If 100 of us built a model, would any two be the same?
If I asked 100 analysts on this site to do a DCF model for any given company, would any two models yield the same share price? How far off do you think any two models could be? How would we know which one was better (without the benefit of hindsight)?
You're asking how complex a DCF can be at the analyst skill level. The answer you're trying to ferret out is that it depends on what data you're using. I.e., if the data allotted to the 100 analysts to build the DCF consists of cash flows and an interest rate, then yes, a fuck ton of them will be identical. If the analysts can use enough data to build a regression analysis or Markov chain etc. to predict earnings, along with balance sheet and economic data, then it becomes less likely that you'll have identical models in the sample.
There is going to be higher variance with lower time allowed. There will be lower variance with more time and also incentives.
This might be an appropriate thread to ask this question.
At one company I worked at previously, we had an M&A group with a budget in the billions (internal M&A in large tech company). I was working on some projects and happened to get a meeting with the #2 person in the company under the CEO for a project.
He later said if I needed anything, just ask. I wanted an interview to get into that M&A group. I told him this. He got it lined up for me and after that I was on my own.
Well, he lined up an interview with the head of the entire internal M&A group at the company, overseeing 2 main groups: - M&A Valuation / Modeling / Strategy type work - M&A Integration team
I had a phone interview with him and he was nice and referred me to the head of the M&A Valuation / Strategy group that I was interested in, and it was this chick (I have nothing against chick execs), but she was really hating on me from the first second I talked to her. He booked the phone interview with her or something (her boss).
First of all, she was like "How did you get this interview?" "I don't know how you got on my schedule," "please don't waste my time." Like bitchy off the bat, off the first sentence. We did a brief intro and she said something really arrogant to me like "my whole team has Ivy MBAs or M&A IB experience." I didn't think it would be that big of an issue for me to work in their models with my experience and even offered to her my time to do an internship type thing so she could see my work (which I thought was very generous). I was autonomous at the company at the time. She said the only way I could get on the team was if I valued a company to her liking.
This seemed pretty straightforward. Some instructions, financials, excel, and a time line. That's what was in my head. I've done some exercises like this for other companies. But, this was different.
She says, "I'll give you a box of papers, a pencil, and a calculator and you tell me one number, that's it. All I want is one number." I was like what? I can't use excel? She said if I was good I could just do straight math. It wasn't with a professional type voice though, she was sounding super super bitchy to me. Like a complete fuck you. The whole thing seemed like a fuck you. I wasn't even near that office, it was 90 min away. She would be my manager if I got the role and I was already questioning this relationship. In a final verbal tirade, she said call me if you think you can actually value companies and hung up on me. What the fuck?
Would you go in to do this exercise with a box and a bunch of papers and a calculator? I even asked her how many papers and she said a box/ream. I asked if they were in order/organized and she said "probably not." What is this, haze the internal applicant day?
Honestly, this phone call has messed with my head more than any other phone interview I have ever had.
I even asked for what kind of variance to her value was allowed, like plus or minus 10%. She said that she would decide after seeing my number, but had no predefined measure of success (no preset range of acceptable values, which made me skeptical - like she was going to just reject any number I give her, no matter what).
I figured this chick was ass fucking me from the beginning and never asked to calculate her box.
What would you do?