Friends,
My job over the next summer will involve auditing financial models of the fellow summer interns.
I have done some modeling (for an investment bank) but hardly know anything about Auditing of the Financial models.
Does anyone have any pointers for me ?
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Make sure the balance sheet balances. If it doesn't, model is probably wrong and will need a few plugs strategically placed throughout. Group under "Other".
Fuck.
That's the only word to describe it. When I was an intern, sometimes the analysts' model would bounce and they'd have me 'audit' it. The problem is most of the models done in Excel are circular models, so if you accidentally delete something and you "can't undo" (because of a macro or something), then you end up with a ton of #REF and #VALUE errors. It sucks.
Generally auditing the models requires you to see if the model is structure correctly (i.e. depreciation forecast as a % of CAPEX not Sales). It is relatively easy to catch errors, it is just tough to fix them. Another thing you'll see is most analysts have 10-15 versions of the same model, just in case, so you'll have something like XYZv1.xls XYZv13.xls... so that if you 'bust' the model you'll have a starting point again.
I work in M&A and we model all of the time, but each firm requires the templates to be altered, and you better hope you learn those shortcut keys and you have attention to detail so you can pick up on where the error is. Most of the time an error is because of something minor like a formula that was supposed be $A$4 was $A4.
Good luck
Did that when i interned, boring as hell. Usual mistakes are perpuity formula on the wrong cell. Depr. wrong not "cash" flows not recovered after taxes. weird beta leveraging and deleveraging formulas, wrong wacc formula wrong capm formula (I audited models that came from industry companies. They seriously need to get some decent analysts)
It s fun when you're starting out, but after 2 weeks ...
And obviously the cell that goes through 30 sheets, 4 excel files, and several formulas, to link the one that's next to it. That's called "modelling skills".
ugliest models?: energy in emerging markets.
M&A models are for vaginas... Real men build LBO models.. HA!
Interest expense line should always have a toggle that turns it on and off, so if your model crashes, turn it off, eliminating the circ, and flushing out all the #REF.
This is good point. I have a page where I 'Jump start' the model again, but for some reason there are times it doesnt work...
As to the idiot who said M&A models are for pussies... LBO modeling is easier than M&A modeling, the oohs and ahhs come from the fact that most ib analysts don't know how to build them.
That's true.
model that you made...?
One of the most helpful things for me when auditing a model I have not looked at before is making sure everything is color coded appropriately - hardcodes blue, formulas black, formulas with hardcores red, abnormal cells some other color like purple, standard stuff. Makes it easier to visualize how the model is set up and see if there are any hardcoded plugs that could foul you up. Most banks have some type of program that will do this for you (ex. ctrl+alt+s in FactSet). And the interest expense toggle Marcus_Halberstram mentioned is pretty clutch. If everything seems right but the thing is still #REFing out, usually seems to come down to something related to cash/debt spinner in a waterfall debt table. Sometime you can just go through and delete the numbers related to cash and ctrl+z and it will work.
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