Presentation on business valuation and financial modelling

Presentation on Business valuation and financial modelling

1. Muhammad Qasim Mughal CEO MQ Specialist Financial Solutions

2. Topic: "Practical Approach for financial modeling and business valuation".

3. What is a Financial Model? The integration of technical skills with business/academic skills to create user-friendly decision-making tools.                    TECHNICAL SKILLS                                        BUSINESS SKILLS Excel Functions Designs Logic Presentation Accounting Finance Engineering Statistics

4. Modeling Discipline A good model needs to be a powerful communication tool so that it can be used to make effective decisions The following are important attributes of a strong financial model:        1. Dynamic        2. Flexible        3. Intuitive        4. Printable        5. Transparent        6. Transferable

5. Modeling Basics Keep it simple. Never Hardcode! Always enter inputs as a different color than calculation Never enter a formula that looks like: =B6* .025 + 4.9 Use the keyboard to increase speed Label everything properly (even excessively) Everything should be printable Master the basics Become an expert at formatting Practice

6. Modeling Best Practices The following are some critical modeling best practices: Plan and design a model As the right questions Keep the assumptions up front Make data inputs blue - never hardcode data into formulas Build a Scenarios page to avoid multiple versions Use a manageable number of worksheets – build the financial statements vertically Don’t do any work on the financial statements Do all calculations on schedules Build very simple formulas on the schedules Repeat the data, then use it in formulas

7. A good financial model needs to work two different ways: Needs to work electronically – every formula needs to make sense. Needs to work well on paper! (needs to feel like a presentation).

8. The Planning Process It is critical to properly plan and design a model before it can be built. Whenever a model becomes an illegible error-prone mess, it is almost always because the modeler didn’t properly devise a model plan. To create a strong plan, follow these three steps: Identify the major issues Identify all assumptions that need to be made in the model. Identify the required schedules and components 

9. Three components of the Planning Process: Determining the Major Issues / Key Drivers      - Most critical assumptions that will impact the success or failure of the company.      - Hard to forecast, hard for management to control.      - We will treat these variables in a special way in our model so that we can play with them 2. Make a big list of all your inputs and assumptions. 3. Think about what will be on each page once the model is done.

10. Modeler's Role: It's not just to create a giant calculator in Excel. In most modeling projects, the time working in Excel is usually approximately 50% - 60%. A lot of time is spent talking to people, clients, boss.

11. Basic Components of a Financial Model A good modeler truly understands all aspects of the business / projects order to present info. In a good model; 1- Cover Letter 2- Executive Summary (needs to be customized for every model) Tells the client: "What's the answer!" 3. Assumptions If they don’t have an assumption page, then the assumptions are scattered everywhere It is very easy to build the assumptions page in a model, if you first made a strong plan! 4. Scenarios Page More Assumption Scenarios means we have a few cases ( Base, Best, Worst)

12. Two major approaches for Tab Structures Vertical Horizontal

13. Information Gathering Gathering the right information is one of the most difficult and important parts of the modeling process A good model can help to define the problem and the process Don’t assume that the information provided is the right level of detail  A good financial analyst:     - asks the right questions and determines the right level of detail required to solve the problem     - needs to be a critical thinker and realizes that a good financial model facilitates this    - uses the model to facilitate the organization and flow of the analysis    - keeps the key players engaged in the process through regular updates and by soliciting feedback The model is a means to an end, and not an end in itself A model needs to be a powerful communication tool to convey all of the information regarding a particular analysis

14. Model Checking Tips for Checking a Model The following Excel tips are very helpful when checking a model:       - Zoom down to 35% or 40%. This will provide a birds eye view of the model and show where everything lives on the sheet   - While the magnification is still set to 35% or 40%, check for hidden white cells by pressing  Ctrl + A to highlight the entire sheet   - Press F5, Special, Constants to check for dead inputs on the sheet   - To check for hardcoded values,     Press Ctrl + ~ to see all formulas     Another way to check for hardcoded values is to select an entire row and press Ctrl + \ to highlight any differences within the row

15. When reviewing a link, press Ctrl + [ to go to the precedent cell – then press F5 Enter to go back. To jump to a cell references that’s part of a long formula, highlight the cell reference within the formula and then press F5 Enter. Use  Alt V V   to allow for quick navigation within the file (Custom View) These tips can help the person reviewing the model to become comfortable with the model and to find any errors.

16. Three Major Categories of Equity Valuation Models The three major categories of equity valuation models are: Present value models Multiplier models Asset-based valuation models

17. 1. Present Value Models

18. 2. Multiplier Models

19. 3. Asset-Based Valuation Models

20. Choosing the Right Valuation Model The choice of a model requires an analyst who is familiar with the benefits and limitations of each model. In practice, analysts often use more than one valuation model to derive better confidence in their conclusions. In cases where the conclusions from different models contradict each other, the analyst has to make a judgement on which model is more appropriate for the subject company.

21. Thank you!