What modeling practice is described as discouraged in the notes?

What modeling practice is described as discouraged in the notes?

• A. In modeling, you should include historical base PPE and historical CFS.
• B. No historical data is required at all.
• C. No historical base analysis and no historical CFS when modelling.
• D. Always rely on historical data.

Answer: (C)

Relying on no historical base analysis and no historical cash flow statements when modeling is discouraged. Historical PPE provides the asset base and depreciation trajectory, and historical cash flow statements reveal how the business actually generates and uses cash, including working capital dynamics. Using these historical anchors helps you calibrate growth, margins, capital expenditures, and financing needs in a realistic way and provides a benchmark to validate forward projections. Without historical context, the model can drift into implausible assumptions, misestimate depreciation and capex needs, and misread the relationship between earnings and cash flow. You can still adjust forward with reasoned scenarios, but grounding your model in past PPE levels and historical CFS is essential for credibility.

Relying on no historical base analysis and no historical cash flow statements when modeling is discouraged. Historical PPE provides the asset base and depreciation trajectory, and historical cash flow statements reveal how the business actually generates and uses cash, including working capital dynamics. Using these historical anchors helps you calibrate growth, margins, capital expenditures, and financing needs in a realistic way and provides a benchmark to validate forward projections. Without historical context, the model can drift into implausible assumptions, misestimate depreciation and capex needs, and misread the relationship between earnings and cash flow. You can still adjust forward with reasoned scenarios, but grounding your model in past PPE levels and historical CFS is essential for credibility.