Project Finance Model Structure
Project finance modeling is an excel based analytical tool used to assess the risk-reward of lending to or investing in a long-term infrastructure project based upon a complex financial structure. All financial evaluations of a project depend upon projections or expected future cash flows generated by activities of a completed project and a financial model is built to analyze this.
A project finance model is built to be:
- Easily used
- Flexible but not overly complex
- Suitable for assisting the client in making better and more informed decisions
Evolution of a Project Finance Model
A project finance model is used throughout the project term and will need to get updated depending on the phase of the project. Below is an illustrative example of the evolution of a project finance model:
Key Components of a Project Finance Model
Project finance models are built in excel and need to follow standard industry best practices which have the following minimum contents:
Inputs
- Derived from technical studies, financial market expectations, and understanding of the project to date
- Model should be set up to run multiple scenarios using different inputs and assumptions
Calculations
- Revenue
- Construction, operating and maintenance costs
- Accounting and Tax
- Debt financing
- Distributions to equity
- Project IRR
Outputs
- Contain a summary of project metrics important to management for informed decision making
- Included financial statements (Income statement, balance sheet, cashflow statement)
