Financial Modeling & Valuation is a dream profile for any finance professional, especially as a fresher. It opens gates to higher visibility in the organisation as well as broadens your mental horizons. This is because unlike a traditional Accounting & MIS profile, here, each each day is different. Every day you are working on a unique transaction, unique complexities and unique demands for internal/external stakeholders.
- So maybe, as a buy-side analyst, you are working on the first-cut valuation estimate for a unicorn startup,
- Maybe as a Cost Analyst, you are working on a 2 billion dollar road construction tender floated by NHAI
- Maybe as an Investment Banker, you are advising your client on how much is the likely cash inflow from sale of their segment
There are standard templates for Free Cash Flow and WACC computation, but there is so much ambiguity.
a) How should you determine the Risk Free Rate? What should be Market Risk Premium ? Will there be a
b) Which comparable to take for Asset Beta?
c) What should be the revenue growth assumed?
d) How to factor in risk in variability of cash flows due to macro-economic factors?
e) How to depict the full stack of Sensitivities in Revenue and Cost
Thus, needless to say, the stakes are high, super high. The entire organisational pyramid is involved. You are not someone who is working in a corner and making 35 payments in a day and feeling smug about the act. Here , in financial modeling, your neck is always on the line.
And deadlines are always in the ASAP zone.
- The Non Binding Bid has to be submitted tomorrow.
- The Reverse/Forward Auction is scheduled next Tuesday
- The CFO has to present the transaction to the Board today evening
The deliverables are due for submission ever before the boss told them that you are supposed to work on them, And the client mandate came today but the work should have been completed yesterday, So you are under tremendous pressure. In the private sector, you cant say No to bosses. They also know that timelines are super challenging. But they cant admit it because they are answerable to their bosses. Super tough is when the boss is the owner of the firm and not just an employee like you. The stakes become all the more higher for him/her.
And in such scenarios, mistakes happen :(
Financial Modeling in Excel, by its very design is so susceptible to mistakes. There are 2 dozen sheets inter-linked, there are numerous data tables that are populated, there are links to external files and so many Nested IF THEN statements, So each of them is a potential source of mistake . And then aspects like someone forgetting to Save a file before shooting the mail . A single transposed digit can change everything. You
So why do so many managers expect perfection? Didnt they undergo the same grind in their formative years. They will always have unrealistic expectations. Mistakes are criminal and you are deemed to be unfit for this cream profile.
Fortunately for me, all my managers,except one i encountered early on in my career, have always factored in the human element and allowed me to grow with each mistake and maybe improve the processes to make them more robust and error free. Maybe they allow you to have Maker Checker processes in place. That's how you fail forward
So remember there will be bosses who would be discouraging mistakes and boxing you in the face, maybe in front of your team mates. Its your ill-fortune that you got this 'heads will roll' boss. Just accept it. If you can adjust ok. Else just move on. Life cant stop because unrealistic hopes
Mistakes will happen in financial models. Its a professional hazard. And maybe bosses will shout, scream and fire. Don't blame me for not warning you in advance. :)
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