Question about FSM Modeling
I am trying to complete the WSP self study program, and I started getting really into DCF and M&A modeling, however only briefly going through the 3 statement model. I am trying to get through it now because I feel that this is the bread and butter of modeling. Is that a correct assumption? Also, in order to create a quality DCF, M&A, LBO etc. don't you need to have a full 3-statement model complete anyways?
And maybe Bankers can comment on this one, but are 3-statement models usually already complete when you are trying to do a DCF model, or do you always have to create an operating model with a DCF? I figured you could just get these things from an ER analyst somewhere that covers the company your a valuing. Arent these usually in their reports anyways? Obviously, this is assuming your company is being covered by somebody out there. Also is it me, or do these models get really confusing!? Normalizing and determining non-recurring items can be very difficult, did this take a while to learn how to do this effectively?
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Yes. You need the three statement understanding to build out any other model.
It depends on the firm you are working with. Some have solid models laid out already where you only need to make some minor tweaks; others, not to so much. We almost always build out an operating model (MM shop), then link it to a template. I wouldn't worry about that until you get into an IB b/c each has a different mentality with it. However, that is what generally separates the BBs/elite boutiques from the other guys.
EDIT: By firm, I mean client, not the IB.
At my shop you can always tell who started at a BB/elite boutiques and dropped down and who was always in MM banks.
Don't get too enamored w/DCFs.
If you're at a BB with decent research, then yes, ER is useful in terms of getting operating models and understanding the drivers of a business. That said, most ER op models aren't set up to run a ton of scenarios, usually not that flexible, and you will generally be better off building your own models.
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