Financial Modeling Best Practices Webinar

Introduction

• Hosted by David Brown from CFA Society Nigeria and the Financial Modeling Institute.
• Webinar aims to discuss financial modeling best practices.
• Participants asked to change their default name to their actual names in the session.

Importance of Financial Modeling

• Financial modeling is a critical skill in finance and business.
• Good financial models tell a story and create confidence for users and decision-makers.
• Common issues: Many financial models are poorly structured and self-taught.

Presenter: Ian Schooner

• Executive Director of Financial Modeling Institute.
• Founder of the Marquis Group, a financial modeling training provider.
• Experienced in teaching financial modeling to professionals worldwide.

Overview of Financial Modeling

• Definition: A financial model is a forecast for a company, typically projecting 5-10 years into the future.
• Importance: Models are used for various business decisions (valuation, investment, mergers, operations, credit decisions).
• Challenges: Many financial models fail due to poor design and lack of proper skillsets.

Key Skills for Building a Financial Model

1. Excel Skills: Essential for creating and maintaining the model.
2. Accounting Knowledge: Understanding how financial statements connect.
3. Finance Understanding: Integrating various components into a cohesive model.
4. Design Skills: Ensuring the model is well-structured and organized.

Best Practices for Financial Modeling

General Best Practices

• Financial modeling should be treated as a discipline.
• Keep designs simple and avoid hard-coding values into formulas.
• Make sure the model is easy to understand both electronically and when printed.

Top Ten Modeling Tips

1. Plan and Design: Create a blueprint before starting the model.
2. Clear Assumptions: Place all assumptions at the front of the model for easy reference.
3. Model Scenarios: Build scenarios to forecast different outcomes (best case, worst case, base case).
4. Color Coding: Use colors to differentiate input cells (blue for inputs, black for formulas).
5. Avoid Complexity: Keep formulas straightforward by avoiding nested functions and excessive links.
6. Tab Structure: Organize model tabs logically; limit the number of tabs to avoid confusion.
7. No Formulas on Financial Statements: Only link to calculated values; don’t build formulas directly on the statements.
8. Use Schedules: Build detailed schedules for revenues, costs, etc., and link to the financial statements.
9. Simple Formulas: Repeat inputs and label them to make formulas clear and easy to follow.
10. Documentation: Maintain clear documentation to facilitate understanding and auditing of the model.

Other Tips and Techniques

• Use the Watch Window in Excel to keep track of important metrics across different sheets.
• Regularly check for errors and "dead numbers" in the model using Excel's Go To special features.
• Use a cover page and executive summary in the model to communicate key findings clearly.

Conclusion

• Strong financial modeling skills are crucial for success in finance-related roles.
• Encourage participants to utilize these best practices to enhance their modeling capabilities.
• Resources (slides and models) will be sent to participants post-webinar.

Q&A Session

• Questions addressed during the webinar include:
  • The complexity of infrastructure models and how to simplify them.
  • Best practices for managing model size and naming conventions.
  • Importance of clarity in assumptions and outputs.