Why a 3 statement model?

Could someone explain why we need to built a fully fleshed out 3 statement model instead of a DCF model with working capital, capex, d&a and some revenue projections?

I'm trying to understand what the three statement model serves and why it is preferred over a partial model.

I appreciate the help.

 

As well, if you're including an lbo model, you should spread credit statistics to ensure the target does not breach hypothetical covenants.

It's not that hard, too.

My posts will be fraught with grammatical errors since I post from my phone. I will try my best not to post an incoherent babble.
 

A balance sheet is just the accrual / recognition of past and future cash flows presented in a nice format. You're right it isn't necessary, but doing a full model is easier than doing practically half a BS (always like how balance sheet looks like bull shit) anyway when looking for certain metrics.

To the above comment about where you get WC from, historically the cash flow / BS. But your model is your input. You don't "get" those figures from there, but that's where our inputs are represented.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 

Two other possible reasons: one is the appearance of substance and another is a perceived sense of accuracy. Seriously, though, looking at things from a cookie cutter perspective, whether you do a simple model or a more detailed model, should really depend on the underlying company you are valuing. There are some companies with more stable inputs in which a simpler model can capture well. However, there are companies with weird issues in which more details are necessary.

 

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