Financial Modeling Diaries

Financial Modeling Diaries

Its a glamorous job, whether you are working for a corporate house, consulting firm, Investment Bank etc. Often the deal will be closed at a cut-off price which your model will suggest, say at a given WACC. So the person preparing the model gets a lot of visibility and a 360 degree understanding of the business

However there are pros and cons in each situation.

Let me point out one

Here its a unstructured nature of the model. Havent come across any robust software to make life easy.

Mostly financial modeling is done manually in MS Excel. You will essentially have at least 15-20 sheets with say 50-70 rows each. Lot of manual inter-linkages between sheets are involved. The moment you make one silly mistake, say connecting E1 in Cash Flow sheet with D1 in P&L, all the numbers go haywire. Similarly the total in Capex Sheet may not tally with the Financial Summary sheet because you inserted a pre-development year at the last moment in one sheet, and forgot to change the other. Very much possible but because very senior people are the end-users of these summaries, obviously, mistakes can be fatal.

Imagine if the deal is closed at 220 crores but its later found that one of the expense line items wasnt flowing into EBITDA and thus skipped the cash flow . Delta being 30 crores :)

If the debugging process is not robust, you will send the model as it is onwards. And any mistake found out in review stage is remembered for life :)

Reminds me of the adage quote- No matter how many goals you save, some people will only remember the one you missed.

So be prepared for the high voltage life in Financial Modeling.

Its a high risk, high reward game - not for the faint hearted

#anuragsingal #mrpractical #financialmodeling #financeprofessionals #elearning

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