FINANCIAL MODELING FNBU4454_L11 SUMMER 2020 BRUCE TAVEL [email protected] CLASS HOURS: TUES, WED, THURS: 4:30-6:00PM OFFICE HOURS: TUES, WED, THURS: 3:30-4:30PM MODULE 1: FINANCIAL MODELING: FNBU4454_L11: MAY 26 –MAY 28 ZOOM SESSION: TUESDAY, WEDNESDAY, THURSDAY 4:30 PM – 6:00 PM Statement of Purpose: Using Excel as our modeling tool of choice, we will build and analyze financial models developing essential skills for analyst, consultant, investment banker, or portfolio manager. Our topics will include financial statement modeling, valuation, capital budgeting, asset pricing, portfolio management. Our techniques include an advanced understanding of Excel financial functions, “what if” scenarios, regression analysis, simulation, optimization. We recognize that modeling is best learned by doing; by building models, by playing with models, by being a “hands-on” experience. Blackboard: Every file used for this course will be posted on Blackboard; those will be Microsoft Excel, Power Point, and Word. Required Textbook and required Excel Add-ins: Textbook: “Financial Modeling and Valuation: A Practical Guide to Investment Banking and Private Equity” by Paul Pignataro Excel Add-ins: class requires two add-ins, Solver and Data Analysis Toolpak Grading: Grade is 40% Midterm exam, 40% Final exam, 20% Homework and Participation Page 1 of 7 Class 1 – Class 3 For Class_1 Please read: Pignataro text: Chapter 1: Income Statement; Chapter 3: Depreciation Introduce: financial statement modeling by reviewing the Income statement and the Depreciation schedule as applied to Walmart corporation (our case study) Blackboard files: CLASS1_INCOME STATEMENT SLIDES CLASS1_DEPRECIATION_SCHEDULE CLASS1_WALMART_MODEL We refresh our basic Excel skills: A basic Excel review to include: Formatting, Short cuts, If statements, Lookups, Sum, Count, Average… Blackboard Files: CLASS1_EXCEL_REFRESH_SLIDES CLASS1_EXCEL_REFRESH_XLSX In Class Assignment: Walmart model uses MACRS depreciation method, Let’s replace with SOYD Blackboard files: CLASS2_WMT_DEPREC_SOYD_QUESTION / ANSWER Introduce: Excel Data Tables and Scenario Summary functions as applied to our Walmart model Blackboard files: CLASS2_WALMART_MODEL_INCL_DATATABLES_SUMMARY Homework Question: (Using Data Tables) CLASS2_BOND_TIME_DECAY_EXAMPLE_USING_DATATABLES_QUESTION Introduce: Excel financial modeling for Capital Budgeting Evaluating, ranking, comparing potential investment projects Excel NPV, IRR, MIRR, Scenarios, Data Tables, Goal Seek Blackboard files: CLASS3_EXCEL_NPV_IRR_MIRR CLASS3_THE_VALIDITY_OF_CAPITAL_BUDGETING_DISCUSSION CLASS3_MIRR_DISCUSSION Page 2 of 7 MODULE 2: FINANCIAL MODELING: FNBU4454_L11: JUNE 2 – JUNE 4 ZOOM SESSION: TUESDAY, WEDNESDAY, THURSDAY 4:30 PM – 6:00 PM Class 4 – Class 6 For Class_4: Please read: Pignataro text: Chapter 4: Operating Working Capital; Chapter 2: Cash Statement Review: a complete line item analysis of the Walmart model, OWC tab Blackboard files: CLASS4_OPERATING_WORKING_CAPITAL_SLIDES CLASS1_WALMART_MODEL Accrual accounting is Not cash accounting: a clarification Blackboard files: CLASS4_MR_GATES_PROFIT_IS_NOT_CASH_ACCRUAL_EXAMPLE Homework Answer: Blackboard file: CLASS4_BOND_TIME_DECAY_EXAMPLE_USING_DATATABLES_ANSWER Introduction to Financial Forecasting: Income Statement Regression analysis (Linear Trend Extrapolation) Blackboard files: CLASS4_FINANCIAL_FORECASTING_INCOME_STATEMENT More Capital Budgeting: Excel Modeling for Optimal Capital Budget (Solver) Blackboard Files: CLASS4_OPTIMAL_CAPITAL_BUDGET_SLIDES CLASS4_OPTIMAL_CAPITAL_BUDGETING_MULTI_YEAR_EXAMPLES Review: a complete line item analysis of the Walmart model, CASH tab Blackboard files: CLASS5_CASH_FLOW_STATEMENT_SLIDES CLASS1_WALMART_MODEL Homework Question: (using Data Tables) Blackboard file: CLASS5_WALMART_CASH_PROJ_SENSITIVITY_TO_REV_COGS_QUESTION CLASS6_WALMART_CASH_PROJ_SENSITIVITY_TO_REV_COGS_ANSWER Page 3 of 7 Homework Question: (Using Solver) Blackboard Files: CLASS4_OPTIMAL_CAPITAL_BUDGET_MERCK_EXAMPLE_QUESTION CLASS6_OPTIMAL_CAPITAL_BUDGET_MERCK_EXAMPLE_ANSWER In Depth, Using Excel Financial Functions: Annuities, Regression, Amortization, Pivot tables (12 problems) Blackboard Files: CLASS5_CLASS6_USING_EXCEL_FINANCIAL_FUNCTIONS Page 4 of 7 MODULE 3: FINANCIAL MODELING: FNBU4454_L11: JUNE 9 – JUNE 11 ZOOM SESSION: TUESDAY, WEDNESDAY, THURSDAY 4:30 PM – 6:00 PM Class 7 – Class 9 For Class_7: Please read: Pignataro text: Chapter 5: Balance Sheet, Chapter 6: Debt Schedule Review: a complete line item analysis of the Walmart model, Balance Sheet Blackboard files: CLASS7_BALANCE_SHEET_SLIDES CLASS7_DEBT_SCHEDULE_SLIDES CLASS1_WALMART_MODEL Review: Pignataro financial model connections CLASS7_PIGNATARO_FINANCIAL_MODEL_CONNECTIONS_EXAMPLES CLASS7_PIGNATARO_FINANCIAL_MODEL_CONNECTIONS_FLOWCHART Review: CFA Exam questions (prep for Midterm Exam) CLASS7_INCOME_STATEMENT_CFA_EXAM_MULT_CHOICE_REVIEW CLASS7_CASH_STATEMENT_CFA_EXAM_MULT_CHOICE_REVIEW CLASS7_DEPREC_STATEMENT_CFA_EXAM_MULT_CHOICE_REVIEW More Test Prep CLASS7_FINANCIAL_RATIO_SLIDES CLASS7_HOME_DEPOT_VS_LOWES_KEY_RATIOS CLASS8: MIDTERM EXAM Open book, open notes; Pignataro Text Part 1 Multiple choice + financial statement fill in + Excel extra credit problems CLASS9: REVIEW: MIDTERM EXAM ANSWER FILE In Class Assignment: Use Excel to analyze a project expansion opportunity CLASS9_STEP1_STEP2_FROZEN_CATFISH_EXPANSION_PROJECT_QUESTION CLASS9_STEP1_STEP2_FROZEN_CATFISH_EXPANSION_PROJECT_ANSWER Using Excel to measure project risk: Probabilistic Scenarios CLASS9_NPV_PROBABILITY_WTD_EXPECTATION_AND_DISPERSION Page 5 of 7 MODULE 4: FINANCIAL MODELING: FNBU4454_L11: JUNE 16 – JUNE 18 ZOOM SESSION: TUESDAY, WEDNESDAY, THURSDAY 4:30 PM – 6:00 PM Class 10 – Class 12 For Class_10: Please read: Pignataro text: Chapter 7: What is Value Chapter 8: Discounted Cash Flow Review: a complete line item analysis of the Walmart model : Valuation tab Blackboard files: CLASS10_VALUATION_SLIDES CLASS10_PIGNATARO_DCF_EQUATIONS CLASS10_THE_VALIDITY_OF_DCF_VALUATION CLASS12_NEW_WALMART_MODEL_INCL_DCF_SCENARIOS_COMPS In Depth: WACC Beyond Pignataro: Cost of Equity; Cost of Debt CLASS11_FAMA_FRENCH_SLIDES CLASS11_FAMA_FRENCH_VS_CAPM_EXAMPLES CLASS11_WACC_DEBT_EQUITY_COMPUTATION Analysis: Using Excel Data Tables to evaluate DCF fundamental price sensitivity to: Revenue, Beta, WACC, Tax Rate, Cost of Equity /Debt… CLASS11_NEW_WALMART_MODEL_INCL_DCF_SCENARIOS_COMPS CLASS11_EFFECT_OF_TAX_RATE_ON_DCF_PRICE_WALMART In Class Assignment: DCF methodology applied to WIDGET CLASS12_WIDGET_FINANCIAL_ MODEL_DCF_QUESTION CLASS12_WIDGET_FINANCIAL_MODEL_DCF_ANSWER Application: DCF Methodology: Corporate Buyout / Merger CLASS12_MERGER_MODEL_TAESONG_CORP_USING_DCF_METHODOLOGY Application: DCF Methodology In Reverse: Implied Growth Rate CLASS12_MERCK_REVERSE_ENGINEER_DCF_ANALYSIS Application: DCF Methodology applied to Verizon Financial Model incl. Excel Data Tables, Graphics, and Discussion CLASS12_VERIZON_MODEL Page 6 of 7 MODULE 5: FINANCIAL MODELING: FNBU4454_L11: JUNE 23 – JUNE 25 ZOOM SESSION: TUESDAY, WEDNESDAY, THURSDAY 4:30 PM – 6:00 PM Class 13 – Class 15 (Last Class) For Class_13: Please read: Pignataro text: Chapter 9: Comparable Company Analysis and Chapter 11: Conclusion Review: a complete line item analysis of the Walmart model : Comps tab Blackboard files: CLASS13_COMPARABLES_SLIDES CLASS13_NEW_WALMART_MODEL_INCL_DCF_SCENARIOS_COMPS Unlevered Beta: Using Comps, Beta derived without firm leverage CLASS13_VERIZON_UNLEVERED_BETA_ANALYSIS Pignataro Chapter 11 Conclusions: Relate to the Walmart Model CLASS13_NEW_WALMART_MODEL_INCL_DCF_SCENARIOS_COMPS Impact of Risk on Decision Making: Simulation Modeling CLASS13_INTRO_TO_MONTE_CARLO_SIMULATION CLASS13_MY_FIRST_SIMULATION CLASS13_WALMART_PROJ_REVENUE_SIMUL_EFFECT_ON_EPS In Class Assignment: Simulation analysis CLASS14_HALLMARK_CARDS_PRODUCTION_QUESTION CLASS14_HALLMARK_CARDS_PRODUCTION_ANSWER More Excel Financial Modeling: Regression, Solver CLASS14_PRODUCT_MIX_PROFIT_MAXIMIZATION CLASS14_MULT_LINEAR_REGRESS_INFANT_MORTALITY CLASS14_STOCK_PORTFOLIO_RETURN_MAXIMIZATION CLASS14_PEARL_CURVE_PREDICTING_US_CELL_PHONE_USAGE CLASS15: FINAL EXAM Open book, open notes; Pignataro Text Part 2 Develop a DCF Valuation Analysis on a given corporate financial model+ Excel extra credit problems: Follow the instructions: FINAL_EXAM_ANNOUNCEMENT Page 7 of 7 .