Hey guys i have a question about modeling. I hear very often that if you get an interview for ER position, they ask you what is your favorite stocks which sector do you follow etc… I wanted to pick a company and construct a DCF, EBITDA forecast and stuff like that. My questions is which financial statement shoud i use. The ones in yahoo finance or i have to read the entire 10k report and use that information. Also, do they ask for excel spreadsheet or research report( writing a report after the valuation). Please share if you have done it before. I wanted to be prepared before i get a chance and blow it off becuase not being prepared. Thanks in advance
more is merrier. Use 10K
you can use yahoo finance but you will most likely need to make lots of analyst adjustments to fs figures which you cannot do without the filing in its entirety
I had to do this last week. my thoughts: 1. this is eq rsch - use the SEC filings and build models from the ground up. organic, that is the real deal. 2. yes, good you are doing a DCF and EBITDA model, you need that. Here is my formal list of things I need to do when I put a rpt together: a. revenue model b. I/S, BS, and SOCF pro formas c. DCF: FCFF and FCFE d. cap ex/PPE model e. working cap model f. debt schedule if you are doing a co with leverage (I never do, b/c am a growth investor and avoid leveraged companies) g. comp spreads: use trading and deal comps * optional * h. BETA/CAPM model (to tell me how you got your WACC) i. ROIC/EVA model: PMs get a hard on for this stuff good luck.
daj224: Thank you. How did you learn about modeling? did you use a book? or class? Also, did you have to make any adjustments to financial statement before you construct your model? if yes, please provide an example. Thank you
use the ks and qs - how could you tell someone to buy (or sell) something if you’re relying on Yahoo finance?
thanks
k’s and q’s 100%
ssdnola Wrote: ------------------------------------------------------- > daj224: > > Thank you. > > How did you learn about modeling? did you use a > book? or class? BOTH. > > Also, did you have to make any adjustments to > financial statement before you construct your > model? if yes, please provide an example. NOT REALLY, SOME ANALYST ADJUST GAPP EPS TO FORMULA A NORMALIZED OR NON GAPP NUMBER. I TYPICALLY USE THE HISTORICAL NUMBERS NAD PROJECT GAAP EPS FROM THERE OUT TO 5Y, BUT USUALLY INCLUDE AN EBITDA FORECAST AS YOU WILL SEE, EVERY STOCK BELONGS TO AN INDUSTRY AND EVERY INDUSTRY HAS ITS OWN BASKET OF METRICS, SO IN YOUR MODELS, YOU HAVE TO CATER THOSE MODELS TO THE RIGHT METRICS. FOR EX: IF I DO HOTELS, I DO ROOM GROWTH AND AVG REVENUE PER ROOM, ETC…NO 2 MODELS EVER LOOK ALIKE AND I GUESS THAT IS WHAT MAKES THEM FUN I MYSELF AM STILL LEARNING, SO PLEASE DONT REGARD ME AS A MODEL GURU, B/C I AM NOT. BUT I STRIVE TO GET BETTER EVERYDAY AND LOOK AT SELL SIDE MODELS EVERYDAY IN ORDER TO SEE HOW THEY THINK ABOUT THE STOCK ETC
sec.gov/edgar I think its fine to use the press releases for a start and then check it later to the qs/see if they’ve released any 8ks for corrections more important to figure out how you want to format it first… and usually its best to format it the way they report because the q doesn’t come out until later… so if you want to understand the impact in real time of what your company reported its best to have it set up in that format
Thank you very much guys for the inputs. which book do you think will help me put the model together mckinsey valuation or benninga valuation? Thank you
I prefer benninga, Corp Finance a valuation approach. Financial modeling by Benninga has only 2 chapters for ER models and the footnotes suggest to read the corp fin book for more details. Mckinsey is more theoratical but the CD provided with the book has a good DCF model that comes with a small manual of how to use the model. Mckinsey also lacks lot of excel training that Benninga provides… reading both will be better. Also, look at some Damodar stuff on the stern website.
madanalyst: Thank you very much for the information
daj224 Wrote: ------------------------------------------------------- > I had to do this last week. > > my thoughts: > > 1. this is eq rsch - use the SEC filings and build > models from the ground up. organic, that is the > real deal. > > 2. yes, good you are doing a DCF and EBITDA model, > you need that. Here is my formal list of things I > need to do when I put a rpt together: > > a. revenue model > b. I/S, BS, and SOCF pro formas > c. DCF: FCFF and FCFE > d. cap ex/PPE model > e. working cap model > f. debt schedule if you are doing a co with > leverage (I never do, b/c am a growth investor > and avoid leveraged companies) > g. comp spreads: use trading and deal comps > > * optional * > > h. BETA/CAPM model (to tell me how you got your > WACC) > i. ROIC/EVA model: PMs get a hard on for this > stuff > > good luck. To the original poster – If you’re only just learning how to model, you should focus on developing a fully integrated operating model that includes the P&L, balance sheet, and statement of cash flows. Make sure that all your projections link up, your balance sheet balances, etc. All the other stuff that daj224 mentions like working capital projections, capex, DCF are ALL driven off of your basic operating model. If you’ve built your operating model properly and your P&L, BS and CF all work out, everything else that he mentioned should take about half an hour to do. The operating model is the meat and potatoes of what you’ll be doing in research. As for comps, don’t get preoccupied with them at tihs time. It’s easy to overanalyze things and get in way too deep for your own good. If you don’t have access to Capital IQ or Bloomberg, Yahoo finance will do. You will almost certainly not have access to transaction valuations unless you work at a bank or a PE firm. Just stick to learning the basics until you can build a three-statement operating model in your sleep. If you want to look at a decent sell-side model to see how they’re built, send me an email at porcupines (on gmail) and i can send one to you
Numi: I would love to have a model or sample to base mine on. I am sending you an email right now. Thank you
since terminal value is the most important part of the final intrinsic value (sometimes above 80%+) what do you guys use for terminal value. 1) EV/ebitda for comparable companies 2) project fcfe/fcff at long term economy growth rates. if you do the latter i am in a bind regarding the issue 2). I read that there is a difference between using real economy growth rates and nominal growth rates. If i am using the financial statement numbers as is in the valuation model, i am using nominal numbers right. so whats a reasonable estimate for long term economy growth rate. 7% (4% real growth + 3 % inflation = 7%).
drymartini Wrote: ------------------------------------------------------- > since terminal value is the most important part of > the final intrinsic value (sometimes above 80%+) > what do you guys use for terminal value. > > 1) EV/ebitda for comparable companies > 2) project fcfe/fcff at long term economy growth > rates. > DEPENDS ON WHETHER WE ARE DEALING WITH A PIONEER OR MATURE GROWTH COMPANY
> > As for comps, don’t get preoccupied with them at > tihs time. It’s easy to overanalyze things and get > in way too deep for your own good. DONT LISTEN TO THIS. LEARN ABOUT COMPS NOW, THEY WILL BE PART OF YOUR INTERVIEW WHEN YOU GET THE FAMOUS QUESTION "SO ____, HOW DO YOU THINK ABOUT THIS STOCK IN TERMS OF VALUATION If you don’t > have access to Capital IQ or Bloomberg, Yahoo > finance will do. You will almost certainly not > have access to transaction valuations unless you > work at a bank or a PE firm. YES AND NO, YOU CAN GET A CHEAP SUBSCRIPTION TO THE DEAL.COM AND MOST DEALS ARE THERE, WITH THE USUAL METRICS. OF COURSE, YOU WANT THE FACTSET AND CAP IQ, BUT IF YOU ARE NOT IN THE BIZ NOW, YOU CAN GO FOR THEDEAL.COM Just stick to > learning the basics until you can build a > three-statement operating model in your sleep. I SECOND THAT. BUT HE WILL NEED THE REVENUE MODEL BEFORE THE INCOME STMT STARTS, EVERYTHING STARTS WITH SALES.
My point is that he can find basic valuation multiples on free online websites like Yahoo finance, but shouldn’t get preoccupied building estimates on his own. The databases that people in the business pay for provide a lot more information than a free website, but even when I was in college and interviewing for banking and sell-side jobs, I just came up with my comp set using my best judgment, and pulled the valuation multiples from Yahoo. Besides, how comps are spread has much more to do with format than anything else, whereas modeling is very similar across the street. If I were interviewing for an entry-level finance job and was trying to figure out what technical skills were important, I would dedicate 95% of my time learning how to model and 5% of the time figuring out what basic comps are. You don’t need an elaborate comp set to answer the question about how you think about valuation – as you said, “thinking” is a lot more about the process of coming up with the rationale to support your valuation multiple. As far as what that actual multiple is, nobody in an interview cares if you got it from CapitalIQ or some free website, as long as it’s within the relative vicinity of things (unless the person you’re speaking with memorized the trading multiple of the stock you pitch, which is not likely).
numi Wrote: ------------------------------------------------------- > My point is that he can find basic valuation > multiples on free online websites like Yahoo > finance, but shouldn’t get preoccupied building > estimates on his own. The databases that people in > the business pay for provide a lot more > information than a free website, but even when I > was in college and interviewing for banking and > sell-side jobs, I just came up with my comp set > using my best judgment, and pulled the valuation > multiples from Yahoo. Besides, how comps are > spread has much more to do with format than > anything else, whereas modeling is very similar > across the street. If I were interviewing for an > entry-level finance job and was trying to figure > out what technical skills were important, I would > dedicate 95% of my time learning how to model and > 5% of the time figuring out what basic comps are. > You don’t need an elaborate comp set to answer the > question about how you think about valuation – as > you said, “thinking” is a lot more about the > process of coming up with the rationale to support > your valuation multiple. As far as what that > actual multiple is, nobody in an interview cares > if you got it from CapitalIQ or some free website, > as long as it’s within the relative vicinity of > things (unless the person you’re speaking with > memorized the trading multiple of the stock you > pitch, which is not likely). AGREED, WE WILL LEAVE IT AT THAT. LET THE KID BUILD A MINI COMP TABLE OFF YAHOO. STICK A FORK IN IT.