The supporting schedules

Between the assumptions tab and the three statements sits a layer that most beginners skip and every professional builds: the supporting schedules. A schedule is a small, self-contained calculation that works out one moving part of the business — the cash tied up in trade, the value of the fixed assets, the debt and its interest — in enough detail that the statement it feeds needs only a single clean line. The income statement shows one depreciation figure; the schedule behind it shows how that figure was built. The balance sheet shows one inventory number; the schedule behind it shows the days assumption that produced it. This module builds the two schedules that sit behind the operating business — working capital, and property, plant and equipment — and the next one builds the third, debt and interest.

Why the schedules exist

There are two reasons to pull this detail out of the statements and into schedules of their own, and both are about trust rather than arithmetic. The first is that it keeps the statements readable: a reviewer scanning the income statement wants to watch revenue, margin, and profit march down the page, not wade through a receivables-days calculation wedged into the middle of it. The second, and the one that matters more, is auditability. When receivables live in their own schedule, driven by a single labelled days assumption, anyone can point at the number and trace it back — revenue times thirty days over three hundred and sixty-five — and change it in one place. Bury that same logic inside the balance sheet and it becomes a number nobody can explain six months later. Schedules are where the model's drivers are made explicit, and explicit is the whole game.

The working-capital schedule

Working capital is the cash a business ties up simply by operating: money owed by customers who have not yet paid, goods sitting in the store or warehouse, less the money owed to suppliers the business has not yet settled. Each line is driven by a days assumption and a flow from the income statement. Receivables scale with revenue — the more you sell on credit, the more is outstanding at any moment. Inventory and payables scale with cost of goods sold, because both are carried at cost, not at selling price. Sokoni's assumptions are thirty days of receivables, sixty days of inventory, and forty-five days of payables, and the schedule turns each of those into a shilling balance for every year of the forecast. (All Sokoni figures are in KES thousand, as throughout the model.)

• Receivables = revenue × (AR days ÷ 365). Sokoni Year 1: 1,100,000 × 30/365 = KES 90,411.
• Inventory = COGS × (inventory days ÷ 365). Sokoni Year 1: 660,000 × 60/365 = KES 108,493.
• Payables = COGS × (AP days ÷ 365). Sokoni Year 1: 660,000 × 45/365 = KES 81,370. Payables are a source of financing, so they carry a minus sign in net working capital.
• Net working capital (NWC) = receivables + inventory − payables. Sokoni Year 1: 90,411 + 108,493 − 81,370 = KES 117,534.
• ΔNWC = this year's NWC − last year's NWC. A rise ties up cash (a drag); a fall releases it. Sokoni Year 1: 117,534 − 106,849 = KES 10,685 of cash consumed.

The opening balance is itself derived from the base year: base-year revenue of 1,000,000 and COGS of 600,000 give opening receivables of 82,192, inventory of 98,630, and payables of 73,973, so opening NWC is 106,849. Run the formulas across the forecast and the balance climbs every year — 106,849 at the opening, then 117,534, 129,287, 142,216, 156,438, and 172,082 by Year 5. The balance itself is not the cash cost; the change is. Because receivables and inventory together grow faster than payables can offset, each year's rise in net working capital is cash the business has earned on paper but not yet collected: 10,685 in Year 1, then 11,753, 12,929, 14,222, and 15,644 in Year 5, a cumulative 65,233 over the five years. Notice the drag grows about ten per cent a year, in lockstep with revenue — that is not a coincidence but the defining feature of working capital, and the reason it is dangerous.

The PP&E roll-forward

Fixed assets get the same treatment, in a schedule built on a single identity: closing net property, plant and equipment equals opening net PP&E, plus the capital spent during the year, less the depreciation charged against it. Nothing else moves the balance in Sokoni's model. Start at the opening net book value of 500,000. Depreciation is ten per cent of that opening figure — 50,000 — and capex is twelve per cent of revenue, so 132,000 in Year 1. Closing net PP&E is therefore 500,000 + 132,000 − 50,000 = 582,000, which becomes next year's opening figure and the balance-sheet line for the year. Roll it forward and the asset base grows to 582,000, then 669,000, 761,820, 861,330, and 968,458 by Year 5, on depreciation of 50,000, 58,200, 66,900, 76,182 and 86,133. The schedule feeds three places at once: closing net PP&E to the balance sheet, depreciation to the income statement, and capex to the investing section of the cash flow. One schedule, three statement lines, all tied together — which is exactly why building it once, cleanly, is worth the effort.

Two ways to charge depreciation

Sokoni depreciates at a flat ten per cent of opening net PP&E, and for a teaching model that is a sensible default. It is simple, it needs no history, and it is self-correcting: because the charge is a percentage of the book value, depreciation can never drive the asset base negative, and a year of heavy capex lifts the following year's charge automatically. Its weakness is that it is an approximation — it does not track any real asset's useful life, and it quietly implies a shortening average life as the book value turns over. The more faithful method is straight-line depreciation on capex vintages: each year's capex is treated as a distinct asset and depreciated evenly over its useful life — say 20,000 of capex written off over ten years at 2,000 a year — with the total charge being the sum across every vintage still on the books. That mirrors how the accounts are actually kept and how the tax authority computes wear-and-tear allowances, but it is heavier to maintain, needs an assumption for asset life, and adds a triangular block of formulas that grows with every forecast year. The rule of thumb: percentage-of-opening for a quick or early-stage model, vintage straight-line when the depreciation number is material to the answer or the model must reconcile to filed accounts.