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LinkedIn Competition Results Announced

February 21, 2011

First of all I would like to congratulate all the participants for their sincere efforts in the Linkedinâ€™s IPO Contest.

Most of you were very close to the completely integrated model just missing the target by one or two steps.

I am giving you the complete solution of the problems given to you so that you can check where you fell short.

Problem & Solution

You can download the solution sheet of the model here.

Following were the 4 problems with their solutions:

Revenue Build-Up Sheet:

• Making the projections for Number of registered Members and Corporate Solution Customers
• Thereâ€™s no right or wrong solution of this, as this part is very subjective. More you know about the industry and company better the assumptions would be.
• Calculating the Quarterly Revenue from each head: Hiring Solution Revenue, Marketing Solution Revenue, Premium Solution Revenue
• Here we were supposed to introduce the growth rates in the number of customers.
• Finally consolidating quarterly revenues into yearly numbers and updating the P&L statement.
• Most of you have selected the data for the quarters in the year and then summed them up. This is not a good Modeling Technique as it doesnâ€™t allow you to copy that formula forward. Sumif is what I expected.

Cash Flow Statement:

• Preparing the complete Cash flow statement from the Profit & Loss statement and Balance sheet.
• This was correct for most of you. You can have a look at the solution if you found a problem somewhere.
• Updating the balance sheet by linking the Cash and Cash Equivalents row.
• This is the last step of updating the Balance sheet numbers

Valuation Sheet:

• Calculating the cost of Equity
• CAPM equation was the answer.
• Calculating the FCFF and FCFE and then discounting these free cash flows to get the Equity Value of the firm.
• All have done it correctly.

Balance Sheet and P&L Sheet:

• The Cash balance on the balance sheet will also earn some interest rate on it. Letâ€™s suppose 4% per annum. Also if the cash balance of the company goes negative, they have any overdraft facility which charges at 6% per annum. You need to incorporate this interest calculation in the model.
• This was the most interesting part and most you committed a very small mistake of not taking the overdraft liability into the balance sheet. A simple check on this was, increasing the assets for FY 2012, will disturb the relation of Assets=Liabilities + Equity.

Winners will receive the certificate of Excellence.

Maharajan from IIFT

Anand Singhi from IIMC

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