How do you sense check your model?

Hello,

The question could actually make a whole book chapter so I will put the biggest points here:

1: Quality / Accounting check

• this includes your typical balance sheet checks

• net income to equity change bridge, another check between this and both elements

• if separate debt sheet, another check for the accrued / cash movements on debt (total numbers)

• same for D&A

• If doing pro forma: ensure consolidated BS = sum of consolidated items

2: Business analysis check

• this is everything that falls into how your p&l is built

• comparison of p&l/bs structures inside the same industry

• comparison of D&A / accrual policies between players

3: valuation check:

• mostly EV to EqV bridges, DCF assumptions

• complete disconnect between several valuation outputs (exclude tech from this comment)

Many things not included…especially differences between sectors which may be one of the biggest factors.

Hope this helps.