Is an integrated financial model necessary for forecasting financials & valuation?


Is an integrated three statement model necessary for forecasting and valuing a company? I have a hedge fund interview and need a DCF model. Is not not possible to forecast unlevered free cash flow using: tax-affected EBIT, add capex, change in working capital, and D&A. Then once you discount unlevered free cash flow using WACC to subtract current debt on the balance sheet to get equity value?

I understand interest payments can increase over time. I this captured in the cost of debt in WACC? Can you not \use historic net working capital as a percent of sales for forecasting unlevered free cash flow?


Comments (3)

Nov 20, 2015

Yes you can. For a quick & dirty DCF you can do what you mentioned - check out Rosenbaum's DCF template for an example of how its done.

best would be to forecast BS for sanity checks still

Learn More

7,548 questions across 469 investment banks. The WSO Investment Banking Interview Prep Course has everything you'll ever need to start your career on Wall Street. Technical, Behavioral and Networking Courses + 2 Bonus Modules. Learn more.

Nov 20, 2015

I would build a full operating model for an interview, just to show you can, and also to show you know how to try understanding a business at a more granular level.

Feb 2, 2016

1-Click to Unlock All Comments - 100% FREE

Why do I need to be signed in?
WSO is a knowledge-sharing community that depends on everyone being able to pitch in when they know something.
+ Bonus: 6 Free Financial Modeling Lessons with 1-Click Signup ($199 value)