Financial modeling is usually an activity associated with number crunching and data analyzing. So, if you’re not into that sort of thing, why learn financial modeling? First we must ask ourselves, “what is a financial model.” A model (a financial model in this case) is nothing more than a representation of a real company. It can be a representation of many different things: a depreciation schedule, debt paydown, ratio analysis, historical financials with projections and assumptions baked in. For the purposes of our workshop, we focus on the historical and projections of the income statement, balance sheet, and cash flow statement with a fully integrated Discounted Cash Flow analysis and valuation concepts included.
If you’ve attended a half decent undergrad or business school, there will be a financial modeling or valuation course in their curriculum. However, there are times when there are significant gaps in the knowledge delivered. For what reason, these courses suffers from the following reasons:
- They’re not detailed enough (after all, an entire semester isn’t enough time to learn everything).
- Faculty may not have and industry experience.
- Not enough recent developments to use in the course.
- More emphasis on research, less emphasis on building models.
For any future finance professional, there are obvious reasons why you should learn financial modeling. Then, there are the not so obvious reasons. Here, we’re going to try to jot them down to the 5 most obvious reasons.
1. The Career Opportunities
Maybe you’re looking to learn financial modeling because its fundamental for Investment Banking, Private Equity and Equity Research roles. If you want to try and set yourself apart from the thousands (if not million) of people looking to enter these fields a year, you should probably learn financial modeling. However, financial modeling is a skill you would end up using at any finance position. Being able to build a financial model is a fundamental requisite for jobs in Fixed Income Research, Credit Rating Analysis and Risk Management.
If it comes to a choice between the person who knows and the person who doesn’t know, you don’t want to end up being the latter choice.
2. Fundamentally Understanding How a Company Works
Looking through company financial statements, learning where they bury important disclosures or looking for non-GAAP items. Learning how to build financial models gives you a better understanding of how a company in your case study operates. Net income is much more than the bottom-line in an income statement. You’ll learn how net income flows from the income statement to the cash balance on operating on the cash flow statement and also how it influences the retained earnings portion of the balance sheet at the same time.
3. What You Learn Is Too Theoretical
This is not to say that you learn in school is useless. Learning about what free cash flows are, the concepts behind it and why you need it is just as important as anything else. However, it’s important to understand what happens to those free cash flows when net working capital increases. It’s also important to understand how a 10 dollar increase in depreciation expense affects each of the three financial statements. In some industries, it’s not only important to understand what you’ve learned but to be able to apply what you’ve learned to real-life situations. You’ll also learn why analysis tends to get higher valuations for companies using a DCF analysis rather than a market-based comps analysis. Finance theory tells us that if the market isn’t mis-pricing assets and we use detailed information for our DCF analysis, you should achieve the same value when comparing DCF and Trading Comps.
4. Hammering Down The Technical
“Walk me through a DCF.” The most common question you can get in an Investment Banking, Private Equity or Equity Research interview. Messing up this question is very common. With the right amount of training, you won’t mess it up.
Building financial models helps you reinforce skills you never thought you had. Learning the technical is the gateway for being able to answer a different set of questions, like “Should the cost of equity be greater for a company with $100 million market cap or a company with $100 billion market cap?”
5. Becoming an Excel Power User
Sure, lots of people say they’re proficient at excel, but you’ll never truly know you’re putting your skills to the test. Unless you have an internship lined up, there is no better way to sharpen your skills than building a financial model.
While learning how to build financial models, you’ll also learn how to utilize useful shortcuts, helpful navigation tricks and powerful functions that can help you build the model and present information in a meaningful way.
Knowing excel is an absolute must for a finance professional.
Our Financial Modeling Workshops
Our financial modeling workshop is designed to help students who are looking to pursue a career in investment banking, private equity, corporate finance or equity research. You will work with an instructor building a 3-statement model and discounted cash flow statement from scratch using actual case studies. Your gain a more in-depth understanding of how financial statement models and DCF models work; along with the other types of modeling we hope to cover in this workshop.
Modeling workshops we are planning on hosting:
- Trading Comps
- Transaction Comps
- Banking & Financial Institutions
- Oil and Gas Companies
Afterwards, you’ll have a better foundation in financial and valuation modeling, a better grasp on accounting and financial concepts, and develop the core skill set that will give you the competitive edge you need in job interviews.
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