Any Other First-Year Analysts That Don't Know How To Model?
Hi Everyone,
I'm a first-year analyst (soon to be second) in a coverage group at a BB in NYC. I still do not really know how to model, and I'm starting to get worried that I am behind everyone else. My group doesn't do much modeling (though it does happen especially as a second-year analyst I've heard), and I haven't been staffed on anything throughout my first year that really gave me any exposure to it. I also think WFH has really stunted my learning, as it has been very difficult to get up to speed and no one really goes out of their way to help you.
Are other first-years feeling the same way, or is everyone up to speed? Also, how did you all learn how to model on the job especially while being WFH? Did you do practice models on your own time, or did someone walk you through how to do it on a project you were working on together? Thank you!
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From my experience: the most you will learn about modeling is when you are prepping for buyside interviews. In my 2y in IB (top BB, London) I modeled maybe once (and that was very high level). The type of financial analysis you will do more regularly in banking (might be different in other groups) is spreading comps, template based / back of the envelope LBOs, DCFs, Future Share Price Value, SOTP, and high level accretion dilution analyses. I have never built a fully fledge operating model.
if you don't mind me asking - how did you handle your lack of modeling from a recruiting perspective e.g. talking about your experience in interviews, and how do you feel you've faired on the job in PE having not gotten that many reps while in banking?
Honestly you bullshit your way through the interviews. Everyone knows that analysts are mostly doing mundane tasks until 4am without even knowing what their client's business model looks like, even more so when you guys in the US are only a few weeks / months into the job when you go into oncycle recruiting. It is really more important to conceptionally understand modeling in detail (through self-practice) and you will be fine in interviews. By the way - this isn't really a lack of modeling, but rather the standard case at my previous bank. Funnily enough I was even known as the "technical" guy :D. You go into the job thinking you will be the master of financials but in reality mostly churn through BS PPT slides.
Now for interviews, I was often asked how the business is performing financially, what are the drivers, how I modeled it etc (my CV says I built the op model) - before the interviews I spent multiple hours really diligencing the deal and the numbers to actually understand what was going on. So I looked at the FDD, buyside / sellside model and IM to have a good understanding of the business model, growth story, DD areas, key financial parameter incl. how the business plan was derived in detail. In the end the sponsor wants to test your understanding of the business and how you think about it.
There's plenty of resources out there to practice for the actual modeling test - among others I can recommend multipleexpansion. These tests become more and more routine after some time - you'll find they are not really the difficult part of the interview process once you have done a few.
I just started the buyside gig so cannot really comment on the modeling requirements here, but having seen a few precedents I feel pretty comfortable I can get to the level sooner or later.
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I just feel like I'm getting comfortable with models and I'm halfway through my second year...it really depends on the bank you work at and how the deal teams are structured to get the proper exposure to modeling
Thanks! Do you think it's something I should worry about now, or will it all come to me in time?
It really depends on your role in the process, but at the end of the day it's all about reps. I feel more comfortable because I've been in charge of pretty extensive bottoms-up dataset modeling, as well as transaction modeling. Also, I found it extremely helpful to sidecar senior associates when they run their models. Ask if you can sit in on a modeling session and see how they act in modeling. It'll come, especially if you ask for more responsibility.
Rosenbaum & Pearl book (~$60) + Macabacus (free) + WSO PE modeling course(might be expensive, got it free when I got laid off) + MultipleExpansion.com (free)
If you finish most of the materials listed above, trust me, you will be okay. Might even be better than 90%-95% of analysts in terms of modeling.
Assuming I was a finance major that did well in all my finance classes but super rusty, how many hours to be able to model DCFs, LBOs, 3FS, and Acc/Dil?
Would appreciate a breakdown of hours needed for each. Thanks!
I was a math major and then did an MSF so basically I self-studied everything. I'm dumb so I'm giving the base/bear case.
Hours-Breakdown:
DCF: I probably spent 15-20 hours (in total, not consecutively) to get fluent, and then built out twice or three times for interviews. very straightforward. You establish deal assumptions ---like D&A, CAPEX, Operating NWC, etc. --- and then you apply the FCFF formula learned in school. You don't need to project out 3 statements in this case, only need income statement and balance sheet.
LBO: 15 hours to get good at a basic 1-hour LBO as it's called in modeling tests. A full-blown LBO probably takes more time and I'm on my way of completing one.
3-statements: I used BIWS's case study and did it like 5 times. <10 hours.
M&A: in process. Probably 20+ hours to finish my 1st round of practice.
Operating model: the hardest of all models and even though I have done it quite, quite a few times (not from scratch), I cannot say I've mastered it. 40+ hours committed already. This doesn't apply since I was building infrastructure models, which are complex AF.
Unfortunately this is on you I think. From what I gathered on the job, people have no expectations for first year analysts but then suddenly around the 4 month mark, things begin to change. No one wants to put a new first year on an M&A model because they’ll bust it, but then after first years become “trustworthy” teams only want analysts with modeling experience given the tight timeline. Seems to be a paradox is that no one wants to give first years really technical staffings early on, but later on if you haven’t had any technical projects before, no one wants to put you on one.
I would try to spend a weekend building a LBO / DCF / M&A model from scratch and really understand the mechanics. Speak to your staffer and let them know you’ve put in the work and want to be out on the next M&A deal. Hopefully this will begin a self fulfilling cycle.
FWIW, like others have said, most modeling on the job is pretty simple / not what everyone makes it out to be. You can learn most of it doing PE prep.
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