Do Analysts predict Cashflows in valuations?
Do analyst at IBs predict Cashflows? I know predicting a company's Cashflows is the hardest part of a DCF valuation for example, is very sensitive and requires a lot of expertise. I suppose that's done by senior managers and analysts' job is to put those in a financial model in excel and do the rest of the DCF right? So while preparing for summer internships, would it be better to focus a bit more on that? Or I'm wrong
Depends on what you're doing. For a pitch you're probably going to be taking consensus projections, and maybe extrapolating out on the back end. Everyone above you will have feedback on any internal projection assumptions, so Analysts could take a first crack, or work directly with Associates and VPs to do so. Then the senior bankers will provide feedback. If you're mandated and putting projections together for a CIM, then in addition to your team the company and consultants would provide input.
For interviews, you just need to have a reasonable explanation for your assumptions on the projections. For a summer internship, nobody will expect you to independently come up with projections, but on the off chance that your FT Analyst is busy and they ask you to throw together a model, you again just need reasonable explanations for your assumptions.
Why did you assume the revenue growth rate you did (consensus estimates? extrapolation of past revenue growth? Adjustments for future potential wins?)? Why did you assume the EBITDA margin you did (would margins expand due to operating leverage? Shift in the product porfolio towards higher / lower margin products? Streamlined operating expenses?)? Why did you make the capex assumptions you did (same % of revenue as previously? Greater / lower projected growth capex required? Large capex projects being finalized / brought online?)?
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