He has considerable experience in many different sectors (e.g. banking, energy, media, mining, oil and gas, private equity, retail, transport and utilities) and has worked in many countries (including Australia, Belgium, Denmark, France, Germany, Hong Kong, Indonesia, Malaysia, Netherlands, New Zealand, Philippines, Singapore, Switzerland, United Kingdom, United States and Vietnam). He has worked with many internationally recognised clients, constructing and reviewing strategic, operational, planning and valuation models for many high profile International Public Offerings(IPOs), Leveraged Buy-Outs (LBOs) and strategic assignments.

With over 2,000 articles written for the accounting profession, he is a regular contributor to the American Institute of Certified Public Accountants (AICPA), Chartered Accountants Australia and New Zealand (CAANZ), Certified Practising Accountants Australia (CPAA), the Chartered Institute of Management Accountants (CIMA), the Institute of Chartered Accountants in England and Wales (ICAEW), Microsoft’s Excel Blog and various LinkedIn specialist discussion groups.

Liam is a Fellow of the Institute of Chartered Accountants (FCA), a Fellow of the Institute of Chartered Management Accountants (FCMA), a Chartered Global Management Accountant (CGMA), and is also a professional mathematician, specialising in probability and number theory.

A frequent public speaker, Liam attends Excel and Power BI conferences around the globe and has been a central organiser for the Excel Summit South and Excel Virtually Global. He has also authored and edited several books including the sister volumes Introduction to Financial Modelling, Continuing Financial Modelling and Financial Modelling in Power BI, as well as the Power BI MVP Book and Excel Insights.

Since 2012, he has been recognised by Crimewatch and Microsoft, the latter as a Most Valuable Professional (MVP) in Excel, one of c.130 such awardees worldwide (as at the time of writing). In 2021, Liam was the recipient of the inaugural Lifetime Achievement Award for Financial Modelling by the Financial Modeling Institute (the inconsistent spelling of “Modelling” is as intended!).

He still follows Derby County and the England cricket team. Poor soul.

Oscar Hagan

Oscar is an experienced model builder and auditor, specialising in Project Finance. He’s built bespoke modelling solutions across a range of industries and sectors for clients throughout the UK, Europe, and Australia. He’s provided clients with in-depth analysis, using a combination of Excel, VBA, Power BI, and various database analytics.

Oscar provides training and produces courses in Financial Modelling and other areas of Excel, which are used by professional accounting bodies around the world.

In his free time, Oscar enjoys playing video games and tabletop role-playing games. It’s how he rolls.

Preface

Wow, fourth book into the series. When my publisher told me to “go fourth and multiply” I might have misunderstood him. Perhaps I will learn to spell and write US English. Nah. Not gonna happen.

This book revisits the topics of the first two volumes in particular, but plants the focus clearly on the accounting world of Project Finance this time around. Yes, it reiterates many tips and tricks of past books, but there is now application in its application – there is more focus on debt, more interest in interest and an explanation of why the ordering derived in the first book is not quite appropriate here.

I continue to be lucky enough to be appointed a Most Valuable Professional (MVP) by Microsoft for services to Excel – one of over one hundred “experts” as at the time of writing. I have used this fabulous network to discuss ideas, research technical problems and understand how modelling shapes the Excel community – not just the Project Finance subset.

As with all my books, I’d like to thank those that helped contribute to this one.  I’ve many to thank formally in the acknowledgment section below, but I do want to say a big thank you here to my immediate family who I dedicate this book to: my wife Nancy and daughter Layla.  With that borne in mind, I shall allow – as usual – my daughter to have the final word(s):

“Another book? Great. Can I borrow the car keys?”

Liam Bastick, March 2024

Acknowledgements

I’d like to thank those that helped contribute to this book. There are quite a few: Oscar Hagan put much of the modified model together and assisted with the structure of the book, Tim Heng provided helicopter overview and Kathryn Newitt edited it technically, as she endeavoured to locate all my deliberate mistakes. You will have to judge whether she passed the test!

I’d also like to thank budget Christmas crackers for my usual raft of bad jokes, Bill Jelen for continuing to have faith that someone might read these books, and most importantly my immediate family, Nancy and Layla, who continue to support me.

Liam Bastick, March 2024

Whilst I contributed much of the case study model for this book, I couldn’t have done that without Tim Heng’s assistance. As for the wording I contributed, I couldn’t have done that without Liam’s correction of my terrible punctuation (how, do commas, work anyway?) and Kathryn’s feedback as to when my explanations didn’t quite make sense. Despite that, I’ve got my name on the front of the book and they don’t – seems unfair, but that’s showbiz baby.

Oscar Hagan, March 2024

Editor’s Notes

Regular readers of the Financial Modelling series will appreciate that I have spent many happy hours recreating Income Statements, Cash Flow Statements and Balance Sheets by following Liam’s control account approach. Imagine how excited I was to hear that this time, he was going to tackle the complex world of Project Finance!

When the first draft of the latest book in the series appeared, I realised that not only was I going to be building integrated Financial Statements again, but this time with lots more to consider, and in a slightly different order…

The approach that Liam takes uses concepts (and jokes!) from the first books in the series but applies them to the unique requirements of Project Finance. In this task, he has been joined by Oscar, who has managed to explain some of the more complex formulae in a way that even I can understand.

As ever, I encourage you to build the model as you read, in order to appreciate why Project Finance is tackled in the order they have chosen. I hope that you will take the concepts and build excellent models of your own to support successful projects.

Kathryn Newitt

www.sumproduct.com

Downloadable Resources

Throughout the book, we have included relevant images to help follow the process. However to really get to grips with the build, and check your own results, nothing beats being able to read through the actual model. We have also provided useful supporting Excel examples for the concepts discussed in this book. All of the milestones of the case study as well as a selection of other examples can be accessed by using the link:

https://www.sumproduct.com/pf-book-resources

Contents

CHAPTER 0: INTRODUCTION

CHAPTER 0.1: FILE LOCATION

CHAPTER 1: WHAT IS PROJECT FINANCE?

CHAPTER 2: KEY EXCEL FUNCTIONS

CHAPTER 2.1: SUM

CHAPTER 2.2: IF

CHAPTER 2.3: IFERROR

CHAPTER 2.4: SUMIF

CHAPTER 2.5: SUMIFS

CHAPTER 2.6: SUMPRODUCT

CHAPTER 2.7: VLOOKUP / HLOOKUP

CHAPTER 2.8: LOOKUP

CHAPTER 2.9: INDEX and MATCH

INDEX

MATCH

INDEX MATCH

CHAPTER 2.10: XLOOKUP and XMATCH

XLOOKUP

Comparisons with LOOKUP

Useful Features of XLOOKUP

Partial and Exact Matching

XMATCH

CHAPTER 2.11: CHOOSE

CHAPTER 2.12: OFFSET

Aside: Volatile Functions

CHAPTER 2.13: MOD

Common Example with MOD and OFFSET

CHAPTER 2.14: EOMONTH and EDATE

CHAPTER 2.15: MAX, MIN, LARGE and SMALL

CHAPTER 3: KEY EXCEL FUNCTIONALITIES

CHAPTER 3.1: ABSOLUTE REFERENCING

CHAPTER 3.2: NUMBER FORMATTING

Example 1: Comprehensive

Example 2: Hiding the Contents of a Cell

Example 3: Formatting Based on Conditions

Use with Caution

CHAPTER 3.3: STYLES

Macros

CHAPTER 3.4: CONDITIONAL FORMATTING

CHAPTER 3.5: RANGE NAMES

Space: the Final Frontier?

Deleting Range Names

Relative Referencing

Other Types of Names

CHAPTER 3.6: DATA VALIDATION

Other Types of Data Validation

List

Custom

Data Validation is Reactive Not Proactive

Best Excel Tip Ever..?

CHAPTER 3.7: DATA TABLES

1-D Data Tables

2-D Data Tables

Important Considerations

Data Table on Other Sheets

CHAPTER 3.8: GOAL SEEK and SOLVER

NPV and IRR

Introducing Solver

Using Solver with a Reference

VBA Approach

CHAPTER 3.9: HYPERLINKS

CHAPTER 4: OTHER EXCEL POINTERS

Quick Analysis

New Workbook Defaults

Formulas Options

Save Options

Saving Files

Advanced Options

Quick Access Toolbar

CHAPTER 5: BEST PRACTICE METHODOLOGY

Consistency

Robustness

Flexibility

Transparency

CHAPTER 6: LAYOUT TIPS

CELL

Step 1: FINDing the Beginning and the End

Step 2: LEFT a bit, RIGHT a bit, Aim for the MID Section

Step 3: Error Trapping

Sheet Title Revision

Back to Layout Tips

Splits

Hyperlink Home Cell

Summary

CHAPTER 7: TIME SERIES ANALYSIS

CHAPTER 8: ERROR CHECKS

Variables vs. Constants

CHAPTER 9: MODEL TEMPLATE EXAMPLE

Difference Between a Template and a Reusable File

CHAPTER 10: FINANCIAL STATEMENT THEORY

Income Statement

Balance Sheet

Cash Flow Statement

Linking Financial Statements

Appropriate Order of the Financial Statements

Impact of Project Finance Modelling

CHAPTER 11: CONTROL ACCOUNTS

Building a Financial Model

CHAPTER 12: EXAMPLE PROJECT FINANCE MODEL BUILD

CHAPTER 12.1: INITIAL STRUCTURE

CHAPTER 12.2: ADDING SHEETS

CHAPTER 12.3: CREATING THE FINANCIAL STATEMENT WORKSHEETS

CHAPTER 12.4: LINKING THE FINANCIAL STATEMENT WORKSHEETS

CHAPTER 12.5: CONSTRUCTION

Importance of Lookup Worksheets

Using Lookup Lists

CHAPTER 12.6: INTERMISSION

CHAPTER 12.7: REVENUE

The Four Methods of Entering Inputs into a Model

Working Capital Adjustments

Revenue Calculations

CHAPTER 12.8: COSTS OF GOODS SOLD

The Four Methods of Entering Inputs into a Model

CHAPTER 12.9: OPERATING EXPENDITURE

CHAPTER 12.10: CAPITAL EXPENDITURE

Theory

Reverse Depreciation Rates Method

Back to the Case Study

CHAPTER 12.11: DEBT

The 3 R’s of Debt Modelling

Capitalised vs. Rolled Up

Avoiding Circularity

Calculating Interest without Circularity

Back to the Case Study

Overview of Debt in Case Study

Calculating Interest

Annuity Repayments

Sculpted Debt

Cash Flow Waterfall

Cash Sweep

Debt Control Account

Debt Service Reserve Account (DSRA)

Working Capital Facility

Interest Receivable

Convertible Debt

Transferring to Equity

CHAPTER 12.12: TAXATION

Theory

Liam’s Law of Tax

Back to the Case Study

CHAPTER 12.13: MAINTENANCE RESERVE ACCOUNT

CHAPTER 12.14: EQUITY

CHAPTER 12.15: SINGLE ENTRY ACCOUNTING

CHAPTER 12.16: INDIRECT CASH FLOW EXTRACT

CHAPTER 13: FURTHER RATIO ANALYSIS

Profitability Ratios

Liquidity Ratios

Asset Management Ratios

Debt (Gearing) Ratios

Equity Ratios

Market Value Ratios

Example

CHAPTER 14: SOURCES AND USES OF FUNDS

CHAPTER 15: VALUATION

CHAPTER 16: SCENARIO MANAGER

CHAPTER 17: AND FINALLY…

Index

PROJECTING PROJECT FINANCE MODELLING

CHAPTER 0: INTRODUCTION

This series keeps getting bigger, doesn’t it?

Welcome to Volume 4 of the continuing series in Financial Modelling. And therein lies the first problem – the spelling of “Financial Modelling” differs all over the world (well, one country in particular…). What to do? Different editions? No, I decided there was only one way to write. In English. Just joking. I have to write it my way – and that means, with a twinkle in my eye, some detailed insight – and a sense of humour. And yup, “humour” dedicated to “u”.

But there is another problem. Not everyone reading this book is going to be aware of the other books and / or read them. There is repetition. What do I do here? Well, I have to make each book stand alone. Therefore, I’m sorry, if you’re a loyal reader, you will note some of the groundwork has been laid before. Please indulge me: it is not to pad the book out; it is in order for it to make sense. Further, it doesn’t mean the other books aren’t useful either. They address different topics.

So what’s this book about? As usual, I assume you have used Excel before and that you have a reasonable grasp of the more basic elements of accounting and finance. It doesn’t mean you have an accounting fellowship or a diploma in knowing the difference between United States Generally Accepted Accounting Principles (well, “generally accepted” by the US) [US GAAP] and International Financial Reporting Standards [IFRS]. This book is about all you need to know to get started in the wonderful work of Project Finance financial modelling. The salient points remain similar – and the chart of accounts (content and presentation) will differ a little.

I’m also going to assume you are toilet trained, can tell the time and have learned to read. Actually, that last one is quite important, come to think about it.

If you meet all these criteria, welcome aboard, I shall try not to make this a dreary ride. So, full steam ahead as I train you on how to model Project Finance. I need to stay on track for this one, so hopefully there won’t be too many dreadful “Liam puns”. I will try and know my station! [Please stop: I am feeling travel sick already – Ed.]

The plan is therefore as follows:

Understanding “Project Finance”: A book on Project Finance needs to explain what Project Finance is and how it differs from “project finance”. I think it’s important to explain and distinguish this at the outset. So that is exactly what I do.Key Excel functions: Before we go anywhere after explaining the over-arching topic, let’s start with a refresher on the key functions most commonly required in financial modelling, especially for Project Finance. If you haven’t read this before, may I suggest you read this section as I do note some function foibles that many just don’t appreciate.Key Excel functionalities: There’s other attributes that we need to take for granted too. In this section, I will discuss key functionalities such as absolute referencing, number formatting, conditional formatting, Data Tables, data validation, range names, hyperlinks and the like. OK, these features will be taken out of context, but it will make for an easier read when we talk about building the model later.Other Excel pointers: There are other points / settings to note that make for an easier life when modelling. I detail them in this section.“Best Practice” methodology: No matter how hard everyone tries, there is little consensus on what constitutes “Best Practice”. There’s so much literature out there – and to be honest, I have even been involved in writing some of these said texts, but hey, I was young, I needed the money and I was never photogenic… However, we do need a conceptual framework and I propose something very simple – something our company calls CRaFT.Layout tips: Everyone always ploughs straight into Excel and seldom gives thought as to how to put a worksheet – never mind a workbook – together. This section provides useful tips and insights on the matter.Time series analysis: If we are going to build a model, we will have to work with dates – and that’s perhaps not quite as straightforward as you might think. In this section, I will explain how dates ought to be constructed and why – including periodicity issues – and where they should be positioned both in a worksheet and within the workbook to avoid errors.Checks: Talking of errors, error checks are part of the check ecosystem. Unfortunately, they are often added as an afterthought in a model. They shouldn’t be. In this section, I will explain why they should be at the forefront of your model development and implementation will just make your life – and the model user’s life – easier. And yes, the irony is not lost on me that this section isn’t exactly at the beginning of the book!Base template: No, I don’t mean, here’s a model I used last time and I will add a row here, delete a column there and deal with the #REF! errors and other model integrity issues when someone points them out to me. No; I accept all models are different, but they do share common attributes. It’s this foundation which I can translate into a base template to use at the outset of developing a financial model.Financial statement theory: I made the joke in the first book that it was the phrases “double entry” and “working with models” that attracted me to this profession. How disappointed was I? On a serious note though, I want to revisit the key outputs of a financial model to fully understand what “three-way integrated” means and the ramifications for the modeller. Further, I actually go back to understand what is an Income Statement, a Balance Sheet and a Cash Flow Statement. Yes, you may know what they are – but I want to do it from the perspective of understanding the purpose of each statement so that it guides you in determining the order of building a financial model – and then how that differs for Project Finance. No matter what you build, the derived order may be applied to all future model developments. Control accounts: Debits and credits may be the accountants’ way of keeping the mystery alive in finance, but the whole transactional nature of accounting and finance is often understood better by the majority of end users if we adopt control accounts. I explain what they are here, why they are useful, and most importantly, if you choose to use control accounts, Balance Sheet errors and similar mistakes will become a thing of the past.Example of a Project Finance model build: Oh yes, might be an idea to actually build a Project Finance model. With all the scene setting in place, we finally get to the main act as we use a generic example to explain the four methods of model input, calculation tips etc., how building in the order derived in the Financial statement theory section works in practice, and the need for restating the cash position by using both as Sources and Uses of Funds and a Cash Flow Waterfall. Other topics: Finally, I consider the rudiments of checking your outputs using ratio analysis, varying said outputs using scenario analysis and estimating project impact using valuation analysis. I then delight in finishing my book after weeks of staying up to all hours for some well-earned psychoanalysis.

Before I proceed, let me stress one last thing: this is intended to be a practical book. There are many supporting Excel examples to review and use, grouped by chapter / section, to visualise the important concepts discussed here. So let’s roll up those sleeves, dive right in and see how many more contrived cliches I can include in this book…

Enjoy!

CHAPTER 0.1: FILE LOCATION

There is little point in me creating useful supporting Excel examples for the concepts discussed in this book without being very specific about where you can find them! All of the milestones of the case study as well as a selection of other examples can be accessed by using the link:

https://www.sumproduct.com/pf-book-resources

CHAPTER 1: WHAT IS PROJECT FINANCE?

It isn’t going to be a very educational book if I don’t explain the words “project finance”, is it? I have to be careful though. There is a difference between “project finance”, i.e. two words, one an adjective and the other a noun, and “Project Finance”, a proper noun consisting of two words. Whoever heard of such a thing as a proper noun (why isn’t that capitalised?) consisting of two or more words? Well, I have – and my name is Liam Bastick. That is also a proper noun with more than one word!

The term “project finance” merely means the type of finance pertaining to a particular project, plan scheme, development, venture, assignment, task, undertaking, endeavour, etc. Yes, I know how to read a thesaurus, but I did struggle to find another useful word for “thesaurus”…

The phrase “project finance” is thus generic and refers to anything and everything financial that relates to a given ring-fenced scenario. For example, I might decide to save up a deposit for a house or apartment. The acquisition of said asset is my project and the savings could be argued to be my project finance.

The concept of “Project Finance” is more tightly defined. The International Project Finance Association (IPFA) defines Project Finance as the “financing of long-term infrastructure, industrial projects, power plants, public service initiatives etc., where project debt and equity used to finance the project are paid back from the cash-flow generated by the project”.

This means two key conditions must be satisfied:

The net cashflows emanating from the project are expected to be sufficiently positive to service the debt and equity ascribed (with a view that at least the debt is repaid in due course)The loans will usually be secured by the project assets or, to the extent that the security interests are insufficient, they are secured by contingent support from project sponsors and other similar participants / interested parties.

The idea here is that a project is “ring-fenced” in that you can readily identify what is and what is not included in the “project”. Often, this is made simpler legally by setting up separate legal entities that may be known as “special purpose vehicles” (SPVs – Captain Scarlet was so ahead of his time), or joint ventures between owners or benefactors of the project, known as sponsors.

In my above example for “project finance”, I am only interested in raising sufficient funds to raise a deposit for my place of residence. It does not consider whether I have the means to repay the loan I might be offered at that point.

Regarding “Project Finance”, typically a parent company will set up / establish a legal entity, such that there is no repayment required from the parent company. Loans made in this manner are known as non-recourse debt (loans) and do not allow lenders to pursue anything other than the securitised collateral. Sometimes, that isn’t fully possible, and limited recourse debt is drawn instead, which provides creditors with a limited claim (hence the name) on the borrower’s assets should they default on the loan. (Full recourse would simply mean there is no such limitation.)

In this book, I will be imagining a situation where we are modelling the scenario from the SPV’s perspective with non-recourse debt, i.e. a standalone situation where the project “lives and dies” based upon the cashflows generated.

And cashflow is an important consideration here. There must always be sufficient cash to pay the bills as the project is ring-fenced. Making profits just doesn’t cut it. A business may be immensely profitable but simply run out of cash (this is frequently referred to asovertrading, whereby a business’s profits grow significantly, but revenues are not recouped quickly enough to meet costing obligations). Once that happens, it’s game over.

Project Finance requires three steps (stages) to be considered when evaluating a project:

Even in light of this evaluation, given the project usually depicts situations where large infrastructure is constructed, there can be significant costs before any revenues may even be feasible. For example, the project might entail the construction of toll roads, a hospital, a prison, and so on. It may be years before any revenues are earned. This period is known as the construction period, and shareholders and creditors alike will provide funds and grants knowing that repayments are improbable if not impossible. Dividends will not be paid out and interest on loans will simply be rolled up (“capitalised”) and added to the outstanding debt balance.

Once this phase is completed, the operations period then follows. This may be a finite period or ongoing. Here, revenues are expected, as are profits and positive net cashflows – sufficient to service all equity and debt obligations (e.g. principal and interest with regard to loans drawn). Funding raised during the construction phase may be transferred to new financing instruments at this stage, where the terms of more conventional repayment profiles then ensue. It will be expected that debt will be repaid within a certain period, whether the operations period is finite or ongoing.

This has implications for our financial modelling. The basic approach cited in Introduction to Financial Modelling here needs to be modified. During the initial construction phase, we won’t use the usual technique for determining the order of calculations. We have to focus on the sources and uses of funds, so the “standard” approach of working through the numbers will not prioritise financing. This is therefore an inappropriate method of modelling for Project Finance.

Once the operations period is commenced (i.e. the business is deemed a going concern), the conventional approach to modelling may then be followed. Therefore, a two-stage methodology is required for Project Finance modelling.

But it’s even more than that. I have already stressed the importance of cashflow; however, the Cash Flow Statement actually needs to be represented in at least three different ways:

Cash Flow Statement: the standard way that cashflows are presented in accounting financials such as statutory statements of accountSources and Uses of Funds: we need to demonstrate (especially during the construction period) that there are sufficient monies available to meet all eventualities before the project can begin to fund itselfCash Flow Waterfall: we need to understand not just how cash is generated but the timing too, so we know we can repay loans as and when they fall due, for example. Equity investors may be the last to be repaid (if at all), but they may need to be the first to put their hands into their pockets to show lenders that the sponsors / owners are sharing in the risk and rewards of the project too.

We need to ensure all aspects of detailing cash are modelled – and this complicates the modelling compared to a more typical financial model. That is what this book is about – sorting out these quirks and applying the tips, tools and techniques learned previously – assuming you have read the other books.

If you haven’t, don’t worry. We need to crawl before we walk before we run. Let’s turn our attention to the key things we need to know in general about Excel, its functions, features and settings, that will help build our Project Finance financial model.

Dear reader, it’s time to get started!