skills/three-statement-model-builder/references/model-math.md

# Model Math

Keep formulas in the engine. Use this file only to check public math intent.

Income statement: revenue minus COGS equals gross profit; subtract opex for EBITDA; subtract D&A for EBIT; subtract interest and taxes for net income.

Cash flow: start with net income, add non-cash items, subtract working-capital investment and capex, then include debt/equity financing to arrive at cash change.

Balance sheet: ending cash flows from the cash flow statement; PP&E rolls from beginning PP&E plus capex less D&A/disposals; debt rolls from beginning debt plus draws less repayments; retained earnings rolls from net income less dividends/buybacks as applicable.

Working capital uses AR, inventory, AP, accrued expenses, and deferred revenue days or percentage drivers. Liquidity/covenant outputs should show ending cash, availability, net leverage, interest coverage, and headroom when inputs exist.

Hard checks include balance sheet balance, cash tie, retained earnings rollforward, debt rollforward, PP&E rollforward, and NWC rollforward.