We could of course start developing our cash flow model by summarising the required cash flow information on paper, perhaps using some sort of multi column pad. Indeed for some very simple tasks this may be more than adequate. However, whilst this may be satisfactory for capturing the source data, its shortcomings would soon become evident as soon as we start to try to manipulate the data.
In order to present the financial information required, in a way that is both organised and capable of easy manipulation, we need a software tool. The main tool of choice for most analysts is spreadsheet software. The first ever spreadsheet software, called Visicalc, was invented in 1979 and was initially released on the Apple platform. As this occurred before software patents were invented it was never patented. This allowed many others to develop their version of the spreadsheet, the most famous of these being Microsoft’s Excel.
What made spreadsheets special, particularly for accountants and analysts, who, until then, had done everything on paper, was their ability to recalculate all values on a particular sheet after any individual cell was changed. Prior to the invention of spreadsheets making changes of this kind to forecast data could take hours with an eraser or correction fluid! The use of spreadsheets allowed for significant productivity gains. However, it also meant users became more ambitious, developing and using ever more complex spreadsheets to ...