About this lesson
Explanation of what should be considered as OPEX.
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OPEX Part 1
Understand Operating Expenditures.
When to use
When constructing a basic Financial Model.
There are only four ways to enter data into a financial model. The actual method may incorporate combinations of the following:
- Amounts: Data is entered in as numerical (absolute) values. It may be in units, thousands, millions, GWh and so on, but ultimately it is a number. This is an ideal entry method where data is copied from elsewhere or may eventually be linked to another model (say).
- Percentages: Data is typed in as a percentage or ratio of another value, be it input or calculated. This is often the approach employed for variable costs, for example.
- Amount and growth rates: Data is entered in two forms, an amount in at least the first period and then a percentage thereafter. This is often the method used for sky blue forecasting and sometimes leads to what the modelling connoisseur may describe as “hockey stick projections”.
- Combination: Usually perceived as a more sophisticated version of the amount and growth rates approach, this method combines two or more input methodologies. The combination may be selected by use of a switch (manual input) or a trigger (calculation). This is often used for reforecasting or replacing forecast with actuals, etc. IF and CHOOSE are functions often associated with this methodology.
When looking at OPEX we will focus on the Combination method which looks at growth rates and amounts.
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