I'm creating a financial model and got stuck. Please give some advice (I'm a newbie).
I have been trying to make a three statement financial model. The company hasn't mentioned the Trade payables, trade receivables, inventory and capex clearly on the balance sheet. Now my cash flow from operations is showing +3000, while the cash flow from operations in the company's cash flow statement is (20,000) for the year 2018. What to do? Should I carefully go through all notes to accounts? It is going to take a lot of time.
Edit 1: I am making a model for a Financial company, and someone just told me that modeling for financial companies is done differently.
Edit 2: An experienced analyst just told me that: In terms of getting the right entries for operations investing and financing a lot of companies will misclassify if they can in order to make other areas seem more appealing. Here your personal view is what's important.
Is the cash flow core operations i.e I'm a baker I sell bread for cash that's definitely cash from operations. However, I have a small investment in a cheese shop which pays m,e a dividend should it be operations or investment? If the company is purely a baking company then it should be investing not operations. However, in reality, a company may put the figure in either section, and it's your responsibility to decide what you think is appropriate and where to put it. I'll be able to proceed with my model now, I guess.
don't bother with historical CFS - CFS is only used to plug cash to balance the projected BS also, trying to tie historical financials is pointless
You're an intern... and you're giving advice on financial modeling?
you're a partner in PE... and you're ripping 2 students for trying to help each other out?
I know that doing the historical cash flows is pointless. I did it on purpose. I wanted to make sure that I make the right entries in the cash flows from operating, investing and financing activities. So, if the cash flow from operations in my model somewhat matches the one in the annual report, I'd know that I'm going the right way.
I'm open to all sorts of advice :)
you don't have to follow the historical line items, just the line items for balance sheet items that move + capex and D&A
yeah man in response to your edit I’d do a really simple company eg consumer discretionary/ staple, etc. basically a buying and selling margin business. after that a biotech, maybe a resource, etc.
super simple cap structure etc. 0 need to overly complicate things that are ancillary and not core learning things. you can always add or do more later. would recommend going more simple than a financial company. doubt people I work with (myself even) really know how to model one (though we do in principal / idea) and no one cares either but it’s definitely not something I’d try out the gate. good luck with it if you do tho
first model I did from scratch freshman year was a tech company and it wasn’t complicated. wasn’t easy because everything was foreign but not calculating things away from norm. the only thing was finding comps for beta/WACC but even then that’s qualitative. financial companies are just FUNDAMENTALLY different good luck tho
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