Toolkit: Financial Model Review Checklist

Introduction

This checklist provides a structured approach to reviewing financial models for accuracy, robustness, and clarity. A thorough model review is crucial before relying on its outputs for decision-making (e.g., investment, credit assessment, strategic planning). This checklist is intended as a guide and may need to be adapted based on the model's complexity and purpose.

How to Use This Checklist

Go through each section and item. Mark items as:

[x] - Satisfactory / Complete / N/A
[ ] - Unsatisfactory / Needs Improvement / Further Investigation Required

Add comments for any items marked as unsatisfactory.

I. Model Structure & Formatting

Overall Clarity & Organization:

[ ] Is the model's purpose clearly stated?
[ ] Is there a clear table of contents or navigation guide for larger models?
[ ] Are sheets clearly and consistently named?
[ ] Is there a logical flow between sheets (e.g., inputs -> calculations -> outputs)?

Inputs, Calculations, Outputs Separation:

[ ] Are input cells clearly distinguished (e.g., color-coded, specific sheet)?
[ ] Are calculations separated from inputs and outputs?
[ ] Are outputs clearly presented and easy to find?

Formatting & Readability:

[ ] Is formatting consistent (fonts, number formats, colors)?
[ ] Are units clearly stated (e.g., $, millions, %, etc.)?
[ ] Is there adequate spacing and clear labeling for rows and columns?
[ ] Are formulas reasonably simple and broken down if complex? Avoid mega-formulas where possible.

No Hardcoding in Formulas:

[ ] Are all assumptions and drivers in input cells, not embedded directly in formulas? (Exception: genuinely fixed constants like days in year if not an input).

Comments - Structure & Formatting:

(Add comments here)

II. Inputs & Assumptions

Source & Documentation:

[ ] Are sources for all historical data and key assumptions clearly documented?
[ ] Are assumptions clearly labeled and easy to understand?

Reasonableness & Support:

[ ] Are key assumptions (growth rates, margins, discount rates, etc.) reasonable and supportable (e.g., by historical trends, industry research, management guidance)?
[ ] Has the basis for each key assumption been challenged or reviewed?

Sensitivity & Scenario Analysis:

[ ] Are key assumptions designed to be easily sensitized?
[ ] Is there functionality for scenario analysis (base, upside, downside)? Are scenarios clearly defined?

Historical Data Accuracy:

[ ] If historical data is used, has it been checked against audited financial statements or reliable sources?
[ ] Are historical calculations consistent with reported figures?

Comments - Inputs & Assumptions:

(Add comments here)

III. Calculations & Logic

Formula Correctness & Integrity:

[ ] Spot-check key formulas for logical correctness.
[ ] Trace precedents and dependents for critical calculations.
[ ] Are time periods handled consistently (e.g., start/end of period, annualization/de-annualization)?
[ ] Are signs correct (e.g., costs negative, revenues positive)?

Linking & Dependencies:

[ ] Are links between sheets correct and not broken?
[ ] Are there any unintended external links to other files?

Circular References:

[ ] Are there any unintended circular references?
[ ] If intentional circularities exist (e.g., interest on debt calculation), are they properly controlled with iterative calculations enabled and understood? Is there a circuit breaker or manual override?

Financial Statement Integrity:

[ ] Balance Sheet Balances? (Assets = Liabilities + Equity) This is critical.
[ ] Does the Cash Flow Statement correctly reconcile opening and closing cash balances?
[ ] Do changes in Balance Sheet items correctly flow through the Cash Flow Statement (e.g., working capital changes, capex, debt drawdowns/repayments)?
[ ] Is Net Income from the Income Statement correctly linked to Retained Earnings on the Balance Sheet and the start of the Cash Flow Statement?

Consistency Checks:

[ ] Are calculations consistent across different parts of the model?
[ ] Are totals and subtotals correctly calculated? (e.g., does sum of individual expense lines equal total OpEx?)

Comments - Calculations & Logic:

(Add comments here)

IV. Outputs & Presentation

Key Outputs Clarity:

[ ] Are the primary outputs of the model (e.g., valuation, credit metrics, forecast financials) clearly displayed and easy to interpret?
[ ] Is there a summary sheet or dashboard for key results?

Charts & Tables:

[ ] Are charts and tables clear, correctly labeled, and effectively visualizing the intended information?
[ ] Do they update correctly when inputs change?

Scenario & Sensitivity Display:

[ ] If scenarios/sensitivities are run, are the results clearly presented and comparable?

Professionalism:

[ ] Is the overall presentation professional and suitable for its intended audience?

Comments - Outputs & Presentation:

(Add comments here)

V. Error Checks & Robustness

Built-in Error Checks:

[ ] Does the model include explicit error checks (e.g., balance sheet check, cash flow check, flags for negative equity/revenue)?
[ ] Are these error checks clearly visible?

Stress Testing:

[ ] Has the model been stress-tested with extreme (but plausible) inputs to see if it behaves as expected or breaks?

Protection & Version Control:

[ ] Are input cells unlocked and calculation/output cells locked (if model is to be shared)?
[ ] Is there any version control or log of changes if the model is complex and iterative? (More of a process point)

Comments - Error Checks & Robustness:

(Add comments here)