I have been lucky with getting interviews in UAE and a few in London for regional boutiques but I have no prior understanding of modelling. Since ik have some time what is the best way to pearn it. Any recommended material,webistes or YT channels. Please advise
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There are a lot of courses out there. Wall Street Prep is the gold standard, and many banks use that for training. The WSO course isn't bad also, but I've definitely seen errors in them. Breaking into Wall Street was what I used to supplement my learning in undergrad, but it's a bit too detailed imo (not sure if it's been refined / changed over the last several years). StreetofWalls.com is a great free resource, but very bare bones.
As a very first step, understand the 3 financial statements and how they tie with one another. Basic accounting knowledge is critical for understanding anything in finance. Don't skip over this step, and take your time understanding why the 3 statements are structured the way they are (e.g., why we have both an income statement and cash flow statement, what changes in working capital actually mean, etc.)
Don't jump right away into trying to model real company financial statements. You will confuse the hell out of yourself because companies label and report things differently, and it can vary a lot.
Once you have basic accounting down, familiarize yourself with non-GAAP / non-IFRS numbers and adjusted numbers, as those adjusted figures will be more representative of a normalized state of business for modeling.
From there, you can get into the basics of valuation, starting with understanding stock price, equity value, enterprise value. That will teach you what you are fundamentally calculating in valuation analyses like a DCF.
Then move on to the concept of present value and time value of money. Then, learn about the theory behind cost of capital, CAPM, and WACC.
Only then would I recommend you actually get into full on modeling in terms of 3-statement projections, DCF, LBO, etc.
I cannot stress this enough: At every step, slow down and make sure you understand the theory and concepts behind what you are doing. Otherwise, you will get very lost trying to model real companies.
Thank you! Really so grateful. I really needed this. Could you also share ideally how long should i spend or it will take? I just need a timeline so i can plan accordingly. Let say i spend 2-3 days per week on this
No problem. It's a hard question to answer because it depends how intuitive these concepts are to you. I think 3 months is the bare minimum to really develop a solid foundation if you're starting from scratch. Ideally you have 6 months to 1 year, if not more.
Spend the first ~20% of time on understanding accounting fundamentals, non-GAAP / non-IFRS, and how things flow through the 3 statements. You should also look at real company filings during this time to apply your conceptual understanding of the accounting logic you've learned to try and figure out how unfamiliar line items flow through the statements and why.
After that, spend another 15% on understanding what "valuation" actually means. Understand what enterprise value represents and how it is different from equity value. Understand what stock price represents and how to use the treasury stock method to calculate equity value / enterprise value. If you have time, study up on how to account for more nuanced items (e.g., convertible securities). Also understand what trading multiples are (EV/EBITDA, P/E, etc.), the pros and cons of each, and how to use them for valuation (public comps and precedent transactions).
Then another 15% on understanding present value, time value of money, and cost of capital (CAPM and WACC). You should understand conceptually what WACC represents and why you discount cash flows with it.
Then spend 10% learning how to actually model out the 3 statements and conduct a DCF. Understand what a DCF is fundamentally doing and the conceptual reasons for differences between the enterprise value you are calculating for your DCF and the trading enterprise value implied by the current stock price.
Note that I'm saying only 10% for this part because if you truly mastered each of the prior sections, a 3-statement model and DCF should be very intuitive to you. If you don't understand how to do 3 statement projections (as in just being able to tie the 3 statements if you're given a set of projections down to free cash flow only) and/or why you are doing the calculations in the DCF, you haven't mastered the prior sections yet. Go back and review.
Next 20% on modeling debt with dynamic interest schedules and building out LBO models. Then another 20% on merger models, i.e., how to merge the 3-statements of two companies in M&A and project pro forma combined financials, including accretion/dilution. Understand value creation and how M&A can increase or destroy value for the acquirer. Not getting into too much detail here, as it won't be helpful for you at this point.
By the end, to test your knowledge, take two public companies in the same industry (a normal industry, not niche like oil & gas, energy, mining, banks/financial services, infrastructure, etc. unless that's where you're going to work) and assume one makes a proposal to acquire the other at a 30% premium in a 50/50 cash/stock deal. Project out both companies' 3-statement financials. Value the target company to assess whether this is a fair offer or not. Then, calculate the acquirer's EPS accretion/dilution with a fully balanced pro forma combined 3-statement model.
Great answer and very similar to my own experience of “fake it ‘til you make it.” A lot of the work you do shows how hard you are willing to work and figuring things out on your own—both critical in being a top tier IB analyst. Know how the three statements flow and it will make a lot of the other pieces you study easier (along with likely helping you nail some basic interview questions).
Golden answer, I think this should be pinned or equivalent.
I'd add as well that BIWS can sometimes go too far but it's good for at the more advanced stuff.
I've used Financial Edge and I personally liked it but I understand if it's too simple for some. I think they got merged with WSP recently so that's a pretty good coup for them.
I'd also add that once you cover basic modelling, you then start looking at industry specifics e.g. TMT modelling revenue drivers vs O&G forecasting.
Only after a division-specific training do you start looking at statements.
So you would recommend starting off with Financial edge? Is it free or paid just curious
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