Overview

Quick reference

• 00:04 Welcome to the Financial Modeling Techniques course.
• 00:07 This course builds on the Basics course, which was the preparation.
• 00:12 In that we looked at the four key principles of a best practice model.
• 00:17 And we looked at Excel's key functions and
• 00:19 features required to build a financial model.
• 00:21 Well lets put all that together now to put together a walk through of an elementary
• 00:25 financial model.
• 00:26 And this means that this course built on a basics course
• 00:29 which is now assumed knowledge.
• 00:32 Like the first course, there are these examples throughout,
• 00:34 although we will have some Powerpoint slides to begin with.
• 00:38 And yet again,
• 00:38 all I can stress is please enjoy, it is meant to be a bit of fun at the same time.
• 00:43 Just as a refresher then, I'm going to focus for
• 00:46 a moment on the key concepts in financial modeling, because we're going to be
• 00:49 coming back to these again and again, and again, in this course.
• 00:52 We're going to look at the principles of CRaFT, C-R-F-T, consistency,
• 00:57 robustness, flexibility, and transparency.
• 01:01 The model should just have one formula copied across, it should be that the dates
• 01:05 are all of equal periodicity and start and end in the same column.
• 01:08 They should all have the same look and feel so
• 01:10 that various items like inputs, calculations, outputs were all formatted or styled consistently.
• 01:16 The models should be robust,
• 01:17 there shouldn't be any prima facie errors in there, #ref #div/0, #null, #brown.
• 01:23 I made that joke last time out. The balance sheet should balance.
• 01:26 The cash in the cash flow statement should equal the cash from the balance
• 01:29 sheet, etc.
• 01:30 It should be flexible so
• 01:31 that we can actually change the inputs within agreed parameters.
• 01:35 We can't just put anything in any old model, we can't just for
• 01:38 instance say economic life will be dog.
• 01:40 We are actually looking at putting a number in that, but
• 01:43 if it's within an agreed parameter, then the model should work accordingly.
• 01:46 And it should be transparent too,
• 01:48 so that people can actually follow a model on a piece of paper.
• 01:51 That's a key test of a good financial model,
• 01:54 because the key decision makers tend not to be looking in the Excel formula bar
• 01:59 report or part of a Power Point something like that.
• 02:02 So with that in mind, a financial model should be stream lined, it should get you from A,
• 02:07 where you are now to B, what you want to do or what decision you need to make and
• 02:12 how do you evaluate quantitatively and qualitatively too.
• 02:16 That means in the first graphic, the top one,
• 02:19 A to B should be pretty much a straight line.
• 02:22 The problem is too many financial models out there are tangled up,
• 02:24 they sort of follow a rather circuitous route, and noone can actually make head or
• 02:28 tail of what on Earth they're supposed to be doing.
• 02:31 Don't make a model over-elaborate, don't keep building it till it's gone so
• 02:36 far from its original purpose it's unrecognizable.
• 02:39 Keep it simple, stupid, short and to the point.
• 02:41 Some of the best models I know are not only my best friends, but also very,
• 02:46 very small and very easy to work with.
• 02:50 So really, what are we going to do in this course?
• 02:52 What are the key points?
• 02:53 This financial statement theory, first of all, is not assumed knowledge.
• 02:57 I know you're not all chartered accountants out there, and some of you may only have
• 03:00 basic or rudimentary understandings of the financial statement types.
• 03:03 There's three and we'll go through each of them individually.
• 03:06 We'll look at the meaning of what three way integrated is and
• 03:09 realize it's not as kinky as it sounds.
• 03:11 And we'll also look at how we would actually link the financial statements,
• 03:14 and to do that we'll look at constructing a basic model in the first instance.
• 03:18 If we are going to do financial statement modeling
• 03:21 then it can be a bit of an overwhelming experience for the uninitiated.
• 03:25 And typically the people who are asked to build a financial model get no training in
• 03:28 the first place, so you're luckier than them.
• 03:30 I'm actually gonna show you how to do it.
• 03:33 We're gonna talk through some of the key learnings so
• 03:35 it becomes rather obvious the order you do it in.
• 03:37 Because no matter what model I build,
• 03:39 it'll never be the model you're going to build.
• 03:42 Right well, we need to cut it up piece meal and
• 03:44 that's the whole idea of whole idea of how do you eat an elephant.
• 03:46 One piece at a time.
• 03:48 It's important to get the order right,
• 03:50 it's important to build the checks at the beginning, and you just go part by part,
• 03:53 eradicating any mistakes along the way.
• 03:56 So if you're all sitting comfortably, let's begin.

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