I'm interning in equity research this summer and am repeatedly told I will have to update models. Sounds like that just means I am simply inputting the numbers that the company releases, and then dragging across excel formulas from past quarters in the model where applicable, right? Am I missing something?
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You are over simplifying. That's part of it, but you also need to update things like net debt, shares outstanding etc and may need to revise your actual assumptions etc. Quite a bit more than just dragging formulas across
Apologies if this is a dumb question, but even for net debt, ideally wouldn't you already have a row that calculates it as total debt less cash and cash equivalents? Then, once you find those items, you again would just drag the formula across, no?
I guess my point is if the company provides cash, cash equivalents, and total debt, there isn't much thinking to do right?
You are correct in that is how you mechanically update a model but as the other poater mentions, you will constantly want to be refining assumptions that drive the model...not just extending the outputs...
What I think mrb87 means is that when the company releases their press release, you will have new information that will be driving your assumptions, whether or not the assumptions may be different than before the PR is released. Things like COGS (sure) can change, maybe they might be experiencing a different mix of products going forward and that could drive COGS higher...or maybe COGS could be impacted by a new product launch that negatively impacts gross margins. Other things like new debt that may be raised (and understanding where to put that in your cash flow statement in terms of paying it back)...or, maybe for instance, inventory levels were significantly higher than usual and that could've impacted your revenue line due to a missed shipment or something...you want to account for all those things, whether one ofs or recurring...It's not as simple as drop and drag...you're going to have to read the Q too when it's released (obviously maybe not for the modeling test, but for the future you should to refine your assumptions).
Hope this helps.
I've written a post about this on my blog, where I walk through the forecasting process for Home Depot's upcoming year.
http://www.treetis.com/blog/2015/3/6/modeling-home-depot
I was afraid it might be difficult to follow for most, so it's somewhat simplified. However, I completely agree with what WhaleofWallStreet mentioned; often times you're trying to figure out how vague commentary from management on the conference call might play out when quantified on the income statement.
SB for you sir. You're gradually becoming one of my favorite WSO posters.
There's also a step in the process where you have to goalseek the model assumptions to get to whatever management's EPS guidance is
Not sure if you were joking or not, but you should be able to get there without goalseek. If not, then you might be missing something in the model.
Even though all of the above is correct, as an intern your description is much closer to the truth as you're unlikely to be involved in any assumption changing or similar. Having said that, it doesn't mean you'll be doing just grunt work as you'll likely be staffed on individual projects. After all, you'll only be with them for one round of earnings.
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