Video introduction as suggested by the Stern School
Various management disciplines teach you how to analyze and forecast
parts of a business. Building on this foundation, this course will
help you weave your forecasts into coherent spreadsheet-based pro-forma
financials. Modeling and projecting comprehensive financial statements
provides a reality check on the forecasts, enables "what if"
analysis, provides an integrated view of the business, and is a
key step in valuation.
The course will start from conceptual examples that illustrate the key intuition
and explain linkages between financial statements. It will then build on these
examples to forecast the financial statements of real companies.
This course is highly relevant to if you are pursuing any career
that requires you to understand or build models. Examples of such careers are investment banking, private equity, buy-side or sell-side research, credit research, corporate finance, and valuation. First year and second year students can both take this course. Those who took it in their first year have told me that this course gave them a significant competitive edge during their interviews and summer internships.
If you are in the Langone section, please make sure that you can attend the last class because there will be a final exam in the last class. The exam cannot be rescheduled.
All classes are videotaped and the videos are posted online in NYU Classes. If you don't see a video there, please contact Stern IT. Please do not contact me or the TAs.
Please do not contact me with systems issues such as registration, access to NYU classes, or not receiving email from the waitlist even if someone in Stern IT tells you to do so. It is their (and registrar's office) job to fix these issues. There is nothing I can do if you don't have access to NYU Classes or the mailing list. Even your access to dgode.stern.nyu.edu is not controlled by me. It is linked to whatever Stern has entered in the class roster. I cannot override it.
During last year (2013), I have noticed that students without the requisite background or temperament have taken the course and therefore not enjoyed it. It is imperative that I clarify the objectives and requirements of the modeling course so that there is a good fit. The modeling course assumes that you have had a very rigorous accounting course and a corporate finance course. It also requires that you are quite familiar with Excel and can think quantitatively. Developing models is financial programming, not everyone needs to develop models, and not everyone has the mindset or inclination to develop models.
Consider taking modeling course after you have the requisite background. Stern School does not like it if we force students to meet bureaucratic requirements because some students may have picked up the necessary skills in a prior job without taking a formal course. If you do not have the requisite background or inclination, you will face a very steep hill in the modeling course, and will most likely be overwhelmed. I take no responsibility for teaching/reviewing material that you should have learned in other courses or your job. You are welcome to take the course, but are then required to work on your own on background readings.
Models require forecasting cash flows based on forecasts of income statements and balance sheet. Modeling also requires you to understand intuitively the connections between financial statements. You should be very good at linking financial statements and deriving cash flows based on your core class. If for some reason, you did not learn accounting well, you will really struggle in modeling. I recommend you review your core materials regarding cash flows. If you find them difficult, I strongly recommend that you take an accounting class such as Financial Statement Analysis or Financial Reporting and Disclosure before taking the modeling class.
Modeling is not a remedial accounting class; it presumes very good accounting knowledge. Modeling is also not a short cut to learning corporate finance. If you have the requisite background, you will enjoy the modeling course. Otherwise, it can be a painful experience.
You need to be able to devote 6-8 hours every week to do the required assignments.
You need to bring a laptop to every class with sufficient battery power to last three hours. If you have any technical questions, please contact the IT department (212-998-0180), NOT me.
I will be using Excel 2010. Any version from Excel 2003 to 2013 should work for you. Excel on Mac is painful and serious modelers stay away from it. I use a MAC but I run Windows on it via Parallels. It works well. I will NOT be pointing out how to do replicate Excel Windows on Excel Mac.
Make sure that you can connect your laptop to the Stern wireless network.
I use my own materials. There is no required textbook. Because of copyright and contractual restrictions, these handouts are distributed only on paper. Electronic copies are not available.
There are five separate handouts that will be distributed on the first day of class. There will be no other handouts during the course. These handouts cover the following topics:
1. Designing models and Excel tips
Diversity of student backgrounds and differences in how instructors teach the prior accounting and finance courses requires that I cover some material relating to accounting, valuation, and analytical terms as described below. This material is weaved in with related modeling topics.
4. Valuation: A short handout describing the DCF model.
5. Analytical terms and definitions: Enterprise versus financial activities, Enterprise cash flows
If you are going to miss the first class, ask a colleague to pick up the handouts for you. It is difficult for me to carry these back and forth.
There are no extra copies. If you lose your copy, you will have to make copies from your friends' handouts.
The assignments count towards 20% of your grade. Doing them carefully will prepare you well for the final.
The assignments appear as tests on Almaris. I may update the deadlines as the course progresses. The deadlines shown at Almaris are the correct deadlines.
Some assignments are short, others are long. Please manage your time.
NO EXTENSIONS will be granted for any reason except medical or family emergencies. If you have religious or personal conflicts, submit the assignments early. The related materials are covered well in advance of the assignments. Please do not email me to request extensions unless you have a medical or family emergency.
You can learn concepts from others, but you must work on the actual
assignment alone. You may be called upon in class to explain your answer to the assignments.
All assignments are mandatory. After the first day of class, you can view the on-line assignments at http://www.almaris.com/assess/ using your official Stern email (no aliases) and most recent password emailed to you by Almaris. The Almaris password is different from the Stern password. To retrieve the password, use your Stern email id as it appears in the registrar's records.
Assignments are marked "late" if you do not meet or exceed the passing score described below before the deadline. There is no additional penalty for lateness other than the low score.
Assignments have a "passing score" of either 100% or less than 100%.
I set the passing score at 100% if I believe that you should be able to ace the assignment. In reality, there is no passing grade. Whatever you get on your last attempt is your final score. That is, you are graded on accuracy but not the number of attempts. If you are allowed five attempts, and you use them, then your score on the fifth attempt is your final score for the assignment. There is a difference between "passing" and getting full credit. If you get 70/100 on your fifth attempt, you "pass" but you don't score a 100.
On a few assignments, I set the passing score to be less than 100% if I believe that you may not be able to get every question right. Any score above that score is rounded up to 100%. For example, if the passing score is set at 90%, and you get 93%, then your score is rounded up to 100%. I do the rounding up in a separate spreadsheet. You will see only the raw score on line.
Almaris is not affiliated with Stern in any way. It is offering these tests to Stern at no charge to Stern.
Almaris staff is not authorized to extend deadlines under any circumstances. Only my TAs can do that. Almaris staff will reply to your emails only if they pertain to technical issues with the Almaris system. You should contact Stern IT for technical issues with your network.
If you have a qualified disability and will require academic accommodation during this course, please contact me directly. I will arrange a separate room/time for you.
The grades will be based on the assignments (20%), final exam (40%), and project (40%). It is not necessary for you to get a full score on the assignments; any score above 80% is considered a passing score. The final exam will not be rescheduled for any reasons except medical or family emergencies. Work commitments will not be a valid reason for rescheduling.
Your exam will constitute of one or more spreadsheets. Your score on each spreadsheet will be max(attempt1, attempt2 - 7, attempt3 - 14, attempt4 - 21, attempt5 - 28).
In case you are unable to complete a spreadsheet or are unable to debug it, and want us to manually grade your spreadsheet, you must submit the spreadsheet online (NO EMAILS) at NYU Classes (look for File Drop in the left hand menu bar) within FIVE MINUTES of the end of the exam. If you submit a spreadsheet for manual grading, your maximum score on that spreadsheet can only be 72/100. This is because someone else who takes five attempts to ace the spreadsheet will get only 72/100 because of the penalty for multiple attempts. Thus, if you submit the spreadsheet for manual grading, you would be considered to have used up your five attempts.
Important computer tips for the final
DO NOT WORK ON A SPREADSHEET WITHIN A BROWSER. Save the spreadsheet to your desktop, work on it, and save it periodically. If you work on a spreadsheet in a browser and then navigate away from a page, ALL YOUR WORK WILL BE LOST.
Restart your laptop before the exam. This will close all other applications besides the browser and Excel and greatly minimize chances of computer problems.
Bring an external mouse with a scroll wheel. It does speed up test taking. I have been using computer-based exams for seven years. I am always amazed at how much time students waste trying to use the track pad or the internal mouse.
Maximize screen space by hiding the ribbon at the top of the Excel and menus at the top of your browsers. The more of the screen you see, the faster and more accurate you are.
Bring a laptop with as big a screen as possible.
Organize your computer files and designate a directory where you will be saving your exam files.
There is no midterm. There will be no in-class graded quizzes.
As per Stern rules, the FINAL EXAM for the EVENING CLASS is during the last class. For day classes, check your course page on NYU Classes.
A detailed document listing the sequence of topics, related pages from the materials, related spreadsheets, and related assignments is provided in the course materials. The outline below is a brief summary.
Deriving cash flows, enterprise or unlevered cash flows
Building blocks of models; Linking cash flow forecasts to value
Designing models, Customers; Suppliers, employees, and other expenses
Multiperiod models: Long-term accruals and deferrals
Excel tools for scenario analysis; Capacity: PP&E and depreciation
Modeling financing, Time value of money and bonds
Which cash flows should one discount, Integrated models, Prioritizing assumptions in models; sensitivity analysis