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financial models Cheat Sheet (DRAFT) by

how to spin up concise and actionable models.

This is a draft cheat sheet. It is a work in progress and is not finished yet.

what is financial modelling

The objective is to combine accoun­ting, finance and business metrics to create an abstract repres­ent­ation of a company in Excel forecasted into the future.
 

uses of financial modelling

- making business decisions at a company
- making invest­ments in a privat­e/p­ublic company
- pricing securities
- undergoing a corporate transa­ction such as M&A, divest­iture, capital raise
 

who builds

- investment banking analysts & associates
- equity research analysts & associates
- private equity analysts & associates
- credit analysts
- fp&a analysts & managers
- corporate develo­pment analysts & managers

steps to build

historical data at least 3 years of input
ratios and metrics calculate ratios­/me­trics such as margins, growth rates, asset turnover, inventory changes
assump­tions build ratios and metrics into the future by making assump­tions about margins, growth rates, etc.
forecast forecast the three financial statements into the future using the assump­tions
valuation value the company using the discounted cash flow (DCF) analysis method
additional analysis sensit­ivity scenarios, charts, graphs, dashboards

what makes a good model

a good financial model is simple enough that anyone can comprehend it, yet detailed enough to handle complex situat­ions.
 
general best practices for building models in excel
1. well structured with a good layout
2. easy to follow and understand
3. drivers and assump­tions clearly laid out
4. simplicity over complexity
5. accurate
6. focus on important issues (what are the main drivers of a model - there is usually only 5/6 key assump­tions that make or break a business or transa­ction)
7. visual outputs (don't share the inner workings of any model)
Earnings guidance - comments management gives about what it expects its company will do in the future. These comments are also known as "­for­war­d-l­ooking statem­ent­s" because they focus on sales or earnings expect­ations in light of industry and macroe­conomic trends.