Financial Modelling in Practice : A Concise Guide for Intermediate and Advanced Level

by Michael Rees (Independent Consultant )

• ISBN13: 9780470740552
• ISBN10: 0470740558
• Format: eBook
• Copyright: 2010-03-01
• Publisher: Wiley

Summary

Financial Modelling in Practice: A Concise Guide for Intermediate and Advanced Level is a practical, comprehensive and in-depth guide to financial modelling designed to cover the modelling issues that are relevant to facilitate the construction of robust and readily understandable models.Based on the authors extensive experience of building models in business and finance, and of training others how to do so this book starts with a review of Excel functions that are generally most relevant for building intermediate and advanced level models (such as Lookup functions, database and statistical functions and so on). It then discusses the principles involved in designing, structuring and building relevant, accurate and readily understandable models (including the use of sensitivity analysis techniques) before covering key application areas, such as the modelling of financial statements, of cash flow valuation, risk analysis, options and real options. Finally, the topic of financial modelling using VBA is treated. Practical examples are used throughout and model examples are included in the attached CD-ROM.Aimed at intermediate and advanced level modellers in Excel who wish to extend and consolidate their knowledge, this book is focused, practical, and application-driven, facilitating knowledge to build or audit a much wider range of financial models.

Table of Contents

Background, Objectives and Approach

About the Author

Acknowledgements

Building Blocks: Selected Excel Functions and Tools

Core Functions for Financial Modelling

Arithmetic Operations

Logical Operations

Financial Calculations

Database Functions, Features and Pivot Tables

Statistical Functions

Lookup and Reference Functions

Text Functions

Information Functions

Array Functions, Formulae and Matrix Calculations

GoalSeek and Solver

The Analysis ToolPak and Other Add-ins

Selected Excel Short-cuts

Principles of Modelling

What is a Good Model?

Model Design

Selection of Model Variables and their Dependencies

Level of Detail or Aggregation

Model Structure and Planning

Logical Flow

Compactness

Named Ranges

Circular References

Model Building

Formatting and Comments

Creating Robust Formulae

Results Presentation and Other Uses of Sensitivity Analysis

General Remarks on Presentation

Using Data Tables to Conduct Sensitivity Analysis

Hiding and Protecting Models

Model Auditing

Financial Statement, Cash Flow and Valuation Modelling

Financial Statement Modelling: Core Points and Example

General Comments

Income Statement Forecasting

Balance Sheet Forecasting

Cash Flow Statement Forecasting

Error Checks and Feasibility Checks

General Error Checking Tools

Feasibility Checking and Ratio Analysis

Adding Generality

Cash Flow Valuation

Calculation of Free Cash Flow

Discounting Free Cash Flow

Terminal Value Calculations

Further Adjustments

Sensitivity Analysis

Risk Modelling

Benefits and Challenges of Risk Modelling

The Risk Modelling Process

An Introduction to Simulation Techniques

The Language of Probability Distributions

Quick Guide to using @RISK

Types of Dependency Relationships in Risk Models

The Selection and Use of Distributions

Pragmatic Approaches and Distributions

Data-Driven Approaches and Distributions

Scientific Approaches and Distributions: The Basics

Further Aspects of the Science of Distributions

Further Example Models

Introduction to Options and Real Options Modelling

Financial Market Derivatives: An Introduction

Real Options Modelling

Uses and Relationships to Other Types of Analysis

Examples using Simulation

Examples using Trees

VBA for Financial Modelling

Introduction

The Bare Essentials

Simple Examples

Building Blocks

Working with Ranges

Writing Robust Code

Further Topics

Object Orientation: An Introduction

Controlling Execution and Related Topics

Working with Functions

Checking and Debugging Code

Examples: Recording Macros and Related Topics

Introduction

Using GoalSeek and Solver

Examples: Simulation Modelling

Introduction

Examples: User-defined Functions

Creating Functions

Examples

Structure and Organisation: Further Topics

Further reading

Index

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