Does anyone else feel investment banking modeling is more of Excel navigation than finance itself
Modeling sucks imo. Its not like I don't understand how a cash sweep works or how company draws down its revolver, projects its revenue growth bottom up or looks into some random churn analysis.
I wonder if there were no excel to begin with and our world starts with some LLM model today, would modeling be something more human or finance oriented like:
- Model the revenue for next 10 years by breaking down into 20 product lines, ASP will go up at 1% a year above inflation for the next 5 years then in line with inflation
- Volume for first 5 products will assume steady growth of 2% a year
- For the remaining 15 products, breakdown by customer cohort, every year you will have new customer coming in with 5 year contracts, 90% of them will renew and remaining 10% will churn
- Sum the revenue and compare as a % to the global market size now of USD2.5bn and growing at 3.5% a year
Currently the whole modeling exercise is more like playing some functions that have little to no finance relevance and try to learn another set of syntax to transform what we could learn in 30 minutes into some =sumif(indirect,iferror,countif,index(match(min(max)))) type of garbage. Close to impossible to audit, not in human language, requires some finance knowledge but lots of excel knowledge. It is NOT financial modeling, it is EXCEL modeling
Actually, what you’re describing is very much IB-style financial modeling. Each individual function (INDEX, OFFSET, etc) are not financial functions per se, but together they are the small-but-necessary building blocks of what eventually becomes a financial model.
The type of granular “true” financial modeling that you’re describing is more relevant if you’re working in FP&A in a F500 company, where you actually need to do detailed revenue forecasts, beta-test new products, do market research, etc. This degree of granularity is not required for IB or even PE - those detailed financial forecasts don’t change the big picture of your transaction (valuation, IRR, MOIC, etc.), which at the end of the day is what your MD cares about.
Think about it another way: if you actually spent the time doing detailed forecasts like you’re describing in your bullet points, your MD would say “Why is this model taking you so long and so complicated? Completely unnecessary. * Turns and screams at VP * Just hurry up and tell me what the revenue CAGR is and what exit multiple that corresponds to.”
This is the best comments I’ve ever read.
Bump.
The deals I am on are modelled in my way. Deep dive bottom up, just instead of modeling it verbally, it is written in some garbage =index(match(max(min(iferror(.....))) type of BS.
What I am trying to say is knowing how to bottom up or do churn rate analysis with pen and paper is easy, the job is literally spending hundreds of hours mastering excel rather than mastering financial knowledge
Great answer.
I would also add that the excel skills are making the model. The finance skills are knowing when something is wrong with the model and knowing whether the outputs make sense.
Oh, you've hit the nail on the head! The term "modeling" in the finance industry can indeed be a bit of a misnomer. It's not so much about the deep understanding of financial concepts as it is about being able to navigate Excel like a pro.
You're right, a lot of the work is just linking Excel cells together and making sure the numbers tie up. It's not some glorious process, it's more about the functionality you want for the analysis. The real interesting part is the thinking behind the numbers that go into modeling, which unfortunately, doesn't happen too much in banking.
And yes, the whole modeling exercise can sometimes feel like playing with functions that have little to no finance relevance. It's more about learning the syntax to transform what we could learn in 30 minutes into some complex Excel formula. It's not always easy to audit and it's definitely not in human language. It requires some finance knowledge but lots of Excel knowledge.
But hey, at the end of the day, we're just Powerpoint baby back biatches whether we admit it or not. So, keep your chin up and keep crunching those numbers!
Sources: https://www.wallstreetoasis.com/forum/investment-banking/modelling-has-to-be-the-biggest-misnomer-in-this-industry?customgpt=1, Reflecting on my Investment Banking Experience: Lessons Learned, People Take Excel and Modeling Way Too Seriously (rant)
I just graduated in may and realized the same thing pretty quick. For me it’s a lot of grunt work related to actual finance. It sucks tbh
Why do you think the new grad is getting the grunt work…. Shit flows down hill
I’m inclined to agree with this. Obviously (hopefully) you understand why you are doing something in the first place, but the real challenge is making these concepts work within the framework of Excel. This is where being an expert on Excel puts you ahead of others who know exactly the same financial concepts as you. It’s not glamorous, but it’s necessary work. So yes, as it is an unfortunate reality that Excel skills usually overshadow actual financial knowledge, without it, you aren’t able to really express the knowledge without the ability to navigate Excel effectively and quickly.
not sure what this post is about, but i've done models for buyside clients and they do audit my models? but yes it's thousands of rows, many sheets etc. and have done something literally like the below for the various entities in the target.
No, I mean these are easy to understand and intuitive when trying to analyze a company. It takes a few days to teach someone how to assess a company using bottom up approach, estimate TAM, etc.
But the actual job is about putting them into excel rather than the knowledge or mindset, which basically makes this job "excel modelling" instead of "financial analysis"
Part of the issue is that people mistakenly think good modeling is about writing complex formulas. I was always taught that if the model cannot be audited by someone else then it is not a good model. Better to break something up into additional rows than add complexity to a formula.
I never enjoyed building an operating model because it is just a bunch of BS excel assumptions that mgmt could likely do better, but did find it enjoyable modeling capital structures and thinking through all of the financial implications and the advice I would give to a client in different scenarios if it is a more complicated structure (hint: it's always to raise more capital).
Yes, this is the job. You need a model to value a business and someone has to create it. Modeling is not soemthing you need an extreme amount of financial knowledge for, but I think it does have its interesting and even enjoyable aspects. Not sure how you've gotten through three years of IB without understanding things like cash sweep and revolvers. If you want to understand how a company projects its revenue, then think about it yourself and talk it over with your seniors to hear how they think.
Even as an intern, I was on multiple financial due diligence calls that centered only around justifying the numbers in our model. As you know, sponsors will push back anywhere they can in order to extract more value out of a business and it's the sellside advisor's job to ensure the client can defend that value.
On the auditing point, I have seen my seniors click through a model in minutes and find the issues I need to solve. Models might be complex due to size, but I don't think they need to be complicated and it should be relatively easy to see what the drivers are (ex. winning a contract, acquiring a new client, etc).
This perception often arises because modeling can be extremely formulaic and detail-oriented, requiring a deep understanding of Excel functions, shortcuts, and data manipulation. However, it's essential to recognize that modeling is a tool used to analyze complex financial transactions and strategies. While Excel proficiency is undoubtedly crucial, the ultimate goal is to use these models to make informed financial decisions and provide valuable insights to clients. So, while Excel navigation is a significant part of the process, it serves as a means to an end, helping finance professionals translate financial theories and strategies into practical applications that drive investment decisions and corporate finance activities.
Yeah, I feel you. Depends on seniors. A lot of MDs that aren't great at leading their clients & investors rely incessantly on overwrought on-paper excel analyses to convey themselves to clients/investors and it's just never a successful way to go about it.
Talking about when an investor asks a simple question of your MD and his response is "let's show them 20 hypothetical sensitivity tables" to address the question instead of having conviction on any specific guidance we can provide.
In other words, it seems to me it's mostly when you lack conviction and/or understanding of something that you go about explaining it in a way that relies on paper-math and excel arithmetic. Sort of like a kid who turns in a term paper that blows by the page limit and tries to outline the entire textbook because he doesn't actually have a nuanced and concise thesis on the material that he can deliver with conviction. Quantity is often used as a surrogate for quality.
Ipsum modi aliquam quia explicabo ducimus error. Deserunt vitae sunt eveniet nemo sed nobis. Veritatis eaque asperiores facere consequuntur quia est consequuntur incidunt. Iure deleniti tempore aut ducimus natus. A quae adipisci quam vel voluptas at voluptatibus.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...