Determining Interest Expense and Cash Flow Balance in Financial Modeling
The State Changers met to discuss complex financial calculations in the context of their tool Xano. The main challenge being discussed was how to handle a circular calculation where the interest expense on a loan depends on the debt balance, but the debt balance in turn depends on the interest expense.
The original Excel model uses iterative calculations to solve this, but translating it into Xano introduced difficulties. The Changers explored a method of feeding a guess of the interest expense, calculating the impact on the debt balance and free cash flow, then adjusting the guess of the interest expense until the calculator returns the expected outputs in a solver-like style.
The meeting concluded with the participants agreeing to work further on the problem, and discussing the benefits of using Loom to explain concepts to themselves and others. Key terms mentioned in the meeting include Xano and Excel.