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Financial Modeling and Valuation: A Practical Guide to Investment Banking and Private Equity

Book Description

Written by the Founder and CEO of the prestigious New York School of Finance, this book schools you in the fundamental tools for accurately assessing the soundness of a stock investment. Built around a full-length case study of Wal-Mart, it shows you how to perform an in-depth analysis of that company's financial standing, walking you through all the steps of developing a sophisticated financial model as done by professional Wall Street analysts. You will construct a full scale financial model and valuation step-by-step as you page through the book.

The New York School of Finance, founded by Mr. Pignataro, has trained thousands of business students and practitioners, and hundreds of bulge bracket banks and investment funds worldwide. Mr. Pignataro has also over 13 years of investment banking experience at some of the top firms on Wall Street.

When we ran this analysis in January of 2012, we estimated the stock was undervalued. Since the first run of the analysis, the stock has increased 35 percent. Re-evaluating Wal-Mart 9months later, we will step through the techniques utilized by Wall Street analysts to build models on and properly value business entities.

  • Step-by-step financial modeling - taught using downloadable Wall Street models, you will construct the model step by step as you page through the book.

    • Hot keys and explicit Excel instructions aid even the novice excel modeler.

    • Model built complete with Income Statement, Cash Flow Statement, Balance Sheet, Balance Sheet Balancing Techniques, Depreciation Schedule (complete with accelerating depreciation and deferring taxes), working capital schedule, debt schedule, handling circular references, and automatic debt pay downs.

    • Illustrative concepts including detailing model flows help aid in conceptual understanding.

    • Concepts are reiterated and honed, perfect for a novice yet detailed enough for a professional.

    • Model built direct from Wal-Mart public filings, searching through notes, performing research, and illustrating techniques to formulate projections.

  • Includes in-depth coverage of valuation techniques commonly used by Wall Street professionals.

    • Illustrative comparable company analyses - built the right way, direct from historical financials, calculating LTM (Last Twelve Month) data, calendarization, and properly smoothing EBITDA and Net Income.

    • Precedent transactions analysis - detailing how to extract proper metrics from relevant proxy statements

    • Discounted cash flow analysis - simplifying and illustrating how a DCF is utilized, how unlevered free cash flow is derived, and the meaning of weighted average cost of capital (WACC)

    • Step-by-step we will come up with a valuation on Wal-Mart

  • Chapter end questions, practice models, additional case studies and common interview questions (found in the companion website) help solidify the techniques honed in the book; ideal for universities or business students looking to break into the investment banking field.

Table of Contents

  1. Cover
  2. Series
  3. Title Page
  4. Copyright Page
  5. Dedication
  6. Preface
    1. THE WALMART CASE STUDY
    2. HOW THIS BOOK IS STRUCTURED
  7. Part One: Financial Statements and Projections
    1. Chapter 1: The Income Statement
      1. REVENUE
      2. COST OF GOODS SOLD
      3. OPERATING EXPENSES
      4. OTHER INCOME
      5. DEPRECIATION AND AMORTIZATION
      6. INTEREST
      7. TAXES
      8. NON-RECURRING AND EXTRAORDINARY ITEMS
      9. DISTRIBUTIONS
      10. SHARES
      11. WALMART’S INCOME STATEMENT
      12. INCOME STATEMENT—MAKING PROJECTIONS
    2. Chapter 2: The Cash Flow Statement
      1. CASH FROM OPERATING ACTIVITIES
      2. CASH FROM INVESTING ACTIVITIES
      3. CASH FROM FINANCING ACTIVITIES
      4. WALMART’S CASH FLOW STATEMENT
      5. CASH FLOW STATEMENT’MAKING PROJECTIONS
    3. Chapter 3: Depreciation Schedule
      1. STRAIGHT LINE DEPRECIATION
      2. ACCELERATED DEPRECIATION
      3. DEFERRED TAXES
      4. PROJECTING DEPRECIATION
    4. Chapter 4: Working Capital
      1. OPERATING WORKING CAPITAL
      2. WALMART’S OPERATING WORKING CAPITAL
      3. PROJECTING OPERATING WORKING CAPITAL
      4. OPERATING WORKING CAPITAL AND THE CASH FLOW STATEMENT
    5. Chapter 5: The Balance Sheet
      1. ASSETS
      2. LIABILITIES
      3. WALMART’S BALANCE SHEET
      4. BALANCE SHEET PROJECTIONS
      5. BALANCING AN UNBALANCED BALANCE SHEET
    6. Chapter 6: The Debt Schedule, Circular References, and Finalizing the Model
      1. DEBT SCHEDULE STRUCTURE
      2. MODELING THE DEBT SCHEDULE
      3. CIRCULAR REFERENCES
      4. AUTOMATIC DEBT PAYDOWNS
      5. BASIC SWITCHES
      6. FINALIZING THE MODEL
  8. Part Two: Valuation
    1. Chapter 7: What Is Value?
      1. BOOK VALUE
      2. MARKET VALUE
      3. ENTERPRISE VALUE
      4. MULTIPLES
      5. THREE CORE METHODS OF VALUATION
    2. Chapter 8: Discounted Cash Flow Analysis
      1. MID-YEAR VS. END-OF-YEAR CONVENTION
      2. UNLEVERED FREE CASH FLOW
      3. WEIGHTED AVERAGE COST OF CAPITAL (WACC)
      4. BETA
      5. TERMINAL VALUE
      6. WALMART DCF ANALYSIS
    3. Chapter 9: Comparable Company Analysis
      1. LAST TWELVE MONTHS (LTM)
      2. CALENDARIZATION
      3. COSTCO AS A COMPARABLE COMPANY
    4. Chapter 10: Precedent Transactons Analysis
      1. IDENTIFYING PRECEDENT TRANSACTIONS
      2. WALMART PRECEDENT TRANSACTION ANALYSIS
    5. Chapter 11: Conclusion
      1. 52-WEEK HIGH/LOW
      2. COMPARABLE COMPANY ANALYSIS
      3. PRECEDENT TRANSACTIONS
      4. DISCOUNTED CASH FLOW
  9. Appendix 1: Model Quick Steps
  10. Appendix 2: Financial Statement Flows
    1. INCOME STATEMENT TO CASH FLOW
    2. CASH FLOW TO BALANCE SHEET
  11. Appendix 3: Excel Hotkeys
  12. About the Author
  13. About the Companion Web Site
  14. Index