Integrated three-statement model
The operating model everything else sits on. Build a forecast in which the balance sheet balances because the cash flow statement is complete, and explain why.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: integrated three-statement model.Updated 30 September 2026
Who builds it, and for whatEvery analyst builds one in their first months, and most senior people still open one before anything else. It is the operating core under a DCF, the source of the cash flow an LBO sweeps, and the way a credit analyst sees whether a borrower can service its debt. Its job is to turn a handful of operating assumptions into three statements that agree with each other.
| A | B | C | D | E | F | G | H | I | J | K | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Assumptions | ||||||||||
| 2 | Blue cells are the only cells to change. Forecast years run FY4E to FY8E. | ||||||||||
| 4 | Driver | Unit | FY1A | FY2A | FY3A | FY4E | FY5E | FY6E | FY7E | FY8E | |
| 5 | Scenario | ||||||||||
| 6 | Scenario selector (1 base, 2 upside, 3 downside) | # | 1 | Drives revenue growth and gross margin below. | |||||||
| 8 | Revenue growth by scenario | ||||||||||
| 9 | Base case growth | % | 8.0% | 7.0% | 6.0% | 5.0% | 5.0% | ||||
| 10 | Upside case growth | % | 11.0% | 10.0% | 9.0% | 8.0% | 7.0% | ||||
| 11 | Downside case growth | % | 2.0% | 1.0% | 0.0% | 2.0% | 3.0% | ||||
| 12 | Revenue growth (live) | % | 8.0% | 7.0% | 6.0% | 5.0% | 5.0% | ||||
| 14 | Margins and costs | ||||||||||
| 15 | Base case gross margin | % | 42.0% | 42.0% | 43.0% | 43.0% | 43.0% | ||||
| 16 | Upside case gross margin | % | 43.0% | 44.0% | 45.0% | 45.0% | 45.0% | ||||
| 17 | Downside case gross margin | % | 40.0% | 39.0% | 39.0% | 39.0% | 39.0% | ||||
| 18 | Gross margin (live) | % | 42.0% | 42.0% | 43.0% | 43.0% | 43.0% | ||||
| 19 | Operating expenses, % of revenue | % | 25.0% | ||||||||
| 20 | Tax rate | % | 25.0% | ||||||||
| 22 | Working capital | ||||||||||
| 23 | Days sales outstanding (receivables) | days | 45 | ||||||||
| 24 | Days inventory outstanding | days | 60 | ||||||||
| 25 | Days payables outstanding | days | 40 | ||||||||
| 26 | Days in the year | days | 365 | ||||||||
| 28 | Fixed assets | ||||||||||
| 29 | Capital expenditure, % of revenue | % | 5.0% | ||||||||
| 30 | Depreciation, % of opening net PP&E | % | 12.0% | ||||||||
| 32 | Financing | ||||||||||
| 33 | Minimum cash balance | $m | 20.0 | ||||||||
| 34 | Term loan scheduled amortisation | $m | 15.0 | 15.0 | 15.0 | 15.0 | 15.0 | ||||
| 35 | Term loan interest rate | % | 6.0% | ||||||||
| 36 | Revolver interest rate | % | 7.0% | ||||||||
| 37 | Interest earned on cash | % | 2.0% | ||||||||
| 39 | Distributions | ||||||||||
| 40 | Dividend payout, % of net income | % | 30.0% |
Click any cell. The inspector names the line, the schedule it belongs to and what kind of cell it is; blue on cream is an input, black a calculation, green a value from another sheet. Scroll sideways to see every year.
Download
Integrated three-statement model: the workbook
Native Excel, formulas live, no macros, no external links. Inspect it above first; the file is the same model with the formulas in it.
A free account chooses one worked model to keep, and downloads every starter workbook. L3VLUP Pro ($25/month) opens the whole library. Signing in takes one email and no password.
What the base case says
- Revenue, FY8E
- $634.7m
- EBITDA margin, FY8E
- 18.0%
- Closing cash, FY8E
- $99.9m
- Net debt / EBITDA, FY8E
- -0.7x
- Cash conversion cycle, FY8E
- 65
Read from the workbook as served, every input at its default. Periods: FY1A, FY2A, FY3A, FY4E, FY5E, FY6E, FY7E, FY8E. The figures are invented and move with whatever you type in.
What this model is
An operating model for a single company: three typed historical years and five forecast years, with the income statement, balance sheet and cash flow statement linked through four schedules.
The forecast is driven from the Assumptions sheet alone. Change a driver there and every statement moves; nothing on a statement is typed after FY3A.
Use it to learn how the statements connect, to test what a scenario does to cash and leverage, or as the operating core under a valuation.
Seats: Investment banking, Private equity, Equity research and hedge funds, Every seat.
How the schedules connect
Every row in the workbook is tagged with the schedule it belongs to; the inspector above shows the tag when you click a row. These are the schedules this model is made of and where each one lives.
Revenue build
Where the top line comes from
Assumptions, rows 9–12 · Income Statement, rows 6–10
Operating costs and margins
Cost of sales, opex, EBITDA
Assumptions, rows 15–20 · Income Statement, rows 13–17
Working capital schedule
Receivables, inventory and payables in days
Assumptions, rows 23–26 · Working Capital, rows 6–10
Capex and depreciation (PP&E roll-forward)
Opening, plus capex, less depreciation, closing
Assumptions, rows 29–30 · Cash Flow, rows 12–13 · PP&E, rows 6–11
Debt schedule
Tranches, interest, amortisation and the sweep
Assumptions, rows 33–37 · Income Statement, rows 20–25 · Cash Flow, rows 16–20 · Debt, rows 6–9 · Debt, rows 12–15 · Debt, rows 18–21 · Debt, rows 24–29
Equity roll-forward
Share capital and retained earnings
Assumptions, row 40 · Income Statement, rows 28–29 · Equity, rows 6–12
Cash flow statement
Indirect method, closing on balance-sheet cash
Cash Flow, rows 6–9 · Cash Flow, rows 23–25
Balance sheet
Every line from a schedule, and the check
Balance Sheet, rows 6–10 · Balance Sheet, rows 13–16 · Balance Sheet, rows 19–24
What you should be able to explain
- How net income reaches the balance sheet through retained earnings, and cash through the cash flow statement.
- Why an increase in working capital is a use of cash, and why receivables follow revenue while payables follow cost of sales.
- How a PP&E roll-forward turns capex and depreciation into a balance.
- What a revolver does in a model, and why charging interest on opening balances avoids a circular reference.
- What a balance check proves, and what it does not.
What a reviewer looks for
- Plugging cash to make the balance sheet balance instead of finding the line that is missing.
- Forecasting depreciation as a percentage of revenue while capex is a percentage of revenue too, so the asset base drifts.
- Charging interest on average balances without an iteration switch and wondering why the workbook warns of a circularity.
- Typing a number into a forecast cell to fix one year, which breaks every year after it.
Conventions this workbook uses
Stated on the cover sheet too. A model is only as trustworthy as the decisions it tells you it made.
- Costs are shown as positive numbers and subtracted, so a margin reads as profit divided by revenue without a sign change.
- Interest is charged on opening debt and earned on opening cash. This breaks the circularity between interest and cash without an iteration switch; the cost is that a mid-year draw pays no interest until the following year.
- The revolver is the balancing item: it draws when cash would otherwise fall below the minimum and repays as soon as cash allows. Cash itself is never a plug.
- Depreciation runs off opening net PP&E at a single rate. A vintage-by-vintage waterfall is a schedule of its own and is not attempted here.
- Working capital is built in days. Receivables use revenue; inventory and payables use cost of goods sold.
Build it yourself
The starter workbook
The Debt sheet has been cleared from the cash-available block to the totals. Build the term loan, the revolver and the interest lines so that the income statement, the cash flow statement and the balance sheet close again. The Checks sheet will tell you when they do.
Blanks: Debt schedule. Free with any account. Compare with the worked model when you are done: download above.
The path around this model
Understand it, drill it, read the build, then apply it to a real company.
Understand · Primer
Three-Statement Modelling
Intro · a curated reel with a quiz
Build · Lab · ~8 min
Three-Statement Linker
Walk any event through all three statements in the right order, with the right signs, and prove the balance sheet balances rather than asserting it.
Build · Lab · ~10 min
Depreciation Waterfall
Forecast depreciation from a capex plan rather than a ratio, read a capex-to-depreciation multiple, and say which part of the spend is buying growth and which is only standing still.
Read · Guide · 13 min
How to Build a Three-Statement Model That Actually Balances
Read · Guide · 11 min
Financial Modelling Best Practices: The Conventions That Make a Model Auditable
Read · Guide · 7 min
"Walk Me Through the Three Statements" — And Every Follow-Up
Read · Guide · 11 min
How to Review a Financial Model Before It Leaves Your Desk
Read · Guide · 10 min
Scenario and Sensitivity Architecture: Building a Model That Can Be Stress-Tested
Apply · Skill
Model Audit
Find the errors in a financial model before someone senior does.
Vocabulary: The Three Financial Statements, Working Capital, EBITDA, Net Debt.
Questions about this model
Why does the balance sheet balance?
Because every movement in every balance passes through the cash flow statement or retained earnings. Cash is the closing figure of the cash flow statement, not a balancing item. If a line were missing from the cash flow statement the check would fail, which is why the check exists.
Why is interest charged on opening balances rather than average?
Average-balance interest depends on the closing balance, which depends on cash, which depends on interest. That is a genuine circular reference and needs an iteration switch and a circuit breaker to be safe. Opening-balance interest is a one-year lag in exchange for a model that always calculates, which is the right trade for a learning model and a common choice in practice.
How do I add another year?
Copy the last forecast column on every sheet and extend the driver rows on the Assumptions sheet. Every forecast formula references its own column and the one before it, so nothing else changes. Then re-open the Checks sheet.
Is the history real?
No. The company is invented. The three typed years were chosen to be internally consistent, so the derived cash flow for years two and three ties to the typed cash balance, and you can verify that on the Checks sheet.
What does it cost?
Nothing to inspect: the whole workbook is on this page. A free account chooses one worked model to keep, and downloads every starter workbook. L3VLUP Pro ($25/month) downloads the whole library and opens every model’s formulas in the inspector.