5 Benefits of EduPristine’s Financial Modeling Program

EduPristine has been running a fairly popular program (Trained ~1000 people in the last year) on Financial Modeling in Excel. Financial Modeling offers following benefits which can be quite useful for Finance Professionals:

Structured Thinking: Financial Models require you to think straight and convert your thought process into Excel Spreadsheets. So the first part that should be taught is structured thinking. This can be done through exercises on Market Size Estimation, Marketing Funnel, Deriving the right drivers for Revenue, Costs, etc. Once you start thinking in a structured manner, the models automatically start rolling out. When you create the models, they should have a logical flow.

Mastering Excel as a Tool: Since most of the time would be spent in implementing the model in Excel unless you are very comfortable with the tool, you would take too long navigating the tool rather than creating the model. Excel Shortcuts, knowing advanced functions, the referencing framework, etc. will play a big role in helping you quickly implement your thoughts in Excel.

Correct Formatting: Other people would read your model and come to some decisions. If your model is not legible (fonts, results, spreadsheet, navigability, etc.), the model is not going to be useful. You will get to learn all kind of formatting in Excel.

Analysis: As a finance professional your job is to analyze data and come to conclusions. Each step of analysis and its implementation (Ratios, Valuation, etc.) should be taught to Finance Professionals. Financial Modeling will make you pro at analytics.

Dashboard Building: Final results need to be presented. Most of the times, even good models are rendered useless unless they have a good dashboard to highlight the results to the end user. Become adept in dash-board building.

Get FREE LinkedIn Model designed by Experts, to get a brief idea how Financial Models work Interesting!

Why do Financial Modeling from EduPristine?

Get trained by topic experts with interactive learning. Create models following a step-by-step approach devised by professionals.  Get doubts solved by our experts within 2 business days. EduPristine’s Financial Modeling Course, Certified by BSE Institute Ltd.

Request for a callback now, to get counseling from my expert representative. Batches starting soon.

Move up the corporate ladder with CFA

This blog will let you know how to gain more opportunities with your  B. COM/BBA or another graduate degree, and acquire more senior roles within the shortest time frame, and save 3-5 years of your career, as you directly take a leap to managerial level from the executive level.  Read to know which career in Finance will suit you best, and how EduPristine’s Certifed Financial Analyst (CFA®)  Course can help you get there.

1) COMMERCIAL BANKING: Various function in a commercial bank comprises of operations department, credit and risk department, treasury department, liability management, audit, accounts. 
Roles that you can get after CFA® : Credit Analyst, Loan Officer, Branch Manager, Trust officer, Mortgage Banker, Customer Service Manager. 

2) INVESTMENT BANKING– Functions include advising large and mid corporates in terms of their expansion, strategy for acquiring certain businesses, helping in mergers and acquisitions. 

Roles that you can get after CFA® : Financial Planning Analyst, Business Analyst, Equity Research Analyst, Process Associate, Portfolio Manager, Risk Analyst.

3) CREDIT: Here the job functions that are of utmost importance include- credit rating, analysis, evaluating loans, recommending certain credit sanctions, identifying the borrower, repayment ability of the borrower, structuring of loans, securities and so on. Roles that you can get after CFA® : Area Credit Manager, Credit Officer, Regional Credit Manager, Credit Risk Analyst, Branch Credit Manager, Credit Processing Associate, Assistant Credit Manager. 

4) INSURANCE: Insurance comprises of General Insurance and Life insurance. 
Roles that you can get after CFA®: Area Sales Manager, Branch Sales Manager, Relationship Manager, Operations Manager, Insurance Advisor, Business Development Manager, Agency Manager.

5) PORTFOLIO/ WEALTH MANAGEMENT: Portfolio management refers to managing an individual’s investments in the form of bonds, shares, cash, mutual funds etc. so that he earns the maximum profits within the stipulated time frame. 
Roles that you can get after CFA® : Portfolio Manager, Financial Analyst, Equity Advisor, Relationship Manager, Equity Research Analyst Business Analyst, Investment Analyst, Branch Manager. 

6) FINANCIAL PLANNING: A financial planner or personal financial planner is a professional who prepares financial plans for people. These financial plans often cover cash flow management, retirement planning, investment planning, financial risk management, insurance planning, tax planning, estate planning and business succession planning. 
Roles that you can get after CFA® : Senior Financial Analyst, Financial Planner, Accounts & Finance Manager, Financial Controller, Manager Financial Planning & Analysis, Financial Planning Advisor, Equity Research Analyst, Relationship Manager. 

7) SECURITIES/BROKING: This includes Equity Trading, Fixed Income Trading like ShareKhan, Angel Broking, Motilal Oswal, etc. 
Roles that you can get after CFA®: Security Officer, Equity Dealer, Security Manager, Equity Research Analyst, Security Supervisor, Equity Advisor, Security Administrator, Head Security.

8) FINANCIAL CONSULTING– This involves presenting financial position of a company, identifying their problems, and sharing solutions.
Roles that you can get after CFA®: Personal Financial Consultant, Sales Manager, Relationship Manager, Partner, Associate, Proprietor, Branch Manager, Wealth Manager.

9) RISK MANAGEMENT: This includes planning for potential risks which will help in the creation of a financial business strategy that seeks a constant upward trend.
Roles that you can get after CFA®: Chief Risk Officer, Senior Risk Analyst, Head of Operational Risk, and Director, Investment Risk Management, to name a few. 

10) CORPORATE FINANCE– Corporate finance is the area of finance dealing with the sources of funding and the capital structure of corporations. Important departments consist of Accounts, Audit, Taxation, Finance and Treasury. 
Roles that you can get after CFA®: Financial Analyst, Project Finance Manager, Director Finance, Associate, Chief Financial Officer, Investment Banking Analyst, Equity Research Analyst, Finance Head.

How should you set your financial goals?

Setting goals is typically the first step towards achieving success. While achieving goals is considered to be the harder bit, setting them appropriately is paramount for the success. Same is applicable to financial success as well.

How does one go about setting financial goals? While going about setting financial goals one needs to maintain the balance between various factors listed below:

  • Timing of Goals: Trade-off between spending today vs saving for spending in future
  • Magnitude of goals: Based on the amount of money required to achieve a goal (i.e. how ambitious the goals are), one may have to compromise on the current lifestyle

So it’s important to list down the financial goals and prioritize them. Once a laundry list of goals ready, it might be useful to plot the goals on an X-Y plot as shown below.


financial goals

For the sample diagram above (which is not drawn to any scale), based on personal preferences, the goals can possibly be as given below:

  1. Investing in Real Estate
  2. Purchasing a car
  3. Marriage
  4. Higher education for kids
  5. Retirement

The framework above helps in mapping the goals, understanding the amount of money required along with a very clear sense of timing, which is critical for developing a successful plan. After plotting these goals, one needs to prioritize the goals. Again, a framework can be used for prioritizing the goals. The goals can be evaluated on two key dimensions.

  1. Magnitude criticality
  2. Time Criticality

 

E.g. Say one of my goals is buying a luxury car in 2018. The questions that I need to answer in order to understand the priority of this goal would be?

  1. How important is buying a car for me?
    • Sample Answer: It is important otherwise, it would possibly not figure in the list of my goals
  2. How important is it for me to buy a car in 2018?
    • Sample Answer: Yes, by 2018 a car would become a necessity
  3. How luxurious do I want my car to be? Can I work with a slightly less luxurious car, just in case I am not able to save the required amount?
    • Answer: It doesn’t have to be too luxurious

So as can be understood from the answers, the car purchase is more ‘time critical’ financial goal than being ‘magnitude critical’, as based on the answers above, I am ready to compromise on the kind of car just in case it is required but not with the timing.

Similarly if one of the goals is to go on a world tour in 2030, possibly it would be more ‘magnitude critical’ than being ‘time critical’, wherein it could possibly be more important to ensure that the amount of savings is sufficient for enough to cover for all the travel expenses and I wouldn’t mind even if that tour happened a couple of years later, as I might want it to be my best world tour ever.

A sample plot of goals based on time and magnitude criticality is shown below:

 


financial goals

The combination of the two plots would help in visualizing the goals and prioritizing them. Once the goals are prioritized, the planning for those goals would need to be done. The biggest hurdle in achieving the financial goals is typically inflation, which eats away the real value of saved money. Hence, the financial plan should be developed to give yourself best chance of beating (or at least covering for) inflation.

The financial planning would start with asset allocation towards achieving individual goals, ensuring that overall asset allocation continues to make sense. It would then be required to breakdown the goals into smaller milestones, which would ensure re-assessment and re-alignment as and when it is required. The milestones then may need to be broken down into annual, quarterly and monthly savings plan. Once the monthly savings plan is formulated, it should be used as a guideline for making purchase decisions and managing the routine budgets, the overall lifestyle, the amount of house rent that one can afford, the type of clothes that one can afford, the  kind of restaurants that one can afford to eat etc.

If there is a disconnect at the level of monthly/ quarterly/ annual plan i.e. the amount of savings required to achieve the goals is greater than the income, it implies that there is a need to re-assess the goals, their magnitudes, timings and priority etc. apart from the obvious fact that there is need to raise income levels.

This iterative process of re-assessing the goals would need to be followed till there is no inconsistency at any level and there is a logical connection visible between the goals that one wants to achieve in future and the steps that are being taken to achieve them.

After a plan is developed, it is extremely critical to follow it with high levels of discipline and commitment. It might as well be a great idea to automate the savings required for most of the financial goals while also evaluating the performance and allocation periodically.

Quick Summary:

When setting financial goals, there is a need to minimize subjectivity and emotional thinking. The financial goals need to be set objectively along with clarity in prioritization. Role of inflation in deciding the ‘magnitude’ cannot be ignored. The drill down from financial goals to a monthly financial plan needs to be defined and followed meticulously for achieving financial success.

Happy Financial Goal Setting!

GoDaddy IPO Valuation Model

GoDaddy IPO valuation model

Download: GoDaddy IPO Valuation Model

It started with me not getting selected in Deloitte which had come for summer internship. I had an exciting opportunity in risk consulting waiting for me, not to mention the remuneration associated with it. For any young guy looking to make it big in the field of Finance, it is a good step forward to say at the least. But, it wasn’t to be and I was one of those rejected in the final interview. Now, this is where life teaches us a lesson and it is important to understand the subtle difference between ‘Rejection’ and ‘Non-Selection’. The beauty of the matter is that the choice is all ours. I chose to believe in the latter and concluded that I need to keep going in search of the light at the end of tunnel and light there was and that too a shining bright ray of hope.

I didn’t sit in interview process of the companies which followed Delloite for multiple reasons, profile being one of them. Finally, Edupristine gave me opportunity to valuate GO DADDY which seemed exciting so I accepted.

Frankly speaking, no internship could have offered me better work and I was supposed to work from home. So, I was happy since my friends, most of them were working in marketing and operations, had to roam around Delhi in sultry afternoon.

I had no clue where to start. Honestly I didn’t even know where to get the data from which I came to know eventually though. I was assigned a mentor who helped me a lot.

One more good this project did was compel me to revise basic accounting concepts which had wiped out completely from my memory following the completion of the 1st term.

I started by doing basic formatting in Excel which is supposed to be similar for all sheets. Over the time I learnt lot more new things in excel which includes plethora of shortcuts.

Actually I developed knack for short cuts. Every time I had to do small thing like increasing the font, I would press ‘Alt+’ and look for the next key.

Eventually I managed to memorize lot of shortcuts which are frequently used in excel while doing modelling.

I faced lot of problems, most of them about making assumptions, but the major among all of them was matching cash in cash flow statement with the balance sheet.

I took me few days to figure out the mistake I committed while adjusting balance sheet items in the cash flow sheet.

The overall experience and a weird sense of achievement which I felt post completing the valuation was really fulfilling.

Below, I have mentioned step by step method which I followed to value GO DADDY. I hope it helps and inspires you to learn financial modelling.

Case 1- Data Collection

Since the company has registered for an IPO, its information can be retrieved from S1 form.

The figures are given in ‘000, so you may keep it like that or divide entire figures by 10^3.

All the figures which are directly taken from some source are blue coded while those which are derived are black coded.

Case 2- Understanding Business profile

Technology provider to small businesses, web design professionals and individuals, delivering simple, easy to use cloud-based products and outcome-driven, personalized Customer Care.

Operate the world’s largest domain marketplace, customers can find that unique piece of digital real estate that perfectly matches their idea.

Provide website building, hosting and security tools to help customers easily construct and protect their online presence and tackle the rapidly changing technology landscape.

Case 3- Modelling revenue and expense drivers

Identifying revenue drivers:

  • Domains
  • Hosting & Presence
  • Business Applications

Average Revenue Per Use
[x]Total Customers
[x]% of domain users
Revenue

Operating Expenses except depreciation & amortization can modelled as %age of total revenues.

Since no information is provided regarding addition or deletion of assets. Depreciation & Amortization can be modelled as %age of PPE.

Case 4- Modelling Net Income

Interest Expense can be modelled as %age of long term debt. Net Income can be easily calculated after adjusting income tax. Benefit from income tax is modelled as %age of PBT.

Case 5- Completing Balance Sheet

A/c receivables can be modelled as days of revenue. Similarly, A/c payable is modelled as days of operating expenses. Registry deposits and pre domain name registry fee are modelled as %age of total customers.

Total customers can be easily forecasted, once y-o-y increase in total customers is calculated.

Case 6- Modelling Cash Flow

Cash Flow can be easily calculated by adjusting values from operating, investing and financing activities.

Cash Flow from operating activity:

  • Increase in liability – Out Flow of cash
  • Decrease in liability – In Flow of cash

Cash Flow from investing activity:

  • Increase in assets – In Flow of cash
  • Decrease in assets – Out Flow of cash

Cash Flow from financing activity:

  • Increase in Equity – In Flow of cash
  • Decrease in Equity – Out Flow of cash

Case 7- Calculating Ratios

Revenue Mix can be calculated by taking ratio of individual revenue drivers and total revenue.

Gross Margin can be calculated by taking gross ratio with total revenue. Liquidity and Leverage ratios can be calculated easily.

Case 8- DCF Valuation

We have used discounted cash flow method for valuation. FCFE is calculated using:

PAT (Consolidated)

[+] Depreciation, Amortization & Impairment

[-] Change in Working Capital

[-] Capital Expenditure

[-] Debt Repayment, Net

FCFE
FCFE is discounted with cost of equity.

Assumptions in calculating cost of equity:

  • Risk free rate is taken as the average of maximum and minimum return offered on US treasury bonds with maturity of 10 years.
  • Beta is taken as the average of different values provided by different sources.
  • Expected return is again taken as average of values found in magazines, newspapers, articles etc.
  • Terminal growth rate is taken between the GDP growth rate of developing and developed nations. Since, their businesses come from countries like US, India.

Case 9- Sensitivity Analysis

Since we have taken assumptions in calculating cost of equity and terminal growth rate, we need to do sensitivity analysis to check the effect of variation in these two parameters on the stock price.

FRM Course: How to choose the right one

FRM Course

If you are writing the FRM exam in November 2014. There is not a lot of time left for you to speed up your preparation for the FRM exam. The first and foremost thing to do, if you haven’t done it already is to join a FRM course. Make sure that you are done with the FRM course by September 30th, so that you have at least a month to practice the FRM questions.

Our experience tells us that the more number of questions you solve, the better are your chances to clear the exam.

While choosing a FRM course, here are few things you should keep in mind:

  • Make sure that the FRM course is taken by experienced professionals with the right qualification.
  • The FRM course syllabus should be in sync with the FRM exam syllabus.
  • The FRM course material should be easily comprehensible with exam focus than focusing only on covering the exam syllabus.
  • The FRM course should cover the topics giving weighted time so that time is spent judiciously and you would get greater time to learn the difficult topics.
  • Once the FRM syllabus is covered, ensure that there is a provision for Mock tests and their doubt clearing sessions by the course instructors.

The standard registration for FRM exam is over now, you should be applying under late registration which is available till 15th of October. This step by step registration process will guide you on how to register for the exam.

FRM preparation requires dedication and utmost concentration. EduPristine has a profound history in FRM and CFA training, with more than 93% pass rate, our FRM courses are top notch and would help you clear the exam in your first try.