These are some of my rough (and somewhat scarce) notes from Financial Edge’s graduate training program. Real value was in the Excel files and course materials.
- =FORMULATEXT (shows the formula in the cell)
- Change in Operating WC = Old Working Capital - New Working Capital
- Operating WC = Current Assets - Current Liabilities
- Capex is a cash outflow, so make sure that on the CFI, you have it as a negative value
- Make sure you don't forget to account for Dividends in the CFF (because they are impacting the Equity line item on the BS)
- Double check anything you see that is 0, to see the sign is appropriately allocated (called zero balances)
- For BASE analysis, do the "Ending" first and then the "Beginning" you can pull from the ending
- The AR/Sales shows you the fraction of sales that haven't been received in the year, and then you multiply by 365 to convert that fraction into number of days
- AR = (Receivables Days / 365) * Sales
- This turns the Receivables days into a fraction of Total Number of days, and then applies that fraction to the Sales
- If you have 1 error in your BS, you can divide by 2, and then it will be the amount of one line item... and it will show you that you have a wrong sign
- Sense, Structure and Sense
- Sense check by seeing if a number etc is off
- Structure to see correct row/column structure and same column used etc
- Sense, change assumptions to check if model reacts appropriately
- With a circular reference issue, you should start at the with the largest cell (right at the bottom) and work your way up, to understand where the circularity is...
- You shouldn't have a ending equity or base analysis for HISTORICALS, it's a recipe for errors haha
- Make sure to not miss out Sub-Totals, even if you think they are right, may still be wrong
- For WACC, and for Kd * (1-t) * D/(D+E)
- You will use the Marginal Tax Rate (a.k.a Statutory Tax), not the Effective Tax Rate... because the Effective Tax Rate includes tax breaks and consolidated tax treatments... whereas Marginal Tax Rate doesn't include that stuff
- For Kd, you use the yield on the bond and not the coupon rate
- Ke = Rf + (ERP x Levered Beta)
- Remember Unlevered Beta = Levered Beta / (1 + (1-t) * D/E)
- So notice it's not the proportion of Debt in Total Cap Structure
- But rather, it's the Debt/Equity ratio
- Remember to calculate the Present Value of the Terminal Value
- With mid-year adjustments, the only thing you worry about is the multiple method, because you are using an LTM EV/EBITDA multiple you can only apply it to e.g. Year 5 EBITDA