This article labors to take you through 4 simplified steps of creating this non-standard advanced waterfall chart. Download the file used to follow through. These steps apply for those with MS Excel and lower versions. For Excel , the good news is that the waterfall chart is one of the standard charts!
Share this article with a colleague and let me know in the comments section what data visualization techniques you would want to advance skills in. The first step is to reorganize the data and introduce new columns as shown in the figure that follows.
Invisible column: The values in this column, often referred to as the base column provide support or the starting point to the floating negative and positive series.
Different Advanced Excel analysts apply varied formulas to generate this column. Before inserting the column, ensure you have selected the series labels, and the four columns created in the previous step. This method, however, fails especially where the jumps are huge negatives making the cumulative value to be negative. Get to learn on a more stable method that works with any version of Excel, by grabbing a copy of our Boardroom-Ready Excel Chart Book.
After creating your chart, you can simply copy and paste it into a presentation or report as a picture. If you want to use this chart in an income statement or some other workbook that you are using for your own private use, you can copy the entire waterfall worksheet into your other workbook and use cell references to link values in the data table to values in your statement.
All you need to do is edit the Labels, the Delta values, and place an "x" in the Pillars column if you want to display an intermediate value. To insert new rows, just right-click on a row number and select Insert Row. The first and last rows use unique formulas, so you should not delete those rows, and when you insert a row, insert new rows somewhere between the 2nd row and above the last.
The pillars are created using a Column Chart series or a Bar Chart series in the vertical chart. The positive and negative adjustments are error bars. The data labels are displayed using invisible stacked columns. If the data labels don't end up where you want them, you can manually change the location of each individual data label by dragging them with your mouse.
The data labels for the negative adjustments use a custom number format of "- , 0;- , 0" to force the values to show the negative sign "-" even though the actual values in the data table are positive in the Delta- column. A Buyer will say this is recurring and part of doing business. Or a write-off relating to a customer that went bankrupt, while you will say this is one-off, a Buyer will say this is part of normal business.
Maybe you incurred a lot of marketing costs for a new product or service and consider this to be one-off and should be borne by a Buyer. A Buyer will say this is part of normal business for a growing Company. Be sure of your adjustments and have clear argumentation why they should be considered non-recurring or non-operational. Being too aggressive in your adjustments risks a potential Buyer questioning all of your adjustments.
As mentioned before, the offer letter you receive includes an EBITDA number and a multiple to arrive at the enterprise value. If the potential Buyer finds any additional EBITDA adjustments, they use the multiplier from the offer letter to change the purchase price. As you can imagine this has a huge impact on the purchase price. That is why it is extremely important to know your numbers before starting with the diligence process. Be sure you identified all non-recurring and non-operational items and understand the impact.
Whereas following accounting principles these costs can be capitalized and depreciated, and by so-doing increasing EBITDA. In other words, this has no impact on the valuation of your business. These costs have to be paid either way, whether you capitalize or expense it is just accounting. As they relate to the future, pro forma adjustments have a lesser degree of certainty than traditional EBITDA adjustments. For example, for one-off professional fees you can present the invoice of the supplier.
This way a potential Buyer can make his own assessment of these adjustments. Run rate adjustments use a historically realized result and recalculate it for the whole financial year.
These type of adjustments are common in sectors with recurring revenues and customers with subscriptions. For example, in January you have 10 customers each with a monthly subscription revenue of 5 dollars. In December, this has grown to 25 customers each with a monthly subscription revenue of 5 dollars.
The number of customers has grown evenly during the year, so the full year reported revenue is not representative of the revenues that can be realized with the customer base you have at the end of the year. The run-rate revenue would be dollar, being the 25 customers in December against the monthly revenue of 5 dollars per customer. The difference between your reported revenue and the run-rate revenue is the run-rate adjustment. A run rate adjustment is a very valuable metric to present the revenue potential with the customer base you already have.
Other examples can be found in cost savings. If during the year you moved to a smaller office with cheaper rent, the reported yearly rental cost would be higher than the rental cost in the next year.
A run-rate adjustment would adjust your rental costs to show only the lower new agreed yearly rental costs. Run-rate adjustments are extremely useful to show the real underlying potential of your business, especially when you only recently introduced new cost savings initiatives or have a large growing customer base which shows recurring revenues.
The enterprise value presents the value of your business based on its expected future cash flows.
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