Financial. Analysis, and. ModeHIng. Long-Term Forecasting

Transcription

1 _ Financial Forecasting. Analysis, and ModeHIng A Framework for Long-Term Forecasting MICHAEL SAMONAS WlLEY

2 TaWe of Contents Preface Acknowledgments About the Auttior xi xiii xv MRT ONE :, 4 Developing Corporate Rnance Modeis 1 Chapter 1 Introduction What is Financial Modelling? Defining the Inputs and the Outputs of a Simple Financial Model The Financial Modelling Process of More Complex Models Step 1: Defining the Problem the Model Will Solve: The Fundamental Business Question Step 2: Specification of the Model Step 3: Designing and Building the Model Step 4: Checking the Model's Output Excel as a Tool of Modelling: Capabilities and Limitations 13 Chapter 2 A Short Primer in the Accounting of Financial Statements The Accounting Equation The Balance Sheet The Income Statement Cash Accounting Versus Accrual Accounting The Cash Flow Statement Operating Activities Investing Activities 27 Vli

3 vh TABLE OF CONTENTS Financing Activities Income Flows and Cash Flows Preparing the Statement of Cash Flows The Articulation of Income Statement, Balance Sheet, and Cash Flow Statements Financial Statement Analysis: Ratio Analysis Profitability Ratios Liquidity Ratios Solvency Ratios Other Ratios The Limitations of Financial Ratios 40 Charter 3 Rnancial Statement MadeMng Introduction - How Financial Models Work Collecting and Analyzing Historical Data Selecting the Key Forecast Drivers Modelling the Income Statement Modelling the Balance Sheet Modelling Interest and Circular References Modelling the Cash Flow Statement 69 Charter 4 Forecasting Performance Introduction: Designing a Dashboard-like Control Panel Basic Statistical Methods Used for Forecasting Forecasting Sales Bottom-up Versus Top-down Forecasting Forecasting Sales of Existing Products or Services Forecasting Costs Forecasting CAPEX and Depreciation Forecasting CAPEX and Depreciation for Existing Companies Forecasting Working Capital and Funding Needs Forecasting Funding Needs 113 ChapterS Business Valuation Valuation Approaches Steps for Applying the DCF Method Rewriting Financial Statements - Calculation of Free Cash Flows Calculating the Weighted Average Cost of Capital Calculating the Weighted Average Cost of Capital of SteelCo 128

4 Table of Contents ix 5.5 Estimating the Terminal Value DCF Summary - Enterprise Value Adjustments 132 Flanning lor Uncertainty 137 Chapter 6 llsing Sensitivity Analysis Introduction One-Dimensional and 2-Dimensional Sensitivity Analysis Choosing the Variables to Change Modelling Example Selecting the Variables to Change Assigning a Range of Values Constructing the 2-dimensional Sensitivity Analysis Table Interpreting the Results 153 Chapter 7 Using Scenarios Introduction Using Scenario Analysis with Excel's Scenario Manager Adding 2 More Scenarios Alternative Ways to Create Scenarios in Excel Applying Scenarios to SteelCo's Case Deciding on the Number of Scenarios and Input Variables under each Scenario Deciding on the Output Variables Assigning Values to the Input Variables under Each Scenario Building the Scenarios in Excel's Scenario Manager Interpreting the Results 176 Chapter 8 Using Monte Carlo Simulation Introduction Building Uncertainty Directly Into the Modelling Process Probabilities, Cumulative Probabilities, and Frequency Distribution Charts Modelling Example Identifying the Key Risk Variables Choosing a Probability Distribution for Each Input Variable Performing the Simulation Runs The Simple VBA CODE Creating a Histogram (Frequency Distribution Chart) in Excel Interpreting the Results Some Issues of Concern 201

5 X TABLE OF CONTENTS Appendix Walking through the Excel Model Provided with the Book (SteelCo SA 4yr Business Plan) 203 Introduction 203 Structure of the Model Other Excel Files Provided with the Book 205 Index 207