How much modeling do you actually do?

Hi guys,

I am currently a 1st year analyst at a TMT boutique investment bank in London, and was quite surprised to hear from my associate that financial modeling (including DCF) accounts probably for 5% of the job.

I have also talked with quite a few friends working in banking (including BB and mid-market boutiques) and they also feel like that financial modeling is a very small part of the role while grunt work seem to account 70% of an analyst work.

In particular, this is what I heard in regards to financial modeling:

- Used mostly when working on buy-side mandates and the place to be to develop strong modeling skills are M&A execution group in BB. In sell-side mandates modeling is almost absent.
- Sector focused group barely do any modeling and they mostly pitch
- You learn financial modeling mostly if you cover sectors like Energy, Oil & Gas, Real Estate and Industrials (not sure why)
- Financial modeling is used mainly when dealing with large corporations

Not that I chose this career because I wanted to do only financial modeling, but I am questioning whether I am at the wrong place as I feel like having strong modeling skills is almost a must for exit opps and in general to be a well-rounded banker.

It would be nice to know your views in regards and perhaps have some clarification.

Cheers!

 

I would agree with you for the most part. For modeling, you want to be at a BB. This is because, in general, BBs have separate people who do some of the grunt work such as binding books, printing, etc. At a boutique, you will be doing all of this, whereas at a BB, you can focus more on substantial work such as modeling.

However, investment banking at the junior levels is definitely grunt work, and you need to understand that it is a big part of the job no matter where you are. M&A, industrials, real estate, energy, fig etc. are more specialized and thus more modelling intensive relative to, say, technology. My thoughts.

Haters gonna hate
 

Speaking from personal experience, boutiques do VERY little modeling in general. Not much due diligence to do when you're doing acquisitions for under $100mm deals.

Banking at the analyst level gets a bad rep for being an administrative grunt b!tch job, but it's definitely more so at boutiques where you're constantly just putting powerpoint presentations together and filling in information in Excel. If you really want to model, you need to be at a BB or EB, where you will in fact gain significant modeling and technical analysis exposure (at least, comparatively)

 

Who threw MS at me... I mean, really? It was speaking from my personal experience. I should've specified that it depends. As you said, some groups model more than others (FIG/RE/O&G, etc), but there are also boutiques that model very little (usually the more generalist groups like HC/Industrials/TMT, etc)

Moral of the story... if you want a modeling-heavy and emphasized, technical experience... BB and EB are where it's at.

 

BB very little modeling. its actually quite a dissapointment. personally, all i do (i work at BB) is copy/paste shit and update things. i feel like my mind is going numb. I imagine at a boutique you have a more in depth and well rounded experience since its less bureaucratic than BB's, right?

"The cheaper the crook, the gaudier the patter"
 

If you want a modeling-heavy and emphasized, technical experience...choose a sector and/or group that reflects the need for consistent models. The size of the shop matters very little, other than the fact that I agree you'll be doing slightly more administrative/grunt work in a boutique than in a bulge bracket.

TLDR: Sector / Group > Size of Bank

 
  1. Hopefully you'll be interviewing for PE 6-9 months into the job, not as a third year.

  2. If you're not confident in your technical skills, practice on weekends. Particularly LBOs.

  3. O&G is a somewhat unique industry that generalist M&A analysts aren't necessarily familiar with. So the coverage analyst may do the modeling his/herself. Same with FIG (as everyone knows) and Tech. And some HC (Biotech)...OK, so basically, if your company is really vanilla and makes widgets (Consumer/Industrials), you can generally trust the M&A team to steal the modeling from you. If the sector is kinda weird? Probably going to be handled by the industry group. RE probably falls into the latter, but I'm not sure.

 

Top MM, model ~10% of the time and PPT / copy paste / grunt 90% of the time.

And when modeling, generous assumptions are usually made -- in my experience, it's not nearly as sexy as Rosenbaum & Pearl makes it out to be. At the end of the day, whether the 5-year IRR is 19.1% or 18.987277498%, it doesn't matter, so it seems like simplifying things is par for the course.

 

Thanks guys for sharing your views on this topic...I think most 1st year analysts start their job with really high expectations and they are really keen to learn about the "technical" stuff...from my experience, so far IB has been a let down...I am not really learning in depth about valuation, fin modeling, accounting and given the high level of preparation required to even get an internship in the field, I was really surprised by the fact that analysts really do for 90% of the time grunt work...starting from formatting slides, update control schedule, doing really time consuming research for marketing purposes, writing meeting notes, profiles ecc...I felt IB was a job where you would be challenged mentally and not only phisically.

Also I can't even say that I am really learning about the industry...I mean obviously I learned about the major trends in the TMT sector but because I am not an engineer it is very hard to really understand how a software works or how a Radio Access Network antenna is built and works.

I spent a lot of time researching the role and invested so much time to break into this industry but now that I am here I feel like I am doing a completely different job from what I expected.

I do attend lots of meetings and calls and do recognize I am developing strong soft skills as well as learning about the type of questions you might want to ask when buying/selling a business ecc...

It would be nice to hear your opinions as I don't want to rush in my decision to quit banking because perhaps I might be in the wrong place therefore the solution would be to move up to a bigger and more structured shop.

Cheers

 

I probably built under five models while in IB. The amount of modeling that an average analyst does is much smaller than WSO would lead one to believe. Obviously there will be exceptions.

The thing I found with IB was that the valuation was already determined by the MD in advance; the model was just created as a way to justify the valuation. Never did we enter the "modeling phase" of the transaction with the intent of really finding out the real value of a company.

 
Sil:

I probably built under five models while in IB. The amount of modeling that an average analyst does is much smaller than WSO would lead one to believe. Obviously there will be exceptions.

So I've noticed. I actually think I became rusty in some specialty models (e.g., LBO) because I never build them.

 

In the same light, I'd like to know how much modeling a student / prospective monkey would require to land a summer internship. I have extensive experience in IB as an intern (approx 1 year) but my modelling exposure is limited. And I'm actually trying to learn modelling outside of work.

Getting back to the topic, I've heard Project Finance people do a lot more modeling

 

If anyone told me that we were using a deal model that had been constructed by a summer intern, it would be the start of several unpleasant conversations, with frequent swearing.

At most, I trust my interns to take a look at a copy of a model, come back to me and tell me what are the key drivers of revenues and margins etc in the model.

Those who can, do. Those who can't, post threads about how to do it on WSO.
 

in the corporate world, I do a fair amount of modelling (roughly 1 fresh model a month...over the summer this will die down as I'm running through my previously built budget consolidation model)

more and more, i'm helping my operations colleagues manage to the assumptions they provided (or reminding them of the assumptions they agreed to...)

Director of Finance and Corporate Development: 2020 - Present Manager of FP&A and Corporate Development: 2019 - 2020 Corporate Finance, Strategy and Development: 2011 - 2019 "An investment in knowledge pays the best interest." - Benjamin Franklin
 
BirdoInBoston:

in the corporate world, I do a fair amount of modelling (roughly 1 fresh model a month...over the summer this will die down as I'm running through my previously built budget consolidation model)

more and more, i'm helping my operations colleagues manage to the assumptions they provided (or reminding them of the assumptions they agreed to...)

Is that mostly in a sales estimate and budget sense? (e.g., "You said your department would need $x this month and you have spent $y this month) Just curious.

 
Best Response

to some degree.

Departments will estimate sales volume, staffing needs etc. to get a project/capital request/operating addition approved and then try to backpedal...or will need help managing to those expectations.

I think that's a big difference between the IB world and the Corporate world. I hear my associate friends complaining about bad assumptions causing issues -- in the corporate world, we may have bad assumptions, but we also have the opportunity (whether we take it or not is a different can of worms) to manage to our assumptions.

Director of Finance and Corporate Development: 2020 - Present Manager of FP&A and Corporate Development: 2019 - 2020 Corporate Finance, Strategy and Development: 2011 - 2019 "An investment in knowledge pays the best interest." - Benjamin Franklin
 

When I was in banking, I did a substantial amount of modelling. I was building or working in a model nearly every week. Albeit, a ton of that was churning out basic formulaic lbo models. I would say that I worked on much larger / complex modeling tasks once every month or two.

I'm surprised to hear that so many others experiences were that light on the modeling side. Even for pitches, there was always a basic LBO if pitching a sponsor, merger math if pitching a strategic, and cash flow model if pitching a debt product to a corporate.

 

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