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The Handbook of Financial Modeling: A Practical Approach to Creating and Implementing Valuation Projection Models

Book Description

The ability to create and understand financial models that assess the valuation of a company, the projects it undertakes, and its future earnings/profit projections is one of the most valued skills in corporate finance. However, while many business professionals are familiar with financial statements and accounting reports, few are truly proficient at building an accurate and effective financial model from the ground up. That's why, in The Financial Modeling Handbook, Jack Avon equips financial professionals with all the tools they need to precisely and effectively monitor a company's assets and project its future performance.

Based on the author's extensive experience building models in business and finance—and teaching others to do the same—The Handbook of Financial Modeling takes readers step by step through the financial modeling process, starting with a general overview of the history and evolution of financial modeling. It then moves on to more technical topics, such as the principles of financial modeling and the proper way to approach a financial modeling assignment, before covering key application areas for modeling in Microsoft Excel.

Designed for intermediate and advanced modelers who wish to expand and enhance their knowledge, The Handbook of Financial Modeling also covers:

  • The accounting and finance concepts that underpin working financial models;

  • How to approach financial issues and solutions from a modeler's perspective;

  • The importance of thinking about end users when developing a financial model;

  • How to plan, design, and build a fully functional financial model;

  • And more.

A nuts-to-bolts guide to solving common financial problems with spreadsheets, The Handbook of Financial Modeling is a one-stop resource for anyone who needs to build or analyze financial models.

What you'll learn

  • Key financial modeling principles, including best practices, principles around calculations, and the importance of producing clean, clear financial models

  • How to design and implement a projection model that allows the user to change inputs quickly for sensitivity testing

  • The proper way to approach a financial modeling assignment, from project planning all the way through to the documentation of the model's findings and effectiveness

  • How to model in Microsoft Excel, including how to set up an Excel environment, how to format worksheets, and the correct application of various modeling formulae

  • The skills and knowledge they need to become more proficient financial modelers and differentiate themselves from their professional competitors.

Who this book is for

Written in a clear, concise manner and filled with screen grabs that will facilitate readers' comprehension of the financial modeling process, The Handbook of Financial Modeling is appropriate for intermediate to advanced financial modelers who are looking to learn how to enhance their modeling proficiency.

Table of Contents

  1. Title Page
  2. Apress Business: The Unbiased Source of Business Information
  3. Dedication
  4. Contents
  5. About the Author
  6. Acknowledgments
  7. Introduction
  8. CHAPTER 1: Financial Modeling: An Overview
    1. Financial Modeling: A Definition
    2. Microsoft Excel as the Modeler’s Tool
    3. Where Are Financial Models Used?
    4. The Role of the Financial Modeler
  9. CHAPTER 2: Financial Modeling Best Practices
    1. What Are the Best Practices of Financial Modeling?
    2. Errors Explained
    3. Best Practices in a Nutshell
    4. Case Study: Financial Model Gone Awry
  10. CHAPTER 3: Modeling Functions and Tools
    1. Excel Formulas and Functions for Modelers
    2. Typical Modeling Issues and How to Address Them with Functions
    3. Case Study: Using Modeling Functions and Tools
  11. CHAPTER 4: Planning Your Model
    1. Introduction to the Financial Modeling Life Cycle
    2. Planning to Build a Model
  12. CHAPTER 5: Testing and Documenting Your Model
    1. Testing the Financial Model
    2. Types of Tests
    3. Common Types of Errors to Test
    4. The Test File
    5. Points to Keep in Mind When Testing
    6. Providing Documentation in Models
    7. Thoughts About the Application to be Used
  13. CHAPTER 6: Designing and Building Your Model
    1. Managing Complexity
    2. Building Your Model
    3. Planning for Errors
    4. Case Study: Planning a Financial Model
  14. CHAPTER 7: The Model User: Inputs
    1. Thinking About the Financial Model End User
    2. Defining Inputs and Understanding Their Importance
    3. Types of Inputs
    4. How to Build Inputs
    5. Case Study: The Real-World Impact of Inputs
  15. CHAPTER 8: Finance and Accounting for Modelers
    1. Accounting Primer
  16. CHAPTER 9: Managing and Evaluating a Business for Modelers
    1. Managing Cash
    2. Managing Sales
    3. Managing Income
    4. Managing Expenses
    5. Managing Assets
    6. Managing Inventory
    7. Managing Payroll
    8. Break-Even Point
    9. Financial Statements
    10. Introduction to Ratios
  17. CHAPTER 10: The Implications and Rules of Accounting for Modelers
    1. The Modeler’s Financial Statement Responsibilities
    2. Linking Inputs to Financials
    3. Understanding When to Use Financial Statements
  18. CHAPTER 11: Financial-Based Calculations
    1. How to Lay Out Your Calculations
    2. Using Best Practice Calculations
  19. CHAPTER 12: Logical and Structural-Based Calculations
    1. Array Calculations for Single Values
    2. Applying the Right Function to Your Calculations
    3. Linking Your Calculations to Inputs and Outputs
    4. Case Study: Math in Modeling
  20. CHAPTER 13: How to Capture, Document, and Track Assumptions in Your Model
    1. Incorporating the Model Assumption Register
    2. Documenting the Model
  21. CHAPTER 14: Modeling to Give the User Transparency
    1. User Functionality
    2. Adding User Flexibility to Accounting and Financial Statements
    3. Error Checking
    4. User Interface Options
    5. Locking Down the Model
    6. Case Study: Every Model Needs a Good Manager
  22. CHAPTER 15: Model Testing and Auditing
    1. Why You Should Always Test Financial Models
    2. Types of Model Tests
    3. How to Test Your Model
    4. How to Perform a Model Audit
    5. Case Study: Never Assume Perfection
  23. CHAPTER 16: Modeling Handovers Dos and Don’ts
    1. Handing Over the Model in Theory
    2. Handing Over the Model in Reality
    3. Advice for Handing Over the Model
    4. Case Study: When Handovers Go Wrong
    5. Case Study: When the Handover Goes Right
  24. CHAPTER 17: Case Study: Building a Full Life Cycle Model
    1. The Modeling Brief
    2. The Modeling Plan
    3. Specification and Strategy
    4. Design
    5. Build
    6. The Assumptions and Documentation
    7. Testing and Audit
    8. Final Version and Protection
  25. CHAPTER 18: Additional Tools and VBA for Financial Models
    1. Third-Party Tools to Enhance Financial Models
    2. Case Study: How VBA Benefits Models
  26. CHAPTER 19: What Is the Future of Financial Modeling?
    1. Future Demand for Financial Modeling
    2. Developments, Changes, and Evolutions in Financial Modeling
  27. APPENDIX A: Keyboard Shortcuts
  28. APPENDIX B: Finance and Accounting Glossary
    1. Income Statement Terms
    2. Cash Flow Statement Terms
    3. Balance Sheet Terms
  29. APPENDIX C: Ready-Made Functions
    1. Adding Functions
  30. APPENDIX D: Sample Outputs
    1. Pricing Summary
    2. Financial Plan
    3. Balance Sheet Summary
    4. The Net Present Value (NPV)
    5. The Internal Rate of Return (IRR)
  31. APPENDIX E: Model Housekeeping
  32. APPENDIX F: References
  33. Index