Borrowing changes funding, not revenue
Receiving loan proceeds raises cash and debt through financing cash flow. It does not create operating revenue or profit. This example uses the existing annual borrowing and repayment assumptions; transaction principal changes persist into subsequent years.
Two ways to plan debt
Borrowing / Repayment specifies gross movements. Debt Target specifies the desired baseline closing debt balance, with the engine calculating issuance or repayment. A target set for one year can reverse toward the baseline in the following year. Set targets directly in each column or copy a target with All forecast years. Borrowing and repayment rows can be copied individually in the same way. Additional What-If principal remains layered on top.
Interest and the cash bridge
The inherited annual model charges interest on opening debt, so year-end borrowing affects subsequent-year interest rather than creating profit on receipt. Each year column has its own interest rate. Interest reduces pre-tax income and can change taxes and retained earnings; it is an operating cash outflow in this model. Timing and classification are model conventions, not a claim about every reporting framework.
Repayment and debt-financed investment
Repayment reduces cash and debt through financing cash flow; it is not an income statement expense. The existing engine caps repayment at available debt. Try the debt-financed capex example to connect borrowing with an investment, or explore the balance sheet model for the wider liability structure.
Explain debt in an interview
Separate principal from interest: issuance raises cash and debt, interest reduces earnings over time, and repayment reduces cash and debt. Reconcile financing cash flow to the debt movement, then carry the interest effect through profit and equity. The three-statement linkage hub puts those connections in context.
Frequently asked questions
Does borrowing increase profit?
No. Loan proceeds are financing, not income. Interest on that debt can reduce future profit.
Why might cash not increase by the full loan amount?
Other cash flows still operate. If the example already needs a revolver, new borrowing can replace that required funding. Read the full cash bridge rather than one line in isolation.
What is the difference between repayment and interest?
Repayment reduces the debt principal and financing cash flow. Interest is an expense and, in this model, an operating cash payment.