Once the worksheets for the financial model are completely and correctly filled in, the model automatically produces the financial statements for the project, viz., profit and loss statement, balance sheet and cash flow statement.
Financial performance and position are shown for each year of the concession. Key performance indicators are also reported, as well as the overall project assessment measures, IRR and NPV. The output from the model should be evaluated critically to ensure that the results are both accurate and reasonable. The balance sheet should be examined closely to ensure that it balances for each year, and that there is no unusual build-up of asset or liability balances. The profit and loss statement (P&L Statement) should be reviewed carefully to ensure that increases in revenue and cost appear reasonable, and profitability makes sense in terms of the business fundamentals. The operating margin ratio measures the fundamental ability of the project to generate profits. Movement in this ratio should be studied for the entire concession period, as a test on the reasonableness of model input assumptions. Any tendency for profitability to grow each year should be questioned to ensure there is an underlying business reason why this should be so.
For example, rising water consumption and largely fixed costs will result in increasing profit margins. However, such a result could also be achieved by assuming that revenue rises by 7% per year while costs increase at 5% per year, thereby resulting in constantly rising profitability. Using the financial model output, the project should be assessed to check that the financial situation is satisfactory, in terms of both financial performance and financial structure.