By, Robert J. Moss
Whether you want to work in investment banking, private equity, venture capital, equity research, or asset management, you’re going to need to know financial modelling. If you want to pursue any of these careers, learning financial modelling early is key to being successful.
Financial modelling is used to value companies. Different types of models are used for different scenarios. Discounted cash flow (DCF) and trading comparables (comps) models are commonly used to help value publicly traded companies to determine their intrinsic value. The former discounts a company’s future cash flows to their present value while the latter uses multiples of comparable companies to determine a valuation. Leveraged buyout (LBO) and accretion/dilution models are used for the specific financing and accounting details of acquiring companies.
If you haven’t heard of some of these models or don’t know how to create the models you have heard of, don’t worry. Luckily for students there are tons of resources available to learn financial modelling. In fact, there’s so much that it might be overwhelming figuring out where to start.
This article will provide an overview of some of your options. It’s informed by my own experience and by no means exhaustive, but it should be a good starting point for anyone trying to learn where to start learning how to build financial models.
DeGroote offers several courses that teach financial modelling, to a certain extent. The most obvious is probably Commerce 4FD3 – Financial Modelling. While I haven’t taken the course, from looking at the syllabus and hearing past students’ reviews, its more about learning how to use Excel than the specific financial models mentioned previously. From my experience, taking Commerce 4FV3 – Venture Capital and Commerce 4FB3 – Valuations are much more relevant to learning about the assumptions that go into LBO, DCF, and comps models.
However, by the time your eligible to enroll in these course, you could already be interviewing for jobs that require a knowledge of financial modelling. So, learning outside of lecture is a necessity.
There is a plethora of online courses teaching financial modelling. The most notable sites include Breaking Into Wall Street and Wall Street Prep. Both provides similar self-guided courses taught through videos, PDF guides, and Excel templates that will teach you the basics of financial modelling. They even offer course for more niche modelling like oil and gas or banking. Each has a variety of pricing options, but whatever you choose is going to set you back a few hundred dollars.
Alternatively, New York University professor, Aswath Damodaran, has tons of videos on YouTube explaining the intricacies of the valuation assumptions that go into financial models. Damodaran also has numerous financial model templates on his websites you can download. In addition, Macabacus is another solid free option. They have short guides on their website you can work through and templates that are probably easier to follow for beginners than Damodaran’s.
The Marquee Group (Marquee) is the gold standard of financial modelling training. They host in-person training sessions on a number of financial modelling courses and also provide accreditation. Numerous professionals in investment banking and equity research have recommended Marquee to me. It’s widely seen as the best way to learn financial modelling. Canadian banks even commonly use Marquee for their own training, sources tell me. Fortunately, DeGroote is hosting a training session by Marquee about DCF valuation analysis on Saturday, February 8. The cost to signup is $125.00 per person. While I haven’t taken the specific training session being offered, from my previous experiences with Marquee and its reputation, this is definitely the event to be at if you don’t know financial modelling and want to learn.
While my knowledge of financial modelling literature is by no means exhaustive, there’s one book that deserves an honorable mention in case you’re someone that learns better by reading. Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl has been recommended to me by many people in the industry. It covers all the essential financial models covered in this article.
However, there’s no substitute for relevant work experience. While most jobs where you’re using financial modelling will require you to have some previous knowledge, there’s still lots to be learned. Being able learn from analysts, associates, and portfolio managers who have been financial modelling throughout their career, especially through different market cycles, is invaluable.
Ultimately, learning financial modelling will require a combination of all these methods. Financial modelling is more of an art than a science and learning how different people approach it can only be beneficial.