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CourseSyllabi

NYUSternSchoolofBusiness
UndergraduateCollege
ACCTUB.0023.001(C10.0023):FinancialModelingandAnalysis
Fall2011

INSTRUCTORDETAILS
PERKAL,DAVID
Email: dperkal@stern.nyu.edu
Phone: 6466729433
OfficeHours: MW,11:00amto12:00pm
OfficeLocation: KMC10177

COURSEMEETINGS
Meetingtime(s): MW,9:30amto10:45am
Location: TischTLC21

COURSEDESCRIPTIONANDLEARNINGGOALS
Makingeducateddecisionstodaybyforecastingoperatingandfinancialperformanceisacriticalexercisefor
owners,managers,consultants,investmentbankers,creditors,equityandcreditanalysts,andinvestors
suchasprivateequitygroups,hedgefunds,institutionalinvestorsandindividuals.Asweareineluctably
constrainedbyourinabilitytopredictthefuture,financialprojectionsarerarelyperfect.Nonetheless,we
endeavortomodelseveralscenariospredicatedonhistoricalandanticipatedresultstoderivevarious
conclusions.Therearemyriadvariableswhichcancertainlybeincorporatedintoprojections.However,the
bestfinancialmodelisalwaystheonethatisstableandrobust,yetsimpleandeasytobuild,navigateand
audit.
Thegoalofthiscourseistoinstructstepbystephowtobuildacomprehensive,multipurposeprojection
modelinExcelandsubsequentlyinterpretselectiveoperating,creditandequityvaluationdata.Basedon
thisinformation,youwilllearnhowtoevaluateacompanysoperatingandfinancialperformancehowto
developanappropriatecapitalstructurebystructuringdebtandequitytransactionswhichnotonlyprotect
boththecreditorsandshareholders,butalsocreateanappropriateriskandrewardequilibriumandhowto
formulateaneducatedinvestmentopinion.

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COURSEPREREQUISITES
TheprerequisitesarePrinciplesofFinancialAccountingandFoundationsofFinancialMarkets.The
knowledgeandskillsattainedinthesecoursesareessentialinunderstandinghowtoconstructafinancial
modelandinterpretselectiveoperating,creditandequityvaluationdata.Youshouldalsobeveryproficient
inExcelbeforematriculatingasthiscourseisnotdesignedtoteachit.

COURSEOUTLINE
TheclasslecturesarebasedonaprojectionmodelofafictitiouspubliclytradedcompanycalledVictory
Sportswear,Inc.Eachlecturewewilldeconstructthefinancialmodelindetailandlearnhowtoreplicateit
fromscratch.Astheprocessofbuildingaprojectionmodelisamethodical,sequentialprocess,thetopicsin
thecoursewillbecoveredintheorderlistedinthechartbelow.Thereisnospecifiedtimeframeforeach
stepintheprocessassomewillbecoveredmorerapidlythanothers.Therefore,itisincumbentuponyou
toattendeachlecturetoensurethatyouextractthemostbenefitfromthecourseandthusareableto
buildafinancialmodelonyourown.

Topic

Description

1. Brieflyintroducethefinancialmodel.

Introduction
tothe

2. Inputthepriorthreeyearsandyeartodatefinancialstatements,andpreparethe

columnsforafiveyearprojectionmodelwiththebalancesheetauditformula(A=L
+SE).
3. PreparethecoverpageandintroducetheCHOOSEfunctionasitpertainsto
inputtingthedownside,flatandupsidecasescenarios.

financial
model

1. Developtheassumptionsforeachscenariobasedonhistoricalandanticipated

results.
2. Inputthoseassumptionsandlinkthemtotheappropriatecellsintheincome

Projectthe
income

statementwiththeexceptionofD&Aexpense,interestexpense,rentexpense(if
significantenoughtowarrantcapitalizingoperatingleases),otherincome(expenses)
andothernoncashexpensessuchasreserves.
3. Discussqualityofearningsandnonrecurringchargessuchasassetimpairments,
restructuringandgainsand/orlossesonassetsales.

statement

1. Developtheassumptionsforeachscenariobasedonhistoricalandanticipated

Projectthe
balancesheet

results.
2. Inputthoseassumptionsandlinkthemtotheappropriatecellsinthebalancesheet
andincomestatementwiththeexceptionofthecash,PP&Eandintangiblesanddebt
accounts.
3. ConstructaPP&EandintangiblesschedulewithcapexandD&Aexpense.
4. Capitalizeoffbalancesheetfinancingssuchassalesofaccountsreceivableand
operatingleases(ifsignificantenoughtowarrantcapitalization).

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5. LinkthecellsinthePP&Eandintangiblesandcapitalizedaccountsreceivableand

operatingleaseschedulestotheappropriatecellsinthebalancesheetandincome
statement.

1. Constructthestatementofcashflowsfromoperatingactivities,investingactivities

andfinancingactivitieswiththeexceptionofborrowingsandrepaymentsofdebt.
2. Constructthedebtworksheetwitheachtrancheofdebtandlearnhowtoconstruct
IFandMINstatements,revolvercashneedsandrepaymentsandcashwaterfall
payments.
3. Linkthecellsinthedebtworksheettotheappropriatecellsinthebalancesheet,
incomestatement,andstatementofcashflowsfromfinancingactivities.
4. Linktheendingcashbalanceonthestatementofcashflowswiththeendingcash
balanceonthebalancesheet.
5. Calculateestimatedcashtaxesandcashinterestpaidandlinktotheappropriatecells
inthestatementofcashflows.

Constructthe
statementof
cashflows

1. Testthefinancialmodeltoensurestabilityandthatthebalancesheetbalances.
2. Constructthesummaryoperating,creditandequityvaluationpagesandlinktothe

appropriatecellsintheprojectionmodel.
Constructthe
summary

3. Analyzethedataandlearntohowtoevaluatetheoperatingandfinancial

performance,howtodevelopaviablecapitalstructureincludingappropriately
structuringdebtandequitytransactionsandhowtoformulateaneducated
investmentopinion.
4. DiscussSourcesofFundsandUsesofFundsinatransactionalbasedmodelfora
merger,acquisition,divestiture,LBOanddebtorequityrecapitalization.

pages

REQUIREDCOURSEMATERIALS
Thereisnotextbookforthecourse.Duringthelectures,wewillbeutilizingaprojectionmodelinExcelto
whichyouwillhaveaccessviathecourseBlackboard.Eachclassyouwillneedtobringyourcompany10K,
mostrecent10QandalaptopwithanyversionofExcelwithsufficientbatterypowertolastthreehoursas
youwillberequiredtoreplicatethetechniqueslearnedtobuildyourownfinancialmodel.

ASSESSMENTCOMPONENTS
N/A

GRADING
Yourgradeisbasedonaclassprojectwhichincludesthreedeliverablesdescribedbelow.Theclassproject
willprovideyouwiththeopportunitytoapplytheskillsandanalyticaltechniqueslearnedintheclassroomto
anactualcompany.Uponcompletionoftheproject,youshouldhavetheconfidenceandabilitytonotonly
buildastable,robustprojectionmodel,butalsotointerpretselectiveoperating,creditandequityvaluation
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data.
Bythesecondlecture,youwillselectapubliclytradedcompanylistedoneithertheNYSEorNASDAQ.Alist
ofallofthecompaniesintheS&P500IndexispostedonthecourseBlackboardtoassistinyourselection.
However,youshouldnotselectafinancialservicescompanytoanalyzeasitcanbedifficulttonavigate.
Youwillprintthemostrecent10K,10QandanyotherrelevantSECfilingssuchasan8Kfrom
www.sec.gov.Thesefilingswillserveasprimarysourcedocumentsfortheprojectandprovidetherequisite
foundationforbuildingyourassumptionsembeddedinyourfinancialmodel.Youshouldalsoavailyourself
ofrecentpressreleases,newsstoriesandanyotherpertinentinformationwhichwillultimatelydeepenyour
knowledgeofthecompany.
YouwillstartbyinputtingintoExcelthreeyearsofhistoricalandyeartodatefinancialinformation,i.e.
incomestatements,balancesheetsandstatementsofcashflows.Youwillthenbegintobuildafiveyear
projectionmodelsimilartotheonewewillbeutilizinginclasswhichentailsdevelopingthreecasescenarios,
i.e.,downside,flatandupside,andgeneratingsummaryoperating,creditandequityvaluationdata.The
summaryoperatingdatawillincludeprofitabilityandliquiditystatistics.Thesummarycreditdatawill
includecapitalstructureandsolvencystatistics.Thesummaryequityvaluationdatawillincludea
discountedcashflow(DCF)valuationandseveralrelativevaluationmultiplessuchasPrice/Earnings,
Price/Sales,EnterpriseValue/EBITDAandEnterpriseValue/Sales.
Yourgradecomprisesthefollowingthreedeliverables:
FirstDeliverable(30%)IncomeStatementProjections(Steps141):Uponcompletionofthe
incomestatementprojectionswiththeexceptionofdepreciationandamortizationandinterestexpense,
youwillsubmitacopyofyourprojectionmodelwhichincludestheincomestatementandassumptions
andappendittoawrittenreportnottoexceedfifteenpagessinglespaced.Thereportshouldbriefly
introducethecompany,itsproductsand/orservices,locations,competitiveadvantages,majorcustomers,
majorsuppliers,seniormanagement,boardofdirectors,auditingfirm,andanymajorchangesincluding
acquisitions,divestituresorlawsuits.Theintroductoryportionshouldbenomorethanonepage.The
balanceofthereportwillincludeadetaileddiscussionofandrationaleforeachassumptioninthethree
scenariosembeddedinyourforecastscorroboratedbyhistoricalperformance,recentdevelopmentsand
anticipatedresults.
SecondDeliverable(30%)BalanceSheetProjectionsandStatementofCashFlows(Steps
4279):Uponcompletionofthebalancesheetprojectionsandconstructionofthestatementofcash
flows,youwillsubmitacopyofyourprojectionmodelwhichincludesthebalancesheetandassumptions
andstatementofcashflowsandappendittoawrittenreportnottoexceedfifteenpagessinglespaced.
Thereportwillincludeadetaileddiscussionofandrationaleforeachassumptioninthethreescenarios
embeddedinyourforecastscorroboratedbyhistoricalperformance,recentdevelopmentsandanticipated
results.
ThirdDeliverable(40%)SummaryStatisticsandValuationAnalyses:Youwillsubmitacopyof
thesummarystatistics,discountcashflowvaluationandrelativevaluationandappendittoawritten
reportnottoexceedfifteenpagessinglespaced.Thereportwillincludeadetaileddiscussionofthe
operatingdatawithananalysisoftheprofitabilityandliquidityofthecompanyandthecreditdatawithan
analysisofthecapitalstructureandsolvencyofthecompany.Thissectionofthereportshouldonly
containananalysisunderthedownsidescenarioasthegoalistoassessthecompanysabilitytogenerate
cashflowandmanageleverageinadifficultoperatingenvironment.Thereportwillalsocontainadetailed
discussionoftheequityvaluationdatawithananalysisoftheassumptionsembeddedintheDCF,the
equityvaluationattainedwiththeDCFversusthemultiplesandyouropinionontheappropriatevalueof
thestockpredicatedonyourqualitativeandquantitativeanalysis.Theequityvaluationsectionofthe
reportshouldonlycontainananalysisunderthescenariothatyoufeelismostlikelyforthecompany.
Finally,youwillemailtheprofessoryourprojectionmodelsothathemayconfirmitsstabilityandthat
thebalancesheetbalances.

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STERNPOLICIES
GeneralBehavior
TheSchoolexpectsthatstudentswillconductthemselveswithrespectandprofessionalismtowardfaculty,
students,andotherspresentinclassandwillfollowtheruleslaiddownbytheinstructorforclassroom
behavior.Studentswhofailtodosomaybeaskedtoleavetheclassroom.

CollaborationonGradedAssignments
Studentsmaynotworktogetherongradedassignmentunlesstheinstructorgivesexpresspermission.

CourseEvaluations
Courseevaluationsareimportanttousandtostudentswhocomeafteryou.Pleasecompletethem
thoughtfully.

ACADEMICINTEGRITY
IntegrityiscriticaltothelearningprocessandtoallthatwedohereatNYUStern.Asmembersofour
community,allstudentsagreetoabidebytheNYUSternStudentCodeofConduct,whichincludesa
commitmentto:
Exerciseintegrityinallaspectsofone'sacademicworkincluding,butnotlimitedto,thepreparationand
completionofexams,papersandallothercourserequirementsbynotengaginginanymethodormeans
thatprovidesanunfairadvantage.
Clearlyacknowledgetheworkandeffortsofotherswhensubmittingwrittenworkasonesown.Ideas,
data,directquotations(whichshouldbedesignatedwithquotationmarks),paraphrasing,creative
expression,oranyotherincorporationoftheworkofothersshouldbefullyreferenced.
Refrainfrombehavinginwaysthatknowinglysupport,assist,orinanywayattempttoenableanother
persontoengageinanyviolationoftheCodeofConduct.Oursupportalsoincludesreportinganyobserved
violationsofthisCodeofConductorotherSchoolandUniversitypoliciesthataredeemedtoadversely
affecttheNYUSterncommunity.
TheentireSternStudentCodeofConductappliestoallstudentsenrolledinSterncoursesandcanbefound
here:
UndergraduateCollege:http://www.stern.nyu.edu/uc/codeofconduct
GraduatePrograms:http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505
Tohelpensuretheintegrityofourlearningcommunity,proseassignmentsyousubmittoBlackboardwillbe
submittedtoTurnitin.TurnitinwillcompareyoursubmissiontoadatabaseofpriorsubmissionstoTurnitin,
currentandarchivedWebpages,periodicals,journals,andpublications.Additionally,yourdocumentwill
becomepartoftheTurnitindatabase.

RECORDINGOFCLASSES
Yourclassmayberecordedforeducationalpurposes

STUDENTSWITHDISABILITIES
Ifyouhaveaqualifieddisabilityandwillrequireacademicaccommodationofanykindduringthiscourse,
youmustnotifymeatthebeginningofthecourseandprovidealetterfromtheMosesCenterforStudents
withDisabilities(CSD,9984980,www.nyu.edu/csd)verifyingyourregistrationandoutliningthe
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accommodationstheyrecommend.IfyouwillneedtotakeanexamattheCSD,youmustsubmita
completedExamAccommodationsFormtothematleastoneweekpriortothescheduledexamtimetobe
guaranteedaccommodation.

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