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Financial Modeling and Analysis: Syllabus Part 1 Introduction to Excel

Quic k rev iew of the Exc el program Using mouseless exc el tec hniques to c reate an effic ient and robust historic al analy sis of the c ase study Sample exc el short-c ut and hot key s tec hniques employ ed are: Nav igating the spreadsheet without the mouse Shortc ut key s using alt and c trl Anc horing using the F4 Editing using the F2 Hiding c olumns and Freezing Panes for faster modeling Ov erall effic ient model lay -out tec hniques Func tion wizard, e.g. - logic func tions like IF statements, PMT, plus a series of other embedded exc el func tions These tec hniques will be used throughout the two day s, plus additional exc el tec hniques will be introduc ed in later sessions Simple EBITDA c oding exerc ise Transposing Goal Seek Nominal v ersus Real Addressing pro forma c urrenc y issues Purc hase power parity (PPP) Interest rate parities Simple financ ial analy sis c omparing Inc ome Statements to Balanc e Sheets by using The Line

Part 2 Introduction to Financial Statements

Rev iew the relation between the major c omponents Balanc e Sheet as a snap-shot Inc ome Statement as a mov ing pic ture Statement of Retained Earnings Statement of Cash Flow ty ing them all together Sample financ ial statement analy sis Common-size financ ial statements Vertic al analy sis Year-on-y ear growth

Part 3 Introduction of a Pro Forma Model

Elements to c onsider when building a pro forma model An exerc ise in bac k-engineering from desired outputs Top-down v ersus bottom-up modeling The assumption page

Part 4 Assets: Purchasing Versus Leasing

Implic ations on: Calc ulating different deprec iation sc hedules Interest pay ments P/L multiples Taxes Capital Budgeting Disc ussion on Operating v ersus Capital Leases

Part 5 Operational Worksheets

Calc ulating Rev enue Driv ers Av erage pric e c onv entions Calc ulating Cost of Goods Sold (COGS) Func tion of sales Independent of sales

Independent of sales Using COGS to driv e inv entory ac c ounts Using Inv entory Turnov er to driv e Units Sold LIFO v ersus FIFO v ersus Av erage c osting Other Operating Expenses Growing expenses Arriv ing to EBIT Using Rev enues and Costs to deriv e Ac c ounts Pay able and Ac c ounts Rec eiv able

Part 6 Debt
Financ ial disc ussions Effec tiv e interest rate Using Exc els Func tion Wizard to c alc ulate Annuities Av erage Loan Life Tax shields Calc ulating debt sc hedules Dec omposing debt serv ic e Tric king the model to ac c ommodate different time horizons Coding and selec ting from different debt sc hedules Interest impac t on taxes Princ ipal repay ment and Time Value of Money (TVM)

Part 7 Coding Full Financial Statements

The Inc ome Statement Rev enue based assumptions and outputs, v ersus Fixed c ost assumptions and outputs Deprec iation impac t Using the c orrec t interest pay ment Coding tax Disc ussion on ac c ounting-based v aluation multiples The Statement of Retained Earnings Div idend Pay out Ratio Retention Ratio Addressing losses and div idend c oding Div idend polic y impac t on future growth and share pric e The Balanc e Sheet Carry ing items forward Early disc ussions on book v ersus c ash issues The balanc er The Statement of Cash Flows Indirec t method v ersus direc t method Trapped c ash Integrating c ash flow into the statements Auditing and c hec king for balanc ing Common mistakes to the balanc er Gross v ersus net fixed-assets Retained earnings Div idends Correc t use of c urrent ac c ounts Rev iewing, interpreting and making dec isions based on outputs Using the model to manage expec tations, below and abov e y ou

Part 8 Discussion on Valuation

Disc ounted Cash Flow Method (DCF) Div idend Growth Model (DGM) Pric e-to-Earnings Multiples (P/E x) What are the adv antages and disadv antages to eac h method Dec omposition of the c ase study s historic al share pric e Book v alue v ersus market v alue Dec omposition of pro forma using financ ial statement analy sis Profit margins Asset turnov er Capital struc ture Return on Equity (ROE) using the DuPont Analy sis

Part 9 Discounted Cash-Flow Modeling

The denominator to v aluation How to c alc ulate Cost of Capital What is the Weighted Av erage Cost of Capital (WACC) How to c alc ulate the Cost of Equity (re) Capital Asset Pric ing Model (CAPM) What is the Beta () Cov arianc e and timing issues

Cov arianc e and timing issues What is the Risk-free Rate (rf ) What the Market Risk Premium (rm rf ) How to c alc ulate the Cost of Debt (rd) Market v alue v ersus book v alue Historic al rates v ersus prev ailing rates Importanc e of c apital struc ture to rd Apply ing c orporate tax rates (TC) How to address lev erage (or gearing) in the WACC What are the c ommerc ial implic ations to WACC The numerator to v aluation Elements to arriv e at c ash flow Ac c ounting entries v ersus c ash flow What is Free Cash Flow (FCF) Continuing Value (CV) How to c alc ulate CV The importanc e of growth (g) to CV The importanc e and weight of the CV to the ov erall DCF v aluation Balanc e time horizons of assumption v alidity and the CV

Part 10 Using the Model to Price the Asset

Different v aluation tec hniques What does the time v alue of money (TVM) mean The c onc ept of opportunity c osts Risk v ersus reward Calc ulating Net Present Value (NPV) Calc ulating Internal Rate of Return (IRR) How to c alc ulate the Enterprise Value What are the benefits and deterrents of both the NPV and IRR methods Dec omposition of pro forma using financ ial statement analy sis Profit margins Asset turnov er Capital struc ture Return on Equity (ROE) using the DuPont Analy sis Stressing the model by c hanging assumptions Logging sc enarios and c hanges Sizing the Debt Capac ity Debt Cov erage Ratios Debt Serv ic e Cov erage Ratios (DSCR) Liquidity ratios v ersus maintenanc e ratios Using the model to negotiate debt c ov enants Exc el tec hniques employ ed Goal-seeking Sensitiv ity tables Rev iewing, interpreting and making dec isions based on outputs Using the model to manage expec tations, below and abov e y ou

Part 11 Monte Carlo Simulation Analysis

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