When I was in training last summer for my internship the teacher mentioned that there were two ways to structure financial models: tower and matrix.
In a tower model, the entire model is built on one tab with all of the sections descending down the sheet. Using a 3-statement model as an example, the model would begin with the income statement, then below would be the balance sheet, below would be the working capital, etc.
In a matrix model all of the sections are in different tabs. Keeping consistency with the prior example, in a matrix the 3 statement model would have one tab for the income statement, one tab for the balance sheet, etc.
Due to the fact that I was placed on a team that didn't model at all, I am curious as to which of these styles is industry standard.
Do different banks have their own preferences? Does each style lend itself to one particular type of model? ie matrix for a merger model but tower for LBO Does it not fucking matter at all and it literally comes down to the preference of whomever is creating the model?
Depends on the project, your team's preferences, etc.
For simpler models, generally build whole LBO / DCF in one tab. But if you're building an operating model for projections that feed into LBO / DCF, that can be its own tab. If it has multiple business segments maybe multiple tabs...
For merger model, generally prefer multiple tabs.
My rule of thumb: Split something out into its own tab if it improves communication and makes it clearer. For example, keep LBO all it one tab, because generally you're evaluating and checking an LBO model as a whole. There's rarely a point where you only want to see the debt schedule. IMHO, also makes tracing dependencies easier.
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