Liability Variables

This article explains Liability variables in Model Reef.

You will learn:

What a Liability variable represents.
How loans and similar obligations are modelled.
How Liabilities affect P&L, Balance Sheet and Cashflow.
How Liability variables connect to the valuation engine.

Liability variables are used primarily for loans and other debt-like instruments.

Examples include:

Bank term loans.
Revolving credit facilities.
Shareholder loans.
Vendor finance.

Each Liability variable has:

An opening balance or drawdown schedule.
An interest rate, which may reference economic drivers.
A repayment structure (amortising, interest only with bullet, manual).
A category such as Liabilities - Bank Loan or Liabilities - Shareholder Loan.

What a Liability variable is

A Liability variable captures:

Opening loan balances.
New debt drawdowns.
Scheduled or manual repayments.
Interest expense and interest cash payments.

Liability rules in the P&L

In the P&L:

Liability variables generate Interest expense.
Interest is calculated on the opening balance and any relevant rate drivers.
Interest reduces EBT but does not affect EBITDA (debt is considered a financing cost).

The principal component of repayments does not affect P&L directly.

Liability rules in the Balance Sheet

In the Balance Sheet:

Drawdowns increase the loan balance.
Repayments reduce the loan balance.
Interest accrued but not yet paid increases Interest Payable if payment is delayed.
The loan principal remains until it is repaid or matures.

Opening balances can be imported or entered, and must be matched with appropriate offsetting equity or asset entries at model start to keep the Balance Sheet balanced.

Liability rules in the Cashflow Statement and Cash Waterfall

In the Cashflow Statement:

Drawdowns are Financing inflows.
Principal repayments are Financing outflows.
Interest paid is an Operating cash outflow.
Interest accrued but not yet paid appears as a change in working capital via Interest Payable.

In the Cash Waterfall:

Interest paid is shown in the financing section.
Drawdowns and repayments are shown as separate lines under debt movements.
The net effect of financing flows contributes to free cashflow to equity.

This allows you to see how changes in capital structure affect cash and returns.