Alert checks explained using the CRaFT methodology.
When to use
Many modelers add checks as an afterthought. Basically, it is too late to create them then. While building a model, a developer knows what situation might break a formula. That is when a check should be created. When the issue is foremost in your mind, create the check there and then.
- Alert checks: everything else! This flags points of interest to users and / or developers issues that may need to be reviewed
- e.g. revenues are negative
- debt covenants have been breached
- A company has a responsibility to ensure that it is trading while solvent – simply put, its assets exceed its liabilities. This example will put an alert check in to ensure the company is solvent.
- The formula =IF(SUM(E14:E15)=0,(E6<0)*1,0) will ensure that the Prima Facie and the Balance Checks are OK, and if so, will check to ensure that the Total Equity is greater than 0 – meaning the company is solvent. In this example the total equity is negative and therefore the insolvency check is producing a 1 to highlight the company is insolvent.
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