An electronic “Back of the Envelope” A simple model for considering financial alternatives

In the course of forecasting and planning, as well as evaluating business alternatives, planners ultimately have to face the overall impact of their decisions on a company's financial profile. Most businesses focus on their balance sheets (capital structure) and several key financial ratios that point up their financial performance and well‐being. Since investment is a significant element of many business decisions, there is usually concern with the cost of capital. Given this, it seemed that a simple model for evaluating the potential importance of business decisions might offer an efficient and consistent way of determining financial outcomes. And since capital structure, financial ratios, and cost of capital don't function independently of each other, this model would need to take account of appropriate linkages.