Fuck Accounting
This shit has got to be the most boring fucking shit imaginable, son of a bitch, I read the damn book and did a study guide and still got a D on the test, fuck accounting. So much bullshit you have to memorize, fuck this shit, I don
This shit has got to be the most boring fucking shit imaginable, son of a bitch, I read the damn book and did a study guide and still got a D on the test, fuck accounting. So much bullshit you have to memorize, fuck this shit, I don
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It'll seem kind of illogical at first dude, but trust me, accounting is very very important. And banking is ALL about accounting. Everybody thinks it's a Finance job so you need to known NPV and bs like that, but at the end of the day, modeling and banking in general is all about balance sheets, income statements, and statements of cash flow. So simmer down, take a deep breath, and take another stab at it because you will never make it in banking if you don't give accounting a second chance.
If you know how to do PV garbarge, but don't know how to add back non-cash items and see how depreciation impacts tax assets and liabilities, etc, PV won't matter cuz you won't have good numbers as a baseline.
It gets better once you are past the debits and credits part. Be patient
How do all those liberal arts majors make it through investment banking if there's a lot of accounting?
they learn it the 5-9 weeks of training provided at the beginning of their employment. the banks bring in Training the Street, this ridiculously specialized company that teaches modeling and m&a accounting to totally ignorant liberal arts majors (i'm not saying you liberal arts majors are ignorant in general, i'm just sayin that you didn't go to business school during undergrad. don't flip out.)
think about why the accounting is important: if co. A is going to buy co. B, where does co. A get its baseline info about co. B? They have to look at their balance sheets and income statements and MD&A (Management Discussion & Analysis) in the footnotes to the financial statements.
when the bankers assist the acquirer in coming up with a purchase price, they use the financials to come up with a fair value for the company. the DCF (discounted cash-flow) analysis is pivotal here: the bankers more or less make an educated guess as to how much cash the target is throwing off every year, and then PV it into perpetuity to come up with a purchase price.
the acquirer can talk to the target's mgmt to get in-depth info, but at the end of the day you absolutely need the target's financial statements to start.
C'mon, DCF models are b.s.
Garbage-in, garbage-out.
total bs
I'm not saying DCF models are not bs. I'm just trying to help the guy understand that accounting is important in banking
WastingTime, i think you should probably look into non-banking careers. No one, other than accountants, likes studying accounting - but it's absolutely essential for any sort of financial analysis jobs, including investment banking
Accounting is mad hard, but its very useful for any financial analysis. Invest a lot of time in Accounting! It's a dawg eat dawg world.
Accounting has little to no math but for fuck sakes is it hard to study. You can read a whole chapter and not know what the fuck just went on.
Are you talking about intro financial accounting? It is hard to study for rookies that have just started studying accounting. When you get more practice it will all seem like logic. If you read and studied all the topics and materials before the test and you said you had no clue what was going on, then a D SHOULD NOT BE NEWS To you. It's a dawg eat dawg world.
If you got a D on an accounting test you're fucked. You should get an A in every accounting class.
Bullshit buysideanalyst, upper level accounting courses are fucking tough. It's a dawg eat dawg world.
BTW never study an accounting book. Just get all the previous tests you can get your hands on and do them. Use the book for reference and better still use the internet. Lots of good accounting stuff on the net.
They may be tough, but good luck working at a bulge with a B in multiple accounting classes. Accounting / Business majors almost have to get a 3.7 to really get looked at.
Oh I'm not saying B's are acceptable but I'm just saying Accounting is harder than other business majors. It's a dawg eat dawg world.
Accounting certainly isn't easy. I spent the last three days untangling some BB analyst's adjusted financial statements trying to reconcile the bank book's ebitda to my own. (Thanks, by the way, for all your hard work trying to completely obfuscate cash flow my dear sellsideanalysts). At the same time, it still isn't nuclear engineering.
You guys are hilarious. Get previous tests and study for a test to get an A? Jeez, I've seen a bunch of... um... such students - A's and all - who don't know didly if you just "scratch the surface", as it were.
The GIGO principle applies pretty much anywhere. Whoever says DCF is BS probably doesn't really know how to use it properly...
Glorious ibanking, huh?
Do you have any idea what you are talking about?
Please, explain to us why the DCF isn't BS hm? What exactly is so useful about it? Because as we all know, historical metrics can certainly be used to predict future performance.
Idiot.
I happen to know what I'm talking about.
Haven't you had your ibanking "tutorials"? :-D
If you'd cared to go a little beyond the Brealey-Myers level, you would know that past performance is not indicative of future performance.
It's nice to meet you, too.
Don't assign me to a group based on one comment.
Yeah I've been told that accounting is the hardest major at business school. I can't be the only dumb ass when it comes to accounting since 3/4ths of my class did shitty. My friend tells me that I just cant read a book/study guide and think I
You should have a tutor program in school , it is free, just go and ask for it. I really think that anyone who gets math will understand accounting it is just logic.
sylvester, I do not think you can compare math with accounting, it's a whole different animal.
It's a dawg eat dawg world.
Accounting is the biggest joke compared to math or stats (I'm referring to classes beyond multivariable calculus). All I am referring to is the logic behind it, numbers need to make sense and match, accounting has something called the matching principle. And I did an unofficial pole in my school with future accountants. All the kids that were at decent in math had no problems with accounting, everyone who was lacking math skills was sucking in financial & managerial, intermediate etc.
Math = Language of Science English = language of Commerce Bullshit = Language of Politicans Spanish/Hindi = Language of cheap labor Chinese = some say the future language of the superpower
Accounting = The arcane science that allows big deals to happen, or in a smaller context, make sure that your buisness makes dollars and sense
(1) Do you? Do you Really? Care to explain yourself or is it slowly dawning on you that you're wrong?
(2) Yes, I've been through training and I'm working as a banker. Anyone who is in banking will tell you that a DCF is crap. I don't know anything about you, but I can guess (accurately) that you are in college?
(3) Sarcasm kiddo. You are contradicting yourself - the DCF epitomizes how past performance is used to predict the future. And the DCF is crap. Back to Accounting 101 for you, maybe a KPMG glove would fit more snugly?
1) Orange, I don't know what people you're used to dealing with, but I tend to choose my words carefully. That said, I do have a solid theoretical background in a) financial theory, b) valuation, c) financial econometrics, d) statistics as well as quality i-banking experience - quite enough to speak with a reasonable degree of certainty.
I'm not a kid and thus am not preoccupied with thrashing around trying to prove every one around that I have a point.
2) Find a logical fallacy in the first two sentences.
I've never hidden the fact that I'm currently studying for an advanced degree.
3) I wish you would give a tad more substance to your comments but that's bankers' hallmark, I guess.
I know a bunch of pretty smart KPMG folks and an equal bunch of pompous ibanker asses... Guess who I prefer?
Trying to prove that I have a point? This has nothing to do with ego-stroking. This board exists for the dissemination of truth does it not? Your first statement was wrong - why is that so difficult for you to admit?
It's great that you have a solid theoretical background in financial theory and valuation. Bravo. Surely with your background you understand that the DCF is only a truly useful tool...in Theory. Communism also works...in Theory. Riddle me this - as an ex-banker, when is the last time you worked on a transaction with the output of a DCF as a the primary valuation metric? Even comps are far more telling.
Here's your logical fallacy:
You argue that, "the DCF (discounted cash-flow) analysis is pivotal" in valuation. You describe the DCF as a process where, "bankers more or less make an educated guess as to how much cash the target is throwing off every year". Verbatim, you're saying that they use historical performance to predict the future, no? You then chose to miss my sarcasm and said, "If you'd cared to go a little beyond the Brealey-Myers level, you would know that past performance is not indicative of future performance."
So which is it? Either past performance IS indicative of future performance OR the DCF is a crock of shit. Make up your mind.
I don't know what your definition of substance is, it would appear that you need to brush up a bit on valuation before trying to call other people out?
Finally, kudos on preferring accountants, I'm sure you fit right in.
Man, chill. lol
I'm way too lazy today to harangue about the DCF, which has most of the time been an important component in whatever deal I was involved in. Granted, there were times it, purportedly, could not be performed (a couple of money-losing biotechs) but the truth of the matter is that nobody really cared to invest some effort into it. Does it invalidate the method? Nope.
Back in 2005 I was involved in a couple of transactions where the DCF was the only means to get a value range.
Hmm, I never said the words you quoted me as saying... But if that makes you happy, I'm fine with it :-)
As it is psychological that people choose to hear and see what they want to see and hear, I'm not going to make a ruckus about it (I at times am also guilty of this particular weakness). I would point out however that I was not branding any particular group (bankers vs accountants), I was merely contrasting personal qualities of a particular sample.
Sloth, I guess, is a trademark of the mediocre?
The quote was taken erroneously from DeThmsCrwn's post, so apologies for that. But since you guys are taking the same stance I don't see how you are invalidating anything?
Anywaaays...you're right I guess...I shouldn't waste any more of my time on someone who embraces ignorance - after all, my time is far more valuable than yours, no? Keep aspiring buddy.
LOL, Orange! Although it's a bit different but touche! LOL
I don't see why an intelligent person like yourself would be jumping to such rash conclusions.
So, is that a statement or a question?
:-D
Actually, if you really wanted to go beyond the Brealey-Myers stuff, DCF=EBITDA Multiple. In a constant growing FCF company -> EV=FCF1/(r-g) FCF1=EBITDA0 (1-T)(1-R)(1+g), R=reinvestment rate - function of CapEx,Depreciation and change in WC. So-> EV = EBITDA0 *(1-T)(1-R)*(1+g)/(r-g) Divide by EBITDA0 - VOALA.. Multiple of EBITDA=FCF projection.
So take all the historical/forward bs and put it to rest...same shit. What do you think multiples are based on..we all know that DCF gives a higher value most of the time, that's why you have ranges and sensitivities.
First of all accounting is not hard....it is ver time consuming though. You do not need to be smart to do well in accounting, you need to be able to memorize.
DCF models are obviously bs.....but they are imperative. If you are buying a company or making a similar investment you want to pay the least amount possible. You need to justify your price/offer, that is where the DCF comes in. The guy who can model and sell is the guy who makes the $$$$$$$$$
Accounting is more the memorization, you have to be able to apply the concept. The matching principle does help though. It's just time consuming, it may not be "hard" as engineering, but it's certainly just as dense.
Imperative? With a DCF you make the numbers say whatever you want them to say. You include it in the football field but no bulge bracket bank will execute a deal based on the output of a DCF.
Not sure what the rules are where you guys are from.
Sadly a lot of people (come deal time) will rely and execute based on DCF.
So right or wrong it is an important part of banking life and it is not going away
can we just all admit that we are all indredibly competitive ego maniacs??? Nothing makes me harder than conquering another person.....and if you are in banking you most likely are the same (if you arent you wont last long)
Maths = Logic = Accounting
I have seen people with strong logical principles go through maths and accounting very well.
and these are the people that should be doing IB.
It would appear that sarcasm and rhetoric are lost on some members of this board.
Eh.
Back to modeling.
Alright, there is no way I can get a B in this class, I hate this shit and I have a quiz today, fuck I'm pissed. What part of investment banking doesn't use a whole lot of accounting?
if accounting is too tough for you, you might want to look elsewhere for a career.
Yes, it is too tuff on the sheer fact that you have to spend so much time studying and memorizing shit; I don't have the concentration power to read this shit over and over. Accounting is not interesting at all compared to economics or finance. If all you do in investment banking is accounting shit then the hell with that, I'd rather do PWM then.
If you can't concentrate enough to do well in accounting then you'll never be able to concentrate on picking apart a 10-k (accounting + dozens of pages of mindless drivel).
I am a finance major looking towards investment banking and am considering taking more accounting courses as electives. What types of upper level accounting courses would be most beneficial?
Financial statement analysis is a useful one...
Also very good for when you do your CFA if you choose to...the financial statement analysis text book is the largest of the 6 level 1 books.
[quote=Wasting Time]This shit has got to be the most boring fucking shit imaginable, son of a bitch, I read the damn book and did a study guide and still got a D on the test, fuck accounting. So much bullshit you have to memorize, fuck this shit, I don
I'm not the one going to Binghamton University, whatever the fuck that is.
Bing is the biggest feeder to the Big 4, especially PwC. i guess you didnt know that since u cant tell debit from credit u dumbass.
agreed
How did you get a D in acct? Go work at Chili's, son.
When did I say I got a D in acct? Maybe a D ON A TEST but not in the class.
Communism doesn't work in theory, although that is a topic for another day.
Now that that is out of the way, I'd like to say that I think that DCF analysis can be a useful valuation tool, but it will always be just a tool. You can
use it to BS, as a negotiating tactic, or to give you an idea of what the company is worth.
I don't think that DCF is just BS. How exactly would you value private companies? You can't just look on your bloomberg terminal.
I'd like to know what other approaches you find more valuable to indicate value? Sales comparables? Gut feeling?
I forgive your obvious misunderstanding of the fundamental theoretical applications of communism/communist policy. Though explaining that to you would be a discussion for another day.
Now that that is out of the way...
One way you can value private companies is by looking at comparable multiples...and, well, if you're working on a deal I don't think you look at any Bloomberg terminal - you flex those analytical skills and start digging through Qs and Ks and figure out what the company is spitting out in terms of EBITDA. LBO? Look at interest coverage. Etc. etc. But more on point...
What are you saying exactly? That the DCF is a tool but not The tool...so are you even disagreeing with me? It's a talking point for a managing director to work off of. If you have management projections you can take it and build out theoretical alternative universes where a company can do X or Y. But how accurate are these models at predicting the future? Have you ever done a deal from head to toe and seen how much flex is built into these Excel behemoths? I'm going to guess no.
Moving on...
Bank much? If so, ask any senior banker around what they would trust more - a DCF or trading/precedent comps (I think that's what you meant...right kiddo? What the hell are sales comps?)
If not, maybe you should put down that WetFeet guide and pay attention.
Valuation is bullshit. Any honest valuation would admit that the range of values is somewhere between, for example, $25 and $350 a share. There are so many variables and unknowns that it's all crap. Anyone who says they can come close to "accurately" valuing a company is lying to you or himself. But hey, since everyone believes in it I guess it works--kind of like voodoo.
On another note, PrivateInvestor is right: Communism does not work in theory.
orangedays,
Oh, I guess the communism comment was an issue for you. Don't let it spill into my other points.
I'm not a kid in undergrad. I've done deals from head-to-toe.
You can assume what you like and get whatever number you want, but in order to convince someone to buy your firm at that value the range of assumptions becomes far smaller, e.g. you can start by assuming that inflation will be 1% for expenses for the next 5 years and that your sales turnover will grow by 5% p.a. for the same period, but unless you can convince someone that that makes sense then you might as well suggest that the value is X because you feel like it.
I wasn't agreeing or disagreeing with you. I was stating my opinion. You have made points that I agree with. DCF analysis can be used as a starting point for discussions. Trading comps are useful (actual market evidence), as are most comparables for the inputs into one's analysis e.g. profit margins, loan terms, etc...
Yes. I would put more weight on a trading comp than someone's DCF. I'm sure that most senior bankers would too, unless it suited them to do otherwise!
My question to you is, how would you value a company that didn't have many recent relevant precedent comparables? I's assume that DCF would be a good candidate.
Nah, it wasn't the communism comment that irritated me - it was the lack of understanding. Not your fault though.
To answer your question - I'm not sure. I've honestly never worked on a deal that didn't have relevant precedent comparables and/or did not have companies in the market that were comparable. Perhaps some of our middle market brethren on this board could englighten the both of us.
The tool I have used the most to this point is the lbo model - we also include (depending on the transaction), an IPO analysis, maybe accretion-dilution (if M&A). The DCF is a nice add-on and is, admittedly, a component of the LBO model. But let's be honest - I think you agree with me when I say that any DCF is - at best - an educated guess, and - at worst - a piece of shit. The biggest.
Oh my god....guys you need to chill out. Seriously.
I agree the DCF is only as useful as the info you feed into it. Given that, when you're working on a deal and you're into exclusivity/ a stage where you've got a good transfer of info, plus a good enough feel for the industry that you can make educated assumptions then the DCF is a very useful tool. Industries such as mining pay a lot of attention to the DCF to get to a NAV model and a lot of the inputs (costs etc) are quite widely known so its not like taking sales, growing at x% per annum, get to EBITDA take off a few cash costs and blah blah blah.
Ultimately, its the difference between valuation and what price you're willing to accept/ offer. All we can do is run the analysis, get a value range and then discuss with our client a) what they can afford b) what makes sense and c) what the shareholders/ market will accept as a "good deal".
The deal gets done in the words, not necessarily the numbers - that's just one small part of the puzzle.
accounting is hard to understand but very easy to master once you DO understand it. Its just lots of different ways to do things as long as it conforms to GAAP. Once you know all the different types of methods then you just pick and choose and basically same thing over and over just different way to treat different situations but in the end its still in the "Box" of GAAP
orange days,
Lack of understanding. LOL! Let
[quote=PrivateInvestor]orange days,
Lack of understanding. LOL! Let
Only a couple of years experience. 3 exits, one financial buyer, one strategic and one partial through a refinancing.
I'm doing well for myself, thank you for your concern. How is this relevant to whether or not DCF, lbo models, EBITDA multiples or tea leaves are valid valuation methodologies?
Oh, I thought that you were the one who made the comment about the irrelevance of historical information (i.e. accounting info).
True about the back-of-envelope analysis.
Anyway, do you use monte-carlo for your sensitivities, or do you run various scenarios?
By the way, I've found that the CEO getting laid on Monday generally has a higher impact...
interesting debate, i enjoy the more civil parts that are of actual relevance.
i'm a cpa and I think it's the most boring thing in the world. it's why I left big 4 as soon as humanly possible (as soon as I got reimbursed for the prep course and test.)
Fortunately, understanding how it works comes in handy in a banking atmosphere especially at the analyst/associate level when you're putting together forecast financials.
wasting time,
what course are you having difficulty in?
i also attend illinois as an accy/fin major
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