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Tag: best financial modeling courses

Financial modelling: The breakthrough of the new generation finance trends

Posted on by Imarticus Learning

Imagine a big manufacturing company with all its moving components – a team of administrators, a workforce that manufactures, a crew that procures the necessary raw materials, different units of regulators, marketing department, supply, and distribution chain.

Given the enormity of the company, gaining meaningful insights into its functioning and gauging its efficiency can be a daunting task. This is where financial modeling comes into play, and hence the growing popularity of financial technology courses among the newer generation of finance students.  

To cater to the growing demand of the online fintech program, Imarticus Learning has come up with a Financial Analysis Prodegree in collaboration with KPMG that offers young professionals a 180-hour financial planning and analysis course covering research on equity and valuation, financial modeling, and accounting. This article will give you an elementary understanding of financial modeling and how it will be a breakthrough for the new generation of finance trends. 

What is a financial model?

A financial model is a simple tool that utilizes any built-in spreadsheet software, such as MS Excel, to forecast the financial performance of any business in the future. It relies on the performance history and future performance assumptions to prepare a balance sheet, income, cash flow statements, and supporting schedules.

This dynamically connected financial model is called a ‘Three Statement Model’. It is the base on which we can build more advanced models, like Mergers and Acquisitions (M&A), Leveraged-Buyout (LBO), Discounted Cash Flow Analysis (DCF model), and other types of financial models.

How is a financial model used?

Company executives rely on the financial model to aid them in taking decisions regarding the analysis of the company finances. Some of the significant decisions that are based on such models are: 

  • Making organic business expansions
  • Divesting business units and assets
  • Raising and allocating capital 
  • Making acquisitions
  • Budgeting and forecasting 
  • Management accounting
  • Valuing a business
  • Financial statement analysis

A step-by-step guide of building a financial model

While building a financial model requires lots of relevant data, assessing them and understanding them comprehensively, using financial tools, and auditing and stress-testing. However, a generic but step-by-step breakdown of building a financial model is provided below:

  • Every financial model begins with an in-depth study of the past financial statements and reverse-engineering the data to forecast gross margins, fixed costs, revenue growth rate, fixed costs, among others.
  • The next step is to start an income statement to compute the revenues, operating expenses, gross profit, etc. With that, you can also begin to fill in the balance sheet.
  • The third step compromises building supporting schedules for capital assets like Property, Plant & Equipment (PP&E), and also for interest and debt.
  • Use the reconciliation method to build the cash flow statement by adding depreciation and starting with the net income.
  • After completing the Three Statement Model, perform the Discounted Cash Flow (DCF) analysis by evaluating your business value and calculating free cash flow.
  • Assess the risk of an investment or plan your business accordingly with different assumed scenarios by adding sensitivity analysis.
  • Build graphs and charts of the financial model to communicate the output with the clients.
  • Test your financial model by stress-testing it against extreme scenarios to check whether your model behaves as expected.

Conclusion

Even a cursory understanding of financial modeling will help you understand that it is imperative for most modern business giants. A global pandemic, recession, inflation, and other economic factors have already bolstered the need for financial models to grow businesses. Enroll in the  Financial Analysis course of Imarticus Learning to join the new generation of finance trends. 

5 tips to learn efficiently while preparing for the Chartered Financial Analyst exam

Posted on by Imarticus Learning

CFA Institute confers the title of Chartered Financial Analyst to candidates who qualify for three six-hour exams within a minimum of three years. Preparation for exams like Chartered Financial Analyst (CFA) can be challenging, thus opting for a financial analyst course for preparation can significantly ease the journey. Aspirants are advised to check out some of the most sorted tips before preparing for the exam. Read on… 

5 Tips to Learn Effectively For Chartered Financial Analyst Exam

Tip 1: Practice and Practice 

CFA is undoubtedly a lengthy exam and each level consists of six hours. So, candidates must not only focus on grasping knowledge, but the management of time is also crucial. Thus, using the time to answer all questions needs consistent preparation and practice. In this regard, Chartered Financial Analyst courses for preparation assist students in learning about the concepts and sharpening time management skills. 

Additionally, the CFA website has practice questions and mock exams, so it is beneficial for students to start there. After that, analyze the topics you need to focus on and practice accordingly.   

Tip 2: Focus on Concepts More 

With the increasing difficulty level, the questions in the exam become more and more conceptual. Thus, rather than focusing only on solving problems, give proper time to sharpen conceptual skills and check some financial modeling courses. These courses will provide you with all the essential formulas and some tricks to save time while solving a problem. 

financial analyst certification courseTip 3: Use the Most Trusted Material 

To qualify for the CFA examination, focusing on each topic is not beneficial. Instead, go through the CFA website or opt for a Chartered Financial Analyst course for preparation to know about how each topic is emphasized in the exam. For example, topics like Ethical and Professional Standards fetch more questions than subjects such as Portfolio Management and Wealth Planning, Derivatives, and Technical Analysis. So, preparing smartly is more critical than scrutinizing every topic. 

Tip 4: Make Study Schedule with Priorities  

Planning for CFA is one of the most important things to do. But before doing so, analyze weaknesses or essential topics to focus on. This will help to distribute time properly in a schedule. Once a plan is made, it is very easy to get distracted. Thus, candidates are advised to take a financial analyst course for preparation to keep them in a routine and prepare for the exam effectively.

Apart from following a schedule, make sure to take breaks and give yourself enough time to sleep. It is essential to understand that preparation for CFA is a long-term process, and aspirants cannot do it within days. So, you have to incorporate rigorous study into your daily routine.

Tip 5: Enrol In a Course

Self-study is one of the most challenging approaches while preparing for the CFA examination. Thus, most experts advise taking any financial modeling courses to ace the CFA exam. This will help a candidate to stay focused throughout the study plan. Additionally, these courses are designed to sharpen time management skills and develop the discipline to create focus during exams. 

Thus, preparing for the CFA examination can be daunting, but candidates can use these tips to stay focused. One important thing to note is that, in the CFA exam, make sure to get competent with the calculator as this will be a friend throughout the exam. Also, do not be very stringent about your study plans, make a flexible plan, and reward yourself with breaks. With the correct approach and proper planning, it is possible to clear the chartered financial analyst exam.  

Fundamentals of Forecasting – Basic Modeling Hygiene – III

Posted on by Imarticus Learning

By Reshma Krishnan
We are continuing to understand the Fundamentals of Forecasting. Please click here for Part 1 and Part 2.
Many aspiring candidates ask us what is so special about the FMVC program at Imarticus Learning. After all, shouldn’t an MBA suffice? The problem with MBA’s, regardless of which school you go to, is that they don’t teach you role specific issues. For instance, they don’t have specific modeling modules. They will have a forecasting module but they won’t teach you how to model or how to forecast step by step. In the Financial Modelling and Valuation Course (FMVC), India’s leading Forecasting and Financial Modeling program, we teach you the minutae and we go into specifics. One such specific is modeling and forecasting hygiene.
Hard Coding- the model users bane.
This is the first thing I teach in modeling class. Hard Coding is essentially a stand alone number in a cell, which has no back up. It says nothing about the number. You must never hard code a forecasted number because the forecast is always done on the back of an assumption, which has to be modeled in. Hard coded numbers are usually past data, actual data that has been verified and been the result of auditing. A forecasted number should always be a linked number from an assumption.
Colour Coding
Staying with hard coded numbers, it always helps to colour code. In fact, in my class, I mark an assignment zero if it is not colour coded. Red hardcoded number tells me that the forecaster had no option but to hard code. All actuals should be in a different colour to forecasts and all delta numbers, that is the variable you are using to arrive at a forecast needs to also be in a different number.
Give the delta its own cell
Let’s say you want to increase the sale of pencils in 2017 by 10% from 2016. You have two ways to do it.
=(2016 revenue cell) x 10% +(2016 revenue cell) = 2017 revenue.
Or
You create a special cell for 10%
= ((2016 revenue cell) x (10% cell) )+(2016 revenue cell) = 2017 revenue.
Here I am assuming that revenue is growing by 10% . This helps me change the delta as I see fit which then changes my model. The delta is the rational for my model. If you hide it within a formula, I have to constantly look at formulas to find my assumptions.
Learn more about Forecasting by joining our course, FMVC,Financial Modeling and Valuation Course, India’s leading program in Financial Modeling and Valuation and focused on improving your chances on having a career in Investment Banking or Equity Research.

Fundamentals of Forecasting – the Basic Premise of Forecasting – II

Posted on by Imarticus Learning

By Reshma Krishnan
We are continuing to understand the Fundamentals of Forecasting. Please click here
The fewer the assumptions, the stronger the forecast – at least in the beginning when you are learning how to model. Most investment Banking models end up running into 40 assumption sheets, each linked to another. While you might believe such minutiae makes a difference, it’s almost always just to make yourself feel better. Yes, your ability to understand every cost element is good, but its futile if your understanding of the industry works or its cost structure is weak. Key assumptions built into the forecast can also be lost, like trees in a forest. Links can be very hard to find. A simple forecast on the other hand helps you understand what drives basic line items while giving you the ability change basic assumptions. So for instance if you are forecasting the cost of a cup of tea, you break the cup of tea into its major elements, milk, tea, sugar. Three basic drivers, but if you decide to link the price of tea not to the retail rate but to an auction rate that is further linked to an auction house pricing, there are many chances your Financial Analyst coursemodel will be faulty for no tangible benefit.

Forecasting is hard- if it wasn’t, financial modeling and forecasting would not be the number one skill required in financial services, especially Equity Research, or the most popular program in Financial Services Education. It requires patience and a deep thorough understanding of the industry. Forecasting is what Equity Research Analysts do all the time which is why Equity Research Analysts are industry specialists. You won’t find an analyst doing both steel and retail e-commerce. If you are not detail oriented, you are not going to be great at forecasting.
Your forecast is as good as your data, or your weakest link- using solid numbers always feels like an attractive proposition. Investment Bankers love to receive solid data from the clients. Equity Research analysts love to receive solid numbers from the industry or a company but what data do you trust. How often do you use that data? Can you remove the bias in the data. Data you receive from clients will almost always be optimistic, same with industry. Data you receive from Private Equity will almost always be pessimistic. There is bias in every data and your job is to remove bias.
Learn more about Forecasting by joining our course, FMVC, Financial Modeling and Valuation Course, India’s leading program in Financial Modeling and Valuation and focused on improving your chances on having a career in Investment Banking or Equity Research.

Which are the important Financial Modeling Techniques that makes a model flexible?

Posted on by Imarticus Learning

Flexibility or rather, variability and simulation of a scenario under different conditions is the end goal of a model. Here are some of the various techniques you can use to make a model more adaptable.
• Model assumptions clearly- the first step to creating a workable model is to always document the delta assumption. What does that mean? As discussed earlier, if you want to say that you forecast sales of firecrackers during Diwali to up by 15 percent from 2015, then you model in the assumption. The origin value is, lets say, 1000 crackers sold in 2015. The result would by (1000 *0.15) + 1000 which would equal 1150 crackers sold in 2016. But you have to document the 0.15 clearly so that if someone wanted to change that assumption to 20 %, then they would just need to key 20% in instead of 15 and the entire model would change.
• Created more detailed assumptions – While complex models are generally less robust due to higher chances of linkage issues etc, there needs to be some amount of complexity for a model to be useful. For instance we want to forecast revenue from sale of fireworks from 2015 to 2016. First would be to break the Rs 1000 up into the various products like sparklers, (30% of 1000) flowerpots and the like. Once that happens you need to break sales into its component. Sales equals price into quantity. So instead of saying, arbitrarily, that the total sales of sparklers goes up from Rs 300 to Rs 345 (jump of 15%) in 2016 you would say that the number of sparklers would go from 100 sparklers to 115 (model in the 15%) sparklers while the price of the sparkler (Rs 3 per piece ) did not increase at all. (model in the 0%) The flexibility comes in when I change the cell that holes 0% to 10%. This would make the price of the sparkler go up from Rs 3 to Rs 3.30 which would lead to a total sales of Rs 379.5.
• Use a spin button- A spinner helps model in variability especially as it relates to step costs. So let’s say that every extra Rs 200 I make in sales, I need to add one extra sales person. That is not a variable cost. That is a step cost. So when my sales goes up 15% from Rs 1000 to Rs 1150, I don’t need an extra sales person. But what if I want to sell 1250. I need to add one more sales person. A spin button does the job for you. Every time increment sales goes up by Rs 200, one extra person at a salary of Rs x a month will be added to that cell, thereby making your model more adaptable and robust.

Investment Banking – Understanding the Deal – The Deal Process (III)

Posted on by Imarticus Learning

As we discussed in
Investment Banking- Why do Sellers use an Investment Banker (I)
Investment Banking- Understanding the Deal: The Pitch Process (II)
So now that the banks have pitched for the deal by showcasing their industry knowledge, negotiation and deal prowess and asset valuation, one bank is chosen to exclusively market the asset and execute the deal. The business of developing relationship and signing mandates by going to meetings, researching the industry and pitching is called origination. It is often done by the business development team in large bulge bracket investment banks like Goldman Sachs and JP Morgan. Once the deal has been mandated and a Client Agreement has been signed, the execution team takes over. In a boutique bank like Avendus or Mape, same teams often specializing in an industry handle both origination and execution.
The deal process for buying and selling are slightly different and today we will be focusing on selling an asset. A typical advisory structure.

This is the usual process of a deal
1. Preparation –Diagnostics and Consolidation of information- this is where the execution team visits the site and spends time understanding deal nuances, strategic considerations like potential valuation and transaction process once they look at all the information.
•Review The Business, Financial Results & Prospects
•Develop & Refine Financial Forecast
•Gather Financial & Legal Due Diligence Material
•Analyze Structural Considerations, Including Tax & Accounting Issues
•Review Tactical & Strategic Considerations
•Analyze Structural & Timing Considerations
• Create deal Collateral including Information Memorandum, Financial Model and Teaser
2. Planning– Establish Valuation Based On Standard Valuation Techniques
a. Review Strategic Options In Light Of Valuation & Structural Goals
b. Analyze Transaction Structure Alternatives
c. Assist In Development Of Appropriate Acquisition Contract
3. Marketing– Use deal collateral and contacts to
a. Position Company To Appeal To Specific Buyers
b. Identify & Screen Potential Buyers
c. Prepare Management Presentation
d. Develop Data Room and coordinate site visits
e. Conduct Marketing Process With Strict Time Guidelines
f. Minimize Business Disruption
4. Due Diligence and Bid Evaluation–
a. Compare & Analyze Bids & Considerations
b. Evaluate Company’s Options
c. Due Diligence by Buyers
d. Analyze Tax & Structural Impact Of Proposed Transaction
5. Negotiation- Negotiate pricing through auction rounds. There are different ways in which you sell or buy a company (See box below) but all of it involves a fair amount of negotiation and many rounds of it. A couple before the due diligence and a few after.

a. Negotiate Price
b. Negotiate terms of sale or SHA and SPA terms
c. Negotiate R & W terms
6. Documentation and closure- A primary legal process but also important for bankers as they coordinate everything. This is one of the reasons why bankers wear many hats. A salesperson, a lawyer, an accountant and sometimes even the local errand boy.
Every part of this process is delved into in detail in FMVC and Diploma in Corporate Finance, India’s leading programs in Financial Modelling and Corporate Finance.