Case Study: Financial Model Audit for a Growth-Stage SaaS Company Raising Series A
Identifying model errors that inflated projected valuation by Rs 22 crore
Executive Mandate Summary
Key Transaction & Governance Challenges
- •The model was visually clean and appeared internally consistent, but contained hard-coded values embedded within calculation sheets.
- •A circular reference in the cash-flow model caused outputs to change depending on spreadsheet iteration settings and computer configuration.
- •Key growth assumptions were materially more optimistic than the company's historical performance supported.
- •The model was being used as a key basis for investor valuation and Series A negotiations, increasing the importance of formula integrity and assumption credibility.
Northrop Execution Architecture & Methodology
Section 1 - The Central Issue
The company's financial model projected Rs 85 crore of ARR in Year 5, a 28% EBITDA margin by Year 4 and a 24% investor IRR.
Although the model appeared well-structured, its calculation logic contained three hard-coded values and one circular reference that materially affected the outputs.
Section 2 - Formula Integrity
Northrop tested every calculation row for consistency across projection periods.
This uncovered hard-coded churn, CAC and ARPU growth assumptions that overrode formula-driven calculations.
Section 3 - Circularity Review
A circular reference existed in the cash-flow sheet, causing the cash balance to influence interest income, which influenced profit, which then fed back into the cash balance.
The result was model-output variability depending on spreadsheet iteration settings.
Section 4 - Back-Testing the Assumptions
Northrop compared the model's assumptions with actual historical performance.
The exercise showed that the model assumed lower churn, lower CAC and higher NRR than the company had actually achieved.
Verifiable Institutional Outcomes & Value Realized
- Three hard-coded cells and one circular reference were identified.
- Year 5 ARR reduced from Rs 85 crore to Rs 42 crore.
- The model's implied valuation was reduced by Rs 22 crore after correcting the underlying errors and assumptions.
- Projected IRR reduced from 24% to 11%.
Gopal Banka
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