Financial modelling timing flags

A timing flag is an on/off switch in an Excel financial model.  By using these switches you can build in flexibility when you’re modelling.

Why use timing flags in financial modelling?

Timing flags in a financial model could be much clearer and simpler than the alternative!  The flag is a simple on/ off switch.  If you want a result delivered (e.g. because revenues are being generated or expenses are being incurred at that date) the model switch shows “TRUE”.  If no result should be delivered, the timing flag shows “FALSE”. With the timing flag operating, you can easily multiply any element of the financial model by the flag to either deliver a result or not.  You can download a simple example Excel spreadsheet here: timing flag.

Image showing how to use Excel timing flags in financial modelling

In this example, the timing flag at line 8 has been combined with conditional formatting to provide users with a visual representation of the parts of the model that are switched on or off. You might imagine that line 8 could be moved up to the top of the model. All revenue line items would be linked to the switch (see line 10) and the switch’s status would stay visible at the top of any model print out.

Modelling flexibility: what’s the alternative?

The alternative to the above is something like separate “If” functions, used in the parts of the model you want working.  The problem occurs when a new user wants to change the financial model and the phasing of key elements.  They have a challenge in tracking all the elements of the model that should change, and making sure the phasing of each element works correctly.  With the timing flag it’s more obvious how and when certain model elements are being turned on or off.

Benefits of financial modelling using timing flags

The timing flag is set out in a key area of the model (usually at the top or the bottom) and very clearly shows when results in the rest of the financial model are turned on or off.  If the working of the timing flag needs to be varied by a new model user, then it’s very clear which part of the model needs to be varied.

An example: flexing a financial model for valuation dates

You might use timing flags during modelling:

  • To vary debt schedules in a financial model, based on expected debt term
  • To delay or advance (i.e. to phase) capital expenditure, revenues or any other element of the model
  • To adjust a financial model for valuation date.

Here is a more advanced example where timing flags have been combined with Excel’s “EOMonth” date function, as well as the “Iserror” function, so that a financial model can be set automatically to adjust for valuation dates.  Download the Excel spreadsheet valuation dates here.

Next in the Excel financial modelling course extract

In the next lesson we look at how to apply Excel custom formats to get financial modelling numbers displaying exactly as you want them to.

About this online financial modelling course material

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