FEATURING:
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Fundamentals of Financial Statement Analysis
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Using Financial Statement Models for Valuation
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Modelling of Financial Statements
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Risk Measurement
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Corporate Modelling
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Monte Carlo Simulation
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Valuation Models & Cash flow Projections
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Asset Valuation
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Risk & Cost of Capital
- Option Pricing Models
OBJECTIVES
This course offers you intensive hands on financial statement, financial modelling and simulation exercises. You will learn how to evaluate financial statements in predicting future financial condition, how to construct and use corporate financial models in valuing firms, how to use time series analysis in developing assumptions for investment decision making, and how to apply sophisticated Monte Carlo simulation techniques in financial forecasts. You will receive a number of software programs, reading materials and a variety of practical programming techniques will be included in the case studies.
SCOPE OF WORK
The course consists of three integrated parts:
Financial Statement & Investment Analysis will focus on economic principles, value drivers and measuring risk. You will examine the financial forecasting used in measuring value, assessing risk and making investments. These tools will help you assess the "accounting quality" of a firm.
Financial Statement Analysis: You will examine and apply the corporate financial models, credit and strategic analysis.
Valuation Techniques & Corporate Modelling: You will work and learn how to use fully developed models.
WHO SHOULD ATTEND
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Financial managers
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Financial analysts
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Corporate financial managers
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Bankers, and portfolio managers
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Commercial banker, investment banker
- Securities analyst, or portfolio manager
Day 1
Financial Statement and Investment Analysis
The first day of the course introduces key themes and concepts and addresses financial statement analysis. Financial statement analysis will focus on economic principles, value drivers and measuring risk. A case study will be introduced to assure that you become comfortable with financial statement review. The latter part of the day moves to financial forecasting used in measuring value, assessing risk and making investments. The financial model created will be extended to a comprehensive corporate model in subsequent portions of the course.
Topics covered in the first day include:
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Course Overview and Major Themes
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The Economics of Value Creation
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Fundamental Financial Statement Analysis
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Valuation From Financial Statements
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Case Study on Financial Statement Analysis
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Valuation from Discounted Cash Flow Projections
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Basic Financial Model Construction
The Economics of Value Creation in the Context of Financial Statement Analysis
The first part reviews how value is created by business activity, including how financial statements relate to economic profit. The section covers the basic economic drivers of value in different circumstances and the actual value creation activities of various firms. The initial lectures also introduce the notion of efficient markets as context for financial analysis.
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Microeconomics and the Creation of Value
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Economic Drivers of Value
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Porter Model of Value Drivers and SWOT Analysis
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Efficient Markets, Financial Modelling and Valuation
Fundamentals of Financial Statement Analysis
After reviewing the economic theory behind value creation, the course moves to the use of financial statements in measuring value. You will become comfortable in reading various different financial statements for valuation and financial analysis purposes. Financial statements will be used to relate financial statement information to economic value drivers and evaluation of company performance.
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Financial Statement Review
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EBIT, EBITDA and EBT
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Cash Flow Line Items
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Capitalisation, replacement cost, book equity and market equity
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Financial Indicators of Value Return on Invested Capital
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EBITDA/Enterprise Value
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Return on Assets, Return on Equity
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Market/Book Ratio, Market Value/Replacement Cost
Free Cash Flow
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Computation from EBITDA
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Computation from cash flow before financing
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Adjustments for interest and taxes on interest
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Return on Invested Capital
Implications of Financial Statement Analysis
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Relate financial ratios to economic drivers
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Determine whether economic profit has been realised
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Evaluate the sustainability of economic profit
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Assess the potential for growth in economic profit
Valuation from Financial Statement Analysis
Valuation drives strategic decisions, capital investments, mergers and acquisitions and capital structure assessment. In this part of the course you learn how financial statement analysis relates to valuation, how valuation is used in negotiation from alternative perspectives, and alternative valuation methods.
Valuation Mistakes
Alternative Valuation Techniques from Financial Statements
Valuation and Free Cash Flow
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Computation of Projected Free Cash Flow
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Adjustments to Free Cash Flow
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Residual Value
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Enterprise Value and Equity Value
Case Study on Financial Statement Analysis
In the first case study, you perform financial statement analysis on financial statements to take conclusions with respect to value creation. Topics covered include learning various ways to gather information, how to construct financial performance measures and the valuation implications of price earnings ratios.
Information sources
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Valuation and financial statements
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Financial statement review compared to other companies in the industry
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Value Drivers
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Case discussion
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Valuation using Discounted Cash Flow
Day 2
Financial & Valuation Modelling
Begins with the valuation discussion by introducing the concept of free cash flow in decision making. You will learn the mechanics of computing free cash flow from financial statements and will consider how free cash flow can be practically applied in valuation of stocks.
Discounted Free Cash Flow
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Theory and economic value analysis
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Free cash flow without leverage
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Cost of capital applied to free cash flow
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Residual value
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Relative valuation
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DCF Compared to payback rule and accounting earnings criteria
Implications of DCF in Valuing Stocks
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Difficulty of evaluating historic cash flow
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Computation of numerous companies in an industry
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Sensitivity of value to economic drivers
Valuation Models
Financial Model Construction
After discussion of economic assumptions you construct an investment model. The primary objective of building the model is to review basic accounting and spreadsheet issues associated with building a model and to assure that you are comfortable with the fundamentals of valuation modelling.
Structure of Model
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Financial statements
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Time period design
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Model Inputs
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Model outputs
Modelling of Financial Statements
Valuation of Investments with Financial Model
Cost of Capital, Assumptions and Corporate Modelling
The next part of the course covers cost of capital, assumption development and financial models that projects earnings, cash flow and value performance of corporations. Corporate financial models are generally the centerpiece of M&A, credit analysis, and strategic analysis. Topics include construction of a basic corporate model, the theory of valuation from an economic and financial perspective as well as practical application of the theory using case studies that demonstrate alternative approaches. M&A topics include:
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Risk and Cost of Capital in Financial Models
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Development of Economic Assumptions for Valuation
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Case Study on Valuation and Financial Modelling
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Basic Construction of a Corporate Model
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Complexities in Corporate Models
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Case Study on Valuation with Corporate Models
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Case Study on Credit Analysis with Corporate Models
Risk and Cost of Capital
The next section will move to the subject of assessing risk in cash flow through computation of the cost of capital to apply to free cash flow. Subjects include the CAPM, weighted average cost of capital and adjustments for debt and taxes.
Cost of Capital and Decision Making
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Simulated investment decisions and cost of capital
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Cost of capital and valuation
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Cost of capital applied to free cash flow
Computation of Cost of Capital using CAPM
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Risk free rate
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Risk premium for market
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Beta
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Limitations of the CAPM
Computation of Cost of Capital using Alternative Methods
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Dividend growth model
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Debt capacity model
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Risk premium method
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Implied cost of capital in financial ratios
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Merton model in valuation of equity
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Implied cost of capital from reverse engineering financial models of similar companies
Adjustments to Cost of Capital for Taxes and Leverage
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Adjustments to beta for leverage
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Computation of all-equity beta
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Adjustments for interest expense
Development of Economic Assumptions in Valuation
The most time spent valuation analysis is generally associated with developing economic assumptions. This part of the course addresses economic analysis behind key value drivers. A case study is used to develop economic assumptions and to demonstrate use of sensitivity analysis, break-even analysis and tornado diagrams. The final part of the section develops mathematical measures of risk from the project finance models.
Economic Analysis of Assumptions
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Economics of commodity prices
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Long-term forward prices and economic theory
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Equilibrium production cost
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Productivity changes and resource supply
Risk Analysis of Economic Assumptions
Analysis and Economic Assumptions
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Revenue and cost risk
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Sources of repayment
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Sensitivity Analysis
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Tornado Diagrams
Construction of a Corporate Model
A corporate model includes on-going capital expenditures, dividends, vintage of depreciation, deferred taxes and other items. These models can be constructed from a basic investment model with a few adjustments. You will work through an exercise to accomplish a conversion.
Conversion of Investment to Corporate Model
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Historical financial statements and reconciliation
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On-going capital expenditures and depreciation
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Mechanics of modelling outstanding shares
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Modelling of short-term debt and temporary securities
Residual Value
Valuation with Corporate Models
Complexities in Corporate Modelling
Corporate models must be developed for a wide variety of firms in different industries. The second part of the corporate modelling course describes how to model complexities in reconciling financial statements such as deferred credits, amortisation, accelerated tax depreciation, and other accounting adjustments.
Accumulation of Accounts
Reconciliation of Historical Financial Statements
Use of Historic Financial Data in Projections
Corporate Modeling and Valuation
Application of financial models to valuation requires deriving value drivers and making assumptions for residual value. In this section of the course you will implement economic assumptions and develop a valuation analysis.
Theory of Valuation
Valuation Using Earnings Multiples
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Alternative multiples – EBITDA, EBIT, P/E, Book Value
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Multiples in transactions versus on-going companies
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Multiples and valuation by business segments
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Economics of multiples
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Valuation multiples in case study
Development of Value Drivers from Historic Data
Relative market valuation using discounted free cash flow
Case Study on valuation using discounted cash flow
Corporate Modelling and Credit Analysis
In addition to valuing companies, corporate models are a fundamental tool for credit analysis. In the final section of the second day, participants will apply the corporate model in credit analysis.
Subjects include:
Credit Ratios in Modelling
Break-even Analysis
Cash Flow Analysis and Mitigation
Day 3
Simulation and Options Analysis in Corporate Modelling
In the final day of the course options pricing concepts, time series models and simulation are added to the financial forecasts. This part of the case includes discussion of volatility, mean reversion, price boundaries, and productivity trends. Participants will learn how to use fully developed models that incorporate sophisticated debt structuring, break-even analysis, time series equations and Monte Carlo simulation. Topics included in the project finance part of the course are:
Time Series Analysis of Price and Economic Data
Monte Carlo Simulation of Time Series Models
Option Price Analysis in Financial Models
Real Options in Financial Analysis
Introduction to Project Finance
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Debt structuring and debt sizing in project finance
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Contract valuation in project finance
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Option price analysis and project finance
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Bankruptcy probability and yield spread
Time Series Analysis of Price and Economic Data
Risk analysis is driven by probability analysis with respect to economic data. A formal way to mathematical assessment of cash flow distribution into models is through development of time series models. This section of the course introduces participants to time series analysis that can be incorporated into financial models.
Economic Theory Behind Time Series Models
Measurement and Analysis of Volatility
Mean Reversion, Equilibrium Prices and Forward Curves
Time Trends and Productivity
Price Boundaries and Marginal Cost
Jump Process
Use of Regression in Time Series Analysis
Monte Carlo Simulation of Time Series Models
Complex time series models can be incorporated into financial models through Monte Carlo simulation. This part of the courses teaches participants the theory behind simulation and practical implementation of simulation. Participants use the distribution of possible outcomes through Monte Carlo simulation to measure risk.
History of Monte Carlo Simulation
Theory of Monte Carlo Simulation
Time Periods in Simulation
Normal Distribution and Statistical Analysis in Simulation
Case Exercise with Monte Carlo Simulation
Risk Measurement with Monte Carlo Simulation
Option Price Analysis in Financial Modelling
Option pricing concepts are relevant in a number of investment analysis and corporate modelling applications. This module covers option price modelling that can use time series analysis and Monte Carlo simulation to evaluate the probability of debt not being repaid. Topics include implied volatility, integrating Monte Carlo simulation into financial models and reconciliation of different techniques for computing option prices.
Option Price Analysis
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Payoff structure and premium of options
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Determinants of value in options
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Options in project finance
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Project finance debt as option
Option Valuation Analysis
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Black-Scholes Model
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Dynamic programming
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Monte Carlo Simulation
Monte Carlo Simulation in Project Finance Models
The final section addresses how to use option pricing concepts in valuing real options. The real option case study is project finance debt where the yield spread on risky project finance debt is equated to the premium of a real put option. The exercise teaches attendees how to practically apply real options concepts in financial modelling and how to develop macros that incorporate data from multiple files.
Theory and Analysis of Real Options
Simulation of Real Option Value
Valuation of Risky Debt Using Option Pricing Models
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Structure of risky debt as an option
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Probability of default and interest rate spread
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Mechanics of equating value of risky debt to risk free debt
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Iterative procedure in deriving required risk spread
Course Summary & Close
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Ed Bodmer
Edward Bodmer has created innovative forward pricing, productivity measurement and investment valuation software for consulting clients throughout the United States. He has taught energy economics and finance throughout the world, and formulated significant government policy and corporate strategy in the U.S.
Mr. Bodmer's consulting clients include investment banks, commercial banks, research institutions and government agencies on a wide variety of complex valuation and advisory matters. He has constructed a unique framework for electricity price forecasting and valuation using production cost modelling techniques combined with option price theory and Monte Carlo simulation.
Mr. Bodmer is also an adjunct professor at leading University where he teaches courses in microeconomics. Along with his practical experience that covers a multitude of major advisory projects, he has taught specialised courses in financial modelling, electricity pricing, option valuation, mergers and acquisitions and contracting to investment banks, commercial banks, industrial corporations and electric utility companies.
Mr. Bodmer was formerly Vice President at the First National Bank of Chicago where he directed analysis of energy loans and also created financial modelling techniques used in advisory projects. He has used the models in providing expert testimony on subjects ranging from capital structure to investments in multi-billion dollar nuclear plants to complex valuation of new investments.
Mr. Bodmer received an MBA degree specialising in econometrics (with honours) from the University of Chicago and a BS degree in finance from the University of Illinois (with highest university honours). He has written many articles and is in the process of completing a textbook on valuation of electricity assets.
Courses run by this instructor
Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.
26-28 Sep 2012 (Paris, France)
Delegates will leave this intensive three-day financial modelling in Excel training course with the ability to effectively apply modelling techniques in a wide range of practical scenarios. Featuring: Design & structure different models and translate them into Excel; Calculate free cash-flow; Use Monte-Carlo simulations; Identify decisions tree - problems & solutions; Develop models incorporating risk, sensitivity, optimisation and forecasting using solver.
28-30 May 2012 (Amsterdam, Netherlands)
15-17 Oct 2012 (Amsterdam, Netherlands)
This 3-day interactive workshop offers a practical study of the techniques of valuing and financing acquisitions.
14-17 May 2012 (Paris, France)
24-27 Sep 2012 (Paris, France)
A 4 day comprehensive Financial Modelling training course designed to provide delegates with an understanding of Company Valuation and Associated Financial Modelling. Learn more about company valuation and how you can improve your understanding of a fundamental part of a company operating in the capital markets.
18-20 Jun 2012 (Paris, France)
19-21 Nov 2012 (Paris, France)
A 3–day training course dedicated to the valuation, structuring, financing and negotiating of Merger and Acquisition transactions.
26-29 Mar 2012 (Prague, Czech Republic)
3-6 Dec 2012 (Prague, Czech Republic)
Excellent 4-day course teaching you how to build a successful corporate banking strategy and how to raise the performance of your institution. The course will teach you how to use the planning process to set goals, control costs and to increase the profitability of clients and sales channels.
19-22 Mar 2012 (Prague, Czech Republic)
A comprehensive, 4-day valuation course for banking experts.
10-13 Dec 2012 (Istanbul, Turkey)
A 4-day, intermediate-level course for people with several years experience in finance who want to reinforce and diversify their knowledge of the underlying frameworks and approaches in different areas of financial management.
26-30 Mar 2012 (Paris, France)
10-14 Dec 2012 (Paris, France)
A 5-day, case-study based workshop exploring more advanced issues in company valuation and financial modelling.
27 Feb 2012 - 1 Mar 2012 (Prague, Czech Republic)
25-28 Sep 2012 (Prague, Czech Republic)
This 4-day course provides a comprehensive look at the most important recent trends and developments in bank reporting. It will improve your analysis skills, giving you the toolkit for better decision making, helping safeguard your organisation.
4-7 Jun 2012 (Paris, France)
3-6 Dec 2012 (Paris, France)
A 3-day course designed to provide a complete overview of the Venture Capital industry and its workings. Participants will gain a thorough understanding of the role and operations of a venture capital fund, and the complex financial engineering methods it uses.
4-6 Sep 2012 (Oslo, Norway)
This 3–day course will provide delegates with all the necessary practical skills to model and value oil and gas companies, from the perspective of an investor, an equity analyst or a participant in a corporate transaction, whether a corporate or an advisor.
18-21 Jun 2012 (Moscow, Russia)
This highly practical 5-day case study based workshop will lead you quickly from the basics through to the more advanced valuation methodologies and modelling techniques.
23-26 Apr 2012 (Prague, Czech Republic)
15-18 Oct 2012 (Prague, Czech Republic)
This 4-day workshop takes a hands on approach to a comprehensive set of financial modelling and valuation techniques with computer based case studies.
14-16 Mar 2012 (Istanbul, Turkey)
A 3-day highly practical training course on building financial models.
25-27 Jun 2012 (Oslo, Norway)
An intensive, 3-day, computer-based, practical training course with case studies and worked examples.
21-24 May 2012 (Prague, Czech Republic)
A 4-day project and corporate financing course covering modelling and valuation, with added sessions on financial
modelling in Excel
15-17 Oct 2012 (Prague, Czech Republic)
This 3-day course is designed to give delegates a comprehensive overview of the latest techniques and methodologies to successfully manage a corporate banking and SME network.
24-26 Apr 2012 (Frankfurt, Germany)
This 3–day course will provide delegates with all the necessary practical skills to model and value oil and gas companies, from the perspective of an investor, an equity analyst or a participant in a corporate transaction, whether a corporate or an advisor.
21-24 May 2012 (Istanbul, Turkey)
The course takes you through all the applications of corporate finance from M&A to IPO's to LBO's. However, a key element is that the course demonstrates how the many different applications draw upon a common core framework based upon the principles of financial economics that is reviewed on the first day.
This course has now expired please email us to find out when the course will next be running.