The preparation and presentation of this information can become quite complicated. In general, however, the following steps are followed to create a financial model.

• Line-items for each of the core statements are set up. This provides the overall format and skeleton that the financial model will follow
• Historical numbers are placed in each of the line-items
• At this point, the creator of the model will often check to make sure that each of the core statements reconciles with data in the other. For example, the ending balance of cash calculated in the cash flow statement must equal the cash account in the balance sheet
• An assumptions section is prepared within the sheet to analyze the trend in each line-item of the core statements between periods
• Assumptions from existing historical data are then used to create forecasted assumptions for the same line items
• The forecasted section of each core statement will use the forecasted assumptions to populate values for each line item. Since the analyst or user has analyzed past trends in creating the forecasted assumptions, the populated values should follow historical trends
• Supporting schedules are used to calculate more complex line items. For example, the debt schedule is used to calculate interest expense and the balance of debt items. The depreciation and amortization schedule is used to calculate depreciation expense and the balance of long-term fixed assets. These values will flow into the three main statements