The Essentials of Financial Modeling in Excel A Concise Guide to Concepts and Methods 1st Edition by Michael Rees ISBN 1394157800 9781394157785

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ISBN 10: 1394157800
ISBN 13: 9781394157785
Author: Michael Rees

In The Essentials of Financial Modeling in Excel: A Concise Guide to Concepts and Methods, veteran quantitative modeling and business analysis expert Dr. Michael Rees delivers a practical and hands-on introduction to financial modeling in Excel. The author offers readers a well-structured and strategic toolkit to learn modeling from scratch, focusing on the core economic concepts and the structures commonly required within Excel models.

Divided into six parts, the book discusses the use of models and the factors to consider when designing and building models so that they can be as powerful as possible, yet simple. . Readers will also find:

• The foundational structures and calculations most frequently used in modeling, including growth- and ratio-based methods, corkscrews, and waterfall analysis
• Walkthroughs of economic modeling, measurement, and evaluation, and the linking of these to the decision criteria. These include breakeven and payback analysis, compounding, discounting, calculation of returns, loan calculations, and others
• Structured approaches for modeling in corporate finance, including financial statement modeling, cash flow valuation, cost of capital, and ratio analysis
• Techniques to implement sensitivity and scenario analysis
• Core aspects of statistical analysis, including data preparation, manipulation, and integration
• The use of approximately 100 Excel functions within example modeling contexts
• Further Topics Sections, which introduce advanced aspects of many areas, in order to provide further benefit to more advance readers, whilst presenting the truly essential topics separately. Examples of these include introductions to PowerQuery and PowerPivot, as well as advanced waterfall structures

An invaluable, all-in-one blueprint for learning financial modeling in Excel, this book is ideal for beginning and intermediate financial professionals and students seeking to build and reinforce essential topics in financial modeling

The Essentials of Financial Modeling in Excel A Concise Guide to Concepts and Methods 1st Edition Table of contents:

Part One: Introduction to Modeling

1 Modeling and Its Uses

1.1 WHAT IS A MODEL?

1.2 WHAT ARE MODELS USED FOR?

2 Principles of Model Design

2.1 INTRODUCTION

2.2 DECISION IDENTIFICATION, FRAMING, AND STRUCTURE

2.3 DECISION CRITERIA AND INFORMATION NEEDS

2.4 SENSITIVITY‐BASED DESIGN

2.5 DATA AND DATA SOURCES

2.6 MODEL MAPPING AND APPROXIMATIONS

2.7 BUILDING AND TESTING

2.8 RESULTS PRESENTATION

2.9 BIASES

Part Two: Essentials of Excel

3 Menus, Operations, Functions, and Features

3.1 INTRODUCTION

3.2 STRUCTURE AND MENUS

3.3 CALCULATIONS USING ARITHMETIC

3.4 FUNCTION BASICS

3.5 A CORE FUNCTION SET

3.6 FURTHER PROPERTIES AND USES OF FUNCTIONS

3.7 CALCULATION SETTINGS AND OPTIONS

3.8 KEYTIPS AND SHORTCUTS

3.9 ABSOLUTE AND RELATIVE REFERENCING

3.10 AUDITING AND LOGIC TRACING

3.11 NAMED RANGES

3.12 BEST PRACTICES: OVERVIEW

3.13 BEST PRACTICES: FLOW

3.14 BEST PRACTICES: TIME AXIS

3.15 BEST PRACTICES: MULTIPLE WORKSHEETS

3.16 BEST PRACTICES: FORMATTING

3.17 MODEL TESTING, CHECKING, AND ERROR MANAGEMENT

3.18 GRAPHS AND CHARTS

4 Sensitivity and Scenario Analysis

4.1 INTRODUCTION

4.2 BASIC OR MANUAL SENSITIVITY ANALYSIS

4.3 AUTOMATING SENSITIVITY ANALYSIS: AN INTRODUCTION

4.4 USING DataTables

4.5 CHECKING THE RESULTS, LIMITATIONS, AND TIPS

4.6 CREATING FLEXIBILITY IN THE OUTPUTS THAT ARE ANALYZED

4.7 SCENARIO ANALYSIS

4.8 VARIATIONS ANALYSIS

4.9 USING GoalSeek

4.10 FURTHER TOPICS: OPTIMIZATION, RISK, UNCERTAINTY, AND SIMULATION

Part Three: General Calculations and Structures

5 Growth Calculations for Forecasting

5.1 INTRODUCTION

5.2 GROWTH MEASUREMENT AND FORECASTING

5.3 LOGIC REVERSALS

5.4 FORECASTING STRUCTURES IN PRACTICE

5.5 SIMPLIFYING THE SENSITIVITY ANALYSIS AND REDUCING THE NUMBER OF PARAMETERS

5.6 DEALING WITH INFLATION

5.7 CONVERSIONS FOR MODEL PERIODS

5.8 FURTHER TOPICS: LOGARITHMIC AND EXPONENTIAL GROWTH

6 Modular Structures and Summary Reports

6.1 INTRODUCTION

6.2 MOTIVATION FOR SUMMARY AREAS AND THEIR PLACEMENT

6.3 EXAMPLE I: SUMMARIES AND CONDITIONAL SUMMARIES

6.4 EXAMPLE II: TARGETS, FLAGS, AND MATCHING

6.5 SENSITIVITY ANALYSIS

6.6 COMMENTS ON FORMATTING

6.7 INITIALIZATION AREAS

7 Scaling and Ratio‐driven Forecasts

7.1 INTRODUCTION

7.2 BASIC USES

7.3 LINKS TO LENGTH OF MODEL PERIODS

7.4 DAYS’ EQUIVALENT APPROACHES

7.5 EXAMPLE I: FORECASTING FROM REVENUES TO EBITDA

7.6 USING RATIO‐BASED FORECASTING EFFECTIVELY

7.7 EXAMPLE II: RATIO‐BASED FORECASTING OF CAPITAL ITEMS

7.8 FURTHER TOPICS: LINKS TO GENERAL RATIO ANALYSIS

8 Corkscrews and Reverse Corkscrews

8.1 INTRODUCTION

8.2 CLASSICAL CORKSCREWS

8.3 BENEFITS AND FURTHER USES

8.4 REVERSE CORKSCREWS

9 Waterfall Allocations

9.1 INTRODUCTION

9.2 EXAMPLE I: COST SHARING

9.3 EXAMPLE II: TAX CALCULATIONS

9.4 OPTIONS FOR LAYOUT AND STRUCTURE

9.5 FURTHER TOPICS: WATERFALLS FOR SHARING CAPITAL RETURNS OR CARRIED INTEREST

10 Interpolations and Allocations

10.1 INTRODUCTION

10.2 EXAMPLE I: LINEAR SMOOTHING

10.3 EXAMPLE II: PROPORTIONAL SMOOTHING

10.4 USES OF TAPERING AND INTERPOLATION

10.5 TRIANGLES

10.6 FURTHER TOPICS: TRIANGLES

Part Four: Economic Foundations and Evaluation

11 Breakeven and Payback Analysis

11.1 INTRODUCTION

11.2 SINGLE‐PERIOD BREAKEVEN ANALYSIS: PRICES AND VOLUMES

11.3 BREAKEVEN TIME AND PAYBACK PERIODS

12 Interest Rates and Compounding

12.1 INTRODUCTION

12.2 STATED RATES AND CALCULATIONS WITHOUT COMPOUNDING

12.3 COMPOUNDING TYPES AND EFFECTIVE RATES

12.4 CONVERSION OF EFFECTIVE RATES FOR PERIODS OF DIFFERENT LENGTHS

12.5 AVERAGE EFFECTIVE RATES

12.6 IMPLIED RATES AND BOOTSTRAPPING

13 Loan Repayment Calculations

13.1 INTRODUCTION

13.2 EFFECTIVE RATES FOR INTEREST‐ONLY REPAYMENTS

13.3 ALIGNING MODEL PERIODS WITH INTEREST REPAYMENTS

13.4 CONSTANT REPAYMENT LOANS USING THE PMT FUNCTION

13.5 CONSTANT REPAYMENT LOANS: OTHER FUNCTIONS

13.6 PERIODS OF DIFFERENT LENGTHS

14 Discounting, Present Values, and Annuities

14.1 INTRODUCTION

14.2 THE TIME VALUE OF MONEY

14.3 CALCULATION OPTIONS FOR PRESENT VALUES

14.4 ANNUITIES AND PERPETUITIES

14.5 MULTI‐PERIOD APPROACHES AND TERMINAL VALUES

14.6 FURTHER TOPICS I: MATHEMATICS OF ANNUITIES

14.7 FURTHER TOPICS II: CASH FLOW TIMING

15 Returns and Internal Rate of Return

15.1 INTRODUCTION

15.2 SINGLE INVESTMENTS AND PAYBACKS

15.3 MULTIPLE PAYBACKS: AVERAGE RETURNS AND THE INTERNAL RATE OF RETURN

15.4 USING ECONOMIC METRICS TO GUIDE INVESTMENT DECISIONS

15.5 PROPERTIES AND COMPARISON OF NPV AND IRR

Part V: Corporate Finance and Valuation

16 The Cost of Capital

16.1 INTRODUCTION

16.2 RETURNS, COSTS, AND OPPORTUNITY COSTS OF CAPITAL

16.3 THE ROLE OF RISK IN DETERMINING THE COST OF CAPITAL

16.4 THE PROPERTIES AND BENEFITS OF DEBT

16.5 THE FINANCING MIX AND THE WEIGHTED AVERAGE COST OF CAPITAL

16.6 MODIGLIANI‐MILLER AND LEVERAGE ADJUSTMENTS

16.7 THE CAPITAL ASSET PRICING MODEL

16.8 FURTHER TOPICS: DERIVATION OF LEVERAGING AND DELEVERAGING FORMULAS

17 Financial Statement Modeling

17.1 INTRODUCTION

17.2 FINANCIAL STATEMENT ESSENTIALS

17.3 KEY CHALLENGES IN BUILDING INTEGRATED FINANCIAL STATEMENT MODELS

17.4 FORECASTING OF THE INTEGRATED STATEMENTS: A SIMPLE EXAMPLE

17.5 THE DYNAMIC FINANCING ADJUSTMENT MECHANISM

17.6 GENERALIZING THE MODEL FEATURES AND CAPABILITIES

17.7 STEPS AND PRINCIPLES IN BUILDING A FINANCIAL STATEMENT MODEL

17.8 FURTHER TOPICS: AVOIDING CIRCULARITIES

18 Corporate Valuation Modeling

18.1 INTRODUCTION

18.2 OVERVIEW OF VALUATION METHODS

18.3 PRINCIPLES OF CASH FLOW VALUATION

18.4 FREE CASH FLOW FOR ENTERPRISE VALUATION

18.5 THE ROLE OF THE EXPLICIT FORECAST

18.6 EXAMPLE: EXPLICIT FORECAST WITH TERMINAL VALUE CALCULATION

18.7 FURTHER TOPICS I: ENTERPRISE VALUE BASED ON FREE CASH FLOW AND EQUIVALENCES

18.8 FURTHER TOPICS II: VALUE‐DRIVER FORMULAS

18.9 FURTHER TOPICS III: IMPLIED COST OF EQUITY

19 Ratio Analysis

19.1 INTRODUCTION

19.2 USE AND PRINCIPLES

19.3 RATIOS FOR PROFITABILITY AND VALUATION

19.4 RATIOS RELATING TO OPERATIONS AND EFFICIENCY

19.5 RATIOS FOR LIQUIDITY AND LEVERAGE

19.6 DuPont ANALYSIS

19.7 VARIATIONS ANALYSIS WITHIN THE DuPont FRAMEWORK

19.8 FURTHER TOPICS: PORTFOLIOS AND THE PIOTROSKI F‐SCORE

Part Six: Data and Statistical Analysis

20 Statistical Analysis and Measures

20.1 INTRODUCTION

20.2 DATA STRUCTURES IN EXCEL AND THE IMPACT ON FUNCTIONALITY

20.3 AVERAGES AND SPREAD

20.4 THE AGGREGATE FUNCTION

20.5 CONDITIONAL AGGREGATIONS

20.6 DATABASE FUNCTIONS

20.7 CORRELATIONS, COVARIANCE, AND REGRESSION

20.8 EXCEL TABLES

20.9 PIVOT TABLES

20.10 FURTHER TOPICS: MORE ON AVERAGES, CORRELATIONS, AND CONFIDENCE INTERVALS

21 Data Preparation: Sourcing, Manipulation, and Integration

21.1 INTRODUCTION

21.2 MODELING CONSIDERATIONS

21.3 OVERVIEW OF DATA MANIPULATION PROCESS

21.4 CLEANING EXCEL DATA SETS

21.5 INTEGRATION OF EXCEL DATA SETS

21.6 FURTHER TOPICS I: INTRODUCTION TO PowerQuery – APPENDING TABLES

21.7 FURTHER TOPICS II: INTRODUCTION TO PowerQuery – DATA MANIPULATION

21.8 FURTHER TOPICS III: INTRODUCTION TO PowerPivot AND THE DATA MODEL

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Tags: Michael Rees, Financial Modeling, Concepts, Methods