The 3-financial statement model (or test) is a foundational financial modeling technique that links the Income Statement, Balance Sheet, and Cash Flow Statement into a dynamic, integrated forecast, usually over 5 years. It tests the integrity of financial assumptions, ensuring that changes in one statement (e.g., depreciation) automatically flow through to the others, providing a holistic view of a company's profitability, cash generation, and financial position.
At a high-level, the 3S Process consists of three stages (Story, Strategy, and Solution), which are described in detail in the article. Stage 1: Story in the process is inspired by the Harvard Case Method to provide context for a problem. Stage 2: Strategy uses Design Thinking to produce candidate solutions.
The three main financial statements are the Income Statement (profitability over time), the Balance Sheet (assets, liabilities, equity at a point in time), and the Cash Flow Statement (cash movement from operations, investing, and financing activities), which together provide a comprehensive view of a company's financial health and performance.
The document presents projected financial statements for a company from 2023 to 2025, including an income statement, cash flow statement, and balance sheet. It shows increasing revenue and gross profit over the years, with a projected net income turning positive by 2025.
How Do You Build a Three-Statement Model?
The income statement illustrates the profitability of a company under accrual accounting rules. The balance sheet shows a company's assets, liabilities, and shareholders' equity at a particular point in time. The cash flow statement shows cash movements from operating, investing, and financing activities.
A 3-statement model is a comprehensive financial model that integrates the income statement, balance sheet and statement of cash flows. It provides a holistic view of a company's financial performance and future projections.
The cost of financial statement review or audit services can vary depending on the size and complexity of the business, as well as the level of assurance required. However, on average, these services can cost between $2,000 and $15,000.
Financial Reporting and Analysis
The Financial Controller is primarily responsible for ensuring the accuracy and compliance of financial statements, while the FP&A Lead focuses on analyzing these reports to provide insights for strategic decision-making.
Net Income & Retained Earnings
Net income from the bottom of the income statement links to the balance sheet and cash flow statement. On the balance sheet, it feeds into retained earnings and on the cash flow statement, it is the starting point for the cash from operations section.
On the top half you have the company's assets and on the bottom half its liabilities and Shareholders' Equity (or Net Worth). The assets and liabilities are typically listed in order of liquidity and separated between current and non-current. The income statement covers a period of time, such as a quarter or year.
GAAP stands for generally accepted accounting principles. GAAP is a set of rules for standardized financial reporting that help ensure accuracy and transparency. Organizations like publicly traded companies and government agencies must follow GAAP, which adapts to economic changes.
How to prepare an income statement
What is a 3-statement model template? A 3-statement model template is a tool that simplifies financial forecasting by combining your income statement, balance sheet, and cash flow statement into one dynamic file.
Lewin developed a model in the 1940s, which is regarded as a cornerstone for understanding organisational change. He saw this as a three-stage process, which he likened to melting a block of ice, and refreezing it in a different shape. The three stages are Unfreeze, Change and Refreeze.
The 3S method — Sort, Set, and Standardise — is simple, fast, and easy for anyone to implement. Whether you run a manufacturing plant, office, or retail store, these three steps can transform your workspace into a clean, efficient, high-performing environment.
A CPA or MBA can be a great fit for FP&A role—or not—depending on whether they bring the right strategic mindset, commercial acumen, and partnering skills. Credentials can complement, but they shouldn't replace deeper evaluation of what drives business impact in an FP&A role.
Regulation 27(1) to the Companies Act determines that a company's financial statements may be compiled internally or independently.
Non-CPAs can perform internal audits used by the organization but are not authorized beyond that. Only a CPA (or CPA firm) can perform external audits, audits of publicly traded companies, and Service Organization Control (SOC) audits which assess a service organization's internal controls.
Where Do Financial Models Go Wrong?
Here are some of the best skills you can include when applying for financial modeling jobs: