Financial Modeling

Copyright 2009 Investment Banking Institute

www.ibtraining.com

Table of Contents
I. Introduction II. Spreading Historical Financial Statements III. Deriving Historic Ratios, Trends and Variables IV. Financial Statement Projections V. Integration of Financial Statement Projections / Revolver Modeling

2

Introduction
Uses for Financial Models in Investment Banking and Private Equity Investment bankers and Private Equity Professionals often must create financial models that illustrate historic financial statements along with integrated income statement, balance sheet and cash flow projections for evaluating various types of transactions such as:
Sale of the Company Merger of the Company Public or Private Placement of new capital (bank loans, high yield issue, IPO or secondary equity offering, private equity or debt placement, etc.) Leveraged buyouts / Management buyouts Restructuring / Bankruptcy

In these cases, the associate or analyst is expected to construct the financial model with guidance from the management team on assumptions and projections. Typically, the associate and analyst are responsible for “running the model”, including the ability to run base-case, upside, downside and alternate capital structure scenarios. For pitches and other cases where there is no access to the management team, projections from research reports (equity research reports, high yield research reports, credit rating agency reports, etc) can be used.

3

Introduction
Tips for Setting Up the Financial Model Keep historic and projected income statement, balance sheet and cash flow on same worksheet Have Historic Ratios / Assumptions for Projections on the same worksheet but separate from the worksheet that has income statement, balance sheet and cash flow Formatting is very important in investment banking: same font and letter size