How many models did you build in your 1st year as an analyst?
How many? What types of models?
Would be helpful if you include what group and what size bank you are at
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Only one model (LBO) I was in charge of projecting interest expenses, which I hard coded as a percentage of sales Leveraged finance group, top european bank
haha, welcome to high finance. I bet your manager said something like "Don't make anything fancy - we need a first draft of the model asap"
this. Forego the fanciness pls.
LBO, DCF, MM, and of course company forecasts. Usually, in your the first year you'll copy other peoples' models or use a friend's template. 2nd year I built my own from scratch so that I could drop in a forecast and a couple of assumptions to have a working model in M&A group at an EB.
Our first year analysts typically build over ~30 full LBO models from scratch in their first year. At least 10+ practice models starting out, then a new model/LBO situation every two weeks on average throughout the year.
Financial Sponsors, BB.
EDIT: LOL, >dozen SB for the above commenter "one model," MS for me truthfully explaining that our analysts do a lot of models. Guys, don't be triggered. This should inform your view while recruiting that different banks (and David could even be at the same bank as I am since our LevFin team doesn't model) approach deals differently.
Jesus christ
I hope he's trolling.
By the end of their first year, I would assume they can build LBO models in their sleep, right?
How many times will the first year analysts actually be doing modeling that contributes towards the deals they're on though?
Our first year analysts run the live model for the actual deal, on behalf of the entire team, from Day 1.
Can I ask why? Like you are literally having the analysts building out the sources/uses, cash sweeps, PF balance sheets, etc. from a blank excel every time?
I understand why it is helpful to have them build the practice models from scratch, but a good LBO model template should have enough functionality to be modified to fit a new deal scenario, no?
Have found templates to be more trouble than they're worth. At least at our bank, the template is so complicated to be able to fit "any scenario" that in a simple scenario, there are tons of unused lines and checking the model becomes tedious. Our team prefers to create a new model that only has what's necessary, and build out complexity as it comes. It has the added benefit of making our first year analysts pretty fluent at modelling at the cost of only a few hours per new model.
Hi Like many european banks my employer makes no distinction between levfin and sponsors. Rather between origination (talking with the sponsor, holding the model and negotiating the doc) and syndication (HY and Loans capital market teams trying to get us rid of our U/Ws)
I hope this clarifies
Makes sense; our Sponsors, LevFin, and Syndicate teams are separate. In a regular way deal, the Sponsors or occasionally the industry coverage team holds the model, while LevFin does debt comps and helps inform pricing views.
Would this mean your LevFin/Sponsors group does the modeling because it holds both? If not, who would? I understand how it would be at a BB, but interested in the role of a LevFin group at a large European bank
Change "build" to "bang" and we could get a much more interesting thread goin here
Not gonna lie, i originally read "bang" and was very confused when i saw LBO commented.
and the number is still the same for 99% of people on here
Yep. ZERO.
+1SB - I like your style
agreed ive wasted so many hours trying to fookin understand models that are meant to handle different situations. feel like im manning a space ship when i could just build this from scratch
...do fear the MDs old HP 12c calculator, is invariably right! As an analyst, It helps understand where the issue is, when you build the model and know it inside out. Turn tables, I expect the Analyst to find where the bug lies, understand it and solve it...
"Models" can be extremely vague.. As a first year, I probably created 5-10 models but at various ranges of difficulty. The 1 full sell-side operating and valuation model with 40 tabs (financial statements, depreciation/capex schedules, debt financing scenarios, etc.) would not compare to the quick and dirty LBOs I'd create to run transaction scenarios. That being said, your first year experience should incorporate a variety of modeling to help you get familiar and prepare you to be able to add functionality in any scenario.
Top bucket analyst, EB. Transitioned to MM PE after first year.
.
Any model with less than 65 tabs is bullshit. If an analyst ever shows me a model with less than 65 tabs I make them go add more before I review.
It's not really a model unless you're clenching your cheeks hoping the model you v'd up on 50 times isn't about to crash when you save/open it...
Why would a seller care about debt financing scenarios?
Too many
Alright, I am going to ask the dumb question here. What about first year Associates fresh out of MBA?
I banged 2 models in my first year. They were both black and claimed to have been in Ebony Magazine. They were easy as pie.
When you're a first year analyst in IB... (Originally Posted: 05/31/2013)
and you have to "model," are you given a template on excel to use -- one where you just have to pull the information from financial statements and enter them? You don't have to make the models from scratch (adding in formulas on excel), right?
Varies from place to place and on the needs of the project.
I prefer building my own, because I feel like models are a relatively personal sort of thing - everyone's got his own take on style, and stuff. If you build the model yourself, you'll actually be able to understand it.
Generally how long does it take to get from a blank excel sheet to a full 3 statement operating model for a bog standard non financial company? I find laying out the historic spreads takes ages. Do you guys model out every line item or do you aggregate line items to make things easier?
That I think depends a lot on your experience, ability and how in-depth the model is. If you haven't put together a model ever it will probably take quite a while. It also depends on how complex the transaction is and how in-depth you model everything, as in whether or not you aggregate a lot of stuff or try to be more exact with each item.
Generally I use templates (LBO/Recap Model, Merger Model). I build out the operating model line by line with detail (usually monthly for 1-2 years, then annual) and link the operating model to the templates, which are annualized only and have more of a summary feel.
Hard to ever assign a time frame towards the build out b/c it truly depends on the level of detail you are provided by mgmt.
build-up is company specific, rest is template
You hire an excel genius fron asia and pay them sweatshop wages to do it for you.
Sure, if you want the quality of toys infused with lead.
A slightly different perspective coming from the lower MM side of things:
A lot of our clients are pretty shitty when it comes to FP&A. Some of them don't have operating models or 5 year plans, and a few don't even have a detailed budget for the current year. At this level we come across a lot of operators who aren't really executives, but they have bootstrapped their businesses and kinda by default end up as CEO. Most will have a CFO but some will rely solely on a Controller to handle the finance and accounting aspect of things.
The detail of our model is highly dependent on what we have to work with. I would estimate that with ~50% of our clients, we need to hold their hand as they build out projections. Often times we will just assume that responsibility ourselves and management will provide heavy input. This is extremely difficult - FP&A modeling is highly industry specific, so if you are working in an industry that you aren't super familiar with you need to learn all of the revenue and expense drivers. In these cases we generally keep the operating model extremely high level, basic assumptions, rely on historical seasonality, etc. and we work in a few growth initiatives as dictated by the client. In other cases we will be given a detailed operating model from our client, that will break down line items by individual drivers and data backed assumptions. Our role in that case is to audit the model, tweak assumptions where necessary, and provide heavy input as to how a sale and/or capital infusion will flow through.
Once we have our operating model set we will usually just link it up to our standard company template and customize based on the industry, accounting practices and practical level of detail for a given client. On the surface this seems like it would be simple, but it actually takes a fair amount of customization and it makes it significantly harder to spot errors. On the plus side, formatting is taken care of, CapIQ plugins are set to refresh automatically and the summary output populates automatically.
If we are working on a model for a client pitch we will usually just have the past few years of audits (sometimes not even audited if the company is especially small or young) and maybe some high level projections to work with. In this case we use templates to build out a pretty standard DCF, transactions and public comps valuation. We generally don't go into a ton of detail on assumptions, relying mostly on historical trends. The goal is to give the prospect a range of values they can expect and some practical transaction scenarios (we try to keep it conservative), and senior banker expertise is the most relevant barometer here.
Another thing to keep in mind - all of our clients/prospects are private companies, which simplifies certain aspects of the model and makes it easier to use a template.
LOL, people obviously can't take a joke. Seems like street wanna bes are getting lamer by the day.
Can't believe someone threw MS at you. I was just knocking the quality, but we've been approached many times to "outsource" our analyst responsibilities. I forget the name of the group, but they have a bunch of cheap labor conducting market research, basic accounting/financial analysis, etc.
I just don't trust them.
Building Models (Originally Posted: 04/08/2008)
When an analyst first starts, and has to use a model for the first time, will he be expected to build his own, or use a template?
I would guess that templates can't be perfect since no two situations would be exactly the same, but is it generally more likely that an analyst will use a template and make certain changes/adjustments to that template, or build an entirely new model?
Also, if analysts generally start using templates, at what point would they (on average) be experienced enough to build their own model, and are the benefits of building your own model worth the extra time it takes?
To me, it seems like the benefits of building your own model would be that it is entirely customized to the specific deal, and that you know everything about it since you built it. I would also imagine that you learn a lot faster if you're building your own, rather than using a template.
Does anyone have any answers, or additional insight they might want to add? Also, if you're an analyst (or were at one time), how long was it until you built your first model?
Thanks to everyone who answers, and if there is a similar post that I have missed in my searches, could you please post a link?
In my experience (SA and FT) there were firm or group-wide templates to use for models. Of course, you still have to do lots of customizing to get it to match your specific deal, but having something to start from saves a lot of "reinventing the wheel".
I generally build my models from scratch as soon as I receive the OM and my assumptions are based on lengthy discussions with my working group to determine the appropriate S&U, growth rates, and target IRR. We don't have an in-house template that we use for each deal although we occassionally reference models that were provided to us by our sell-side bankers in the past.
You should be able to build a basic model by the end of your training session (and probably before). As long as you understand the links in the financial statements building an operating model, merger model, and/or lbo model is pretty straight forward. The assumptions aspect of the model is the most difficult due to your lack of experience but that obviously comes with time.
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