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July 2011
by Joseph Esposito

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by Joseph Esposito

It’s standard practice nowadays to talk about “the business model.” This conversation takes place in companies large and small, for-profits and not-for-profits. The term doesn’t necessarily mean the same thing to everybody. For some, it’s a simple answer to the direct question, “How does this company make money?” For others, it refers to a sophisticated financial exercise, almost always performed (yes, performed, like complex gymnastics) with Microsoft Excel.

These Excel models have become works of art.

I saw one not long ago that consisted of a series of linked spreadsheets that covered assumptions and multiple scenarios. What happens if the average price received for Segment 9 drops by $0.32? Well, everything gets recalculated instantly; note in particular the changes in Segments 3, 11, and 26 and the impact on cash flow, which in turn will alter the borrowing rate—which of course was recalculated. It’s stunning—and cool.

This particular model had sufficient complexity to manage a transaction of some size—say, the acquisition of Reed Elsevier by GE (this rumor started here). But the particular case for which it was developed was for an Internet company with no revenue. And all the assumptions of…IBPA Members – Click here to view the full article (login required).

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