Templates: 7 Steps for Modeling, Financial Statement Creation and Valuation, which we will cover in Sections 39 through 52 as part

of our Shark Virtual Reality Client Case Studies. What We Will Case Studies
Learn in Other on Our Client:
1: Modeling Best Practices 2: Revenue Forecast 3: Income Statement 4: Balance Sheet 5: Cash Flow Statement 6: DCF Valuation 7: Other Valuations Excel Exercises Shark Virtual Reality

View Tips: For more space on your screen, please minimize the ribbon by clicking on the "^" on the top right-hand corner of your screen or zoom out using the view controls on
Click to Watch a Video on How to Navigate Step 1 the bottom-right hand corner of your screen.

3 "Simple" Instructions
1: Welcome to Financial Modeling and Valuation Step 1 of 7! All you need to do in Steps 2-7 is change the blue fonts (Steps 2-7 are on the 6
tabs to the right of this one)! You can use this document to create your models and also for the case studies later in the course.

2: Ater reading the Important Notes and the 25 Modeling & Valuation Best Practices below, please go to Step 2 on the next tab (or click the
Revenue Forecast button at the top.

3: Please play around with this model by entering data in the blue cells and by looking to see what the formulas are and how the 6 sheets
(Steps 2 - 7) are linked together etc. If you delete cells by accident, then please just download this document from the course again.

Important Notes
Every model for every company is different - particularly when it comes to calculating revenue (every model has a different revenue driver).

Not all companies provide the same amount of data.

In general, please see the earnings press release, investor relations website and financial filings (i.e., www.sev.gov) to see what the firm you are analyzing discloses (all models are different).

The model in this spreadsheet has 2 revenue line items. Some companies provide 1, 2, 3 or more line items (which is one reasons why models can be quite different for different companies.

25 Modeling &
Valuation Best Practices:

1: Modeling is easier than you think and a lot of fun, if you remember 2 key items: 1: Most items you model are simply a % of revenue!

2: The second key item to remember is that modeling is all about looking for patterns and then projecting those patterns into the future.

3: Publicly traded companies are often quite large and, as a result, although growth is positive, growth is usually decelerating.

4: If growth is not decelerating for a large publicly traded company, then it might be because they made a sizeable acquisition.

5: When a big company sees a significant decrease in the rate of change of revenue growth, they usually focus on increasing margins (growth investors sell and value
investors buy).

6: Use your own common sense and build the model yourself before speaking with the company about your estimates (they can sell!).

7: If a company has a lot of cash, they either make acquisitions or they buy back shares. Look for patterns in the share count.

8: Forecasting taxes is tough. Find out from the 10-k or 10-q what the N.O.L.s (net operating losses) are and after you exhaust them, ask IR for guidance.

9: Items that you hard code (meaning anything that is in your model that is not a calculation) should be in a blue font. Please only type in the blue fonts that you see in this
spreadsheet. For example, in this image, only type on the blue fonts that are circled in red:

10: Cells that contain data from other tabs in your spreadsheet should be in a green font.

11: Always use at least 3 valuation methodologies to come up with your target price. Then take an average of all 3. DCF is the least accurate valuation methodology as there
are many many many independent variables with DCF (I prefer P/E as my top valuation methodology).

12: Create a sensitivity analysis to see how your target price changes with different growth and discount rate amounts (for an example, please see the bottom of the tab called:
"Step 6 DCF Valuation".

13: Create bearish, neutral ("just right") and bullish scenarios too if you are highly unsure what the economic environment will be like (for an example, please see the tab called:
"Step 7 Compare Valuations."

14: If you work in teams (as you do often on the sell side or in investment banking), then please add many comments (with your initials).

15: If you feel overwhelmed with the complexity of a model, build it slowly and "group" items.

16: Modeling can often be as much of a science as an art. Accept the fact that your estimates will never be 100% correct.

17: Listen to earnings calls, read IR's press releases and all 10-q, 10-k, 8-k and S1 filings and reflect those calls/documents in your model.

18: Creating a model takes time. When I think I am done with my model, I sleep on it and then I do 1 final review the next morning.

19: Understand who your customer is. If it's a hedge fund, then they likely don't like DCF. If it's a value PM at a mutual fund, they may, etc.

20: Know what the size the Total Addressable Market (T.A.M.) is and use it as a sanity check to see if your estimates seem realistic.

21: Add all supplemental data provided by IR in your models (at the bottom of the model if you don't know where to put it).

22: Percent items should be italicized...in fact spend a lot of time "prettying up" your model. It makes sure your attention to detail is high.

23: Name your rows and columns so you can use natural language math like: "Net Income / revenue" instead of cell X3 / T8 (for example):

24: Feel comfortable with $A$1 to lock in cell references, $A1 row only references and A$1 column only references (huge time saver).

Next Step: Please click on the tab called Step 2 Revenue Forecast (or use the buttons at the top). Please remember to only change blue shaded text. Thanks