business-haroun/mba/ch58.org

Section 11 | Lesson 58 - How to Build a Financial Model for a Public Company

• Links
• Notes
  • investor relations
  • model valuation
    • sources
    • publicly traded companies
      • investor relations website
      • sec.gov
        • other forms:
  • basics
    • rule
    • layering
    • result
      • revenue
      • operating expenses
      • below the line items
  • forecasting

Links

• TOC | Business
• S11:L58 course video

Notes

• how analysts

  • assess
  • get access to information
• goto sec.gov and find the 10k

investor relations

• help you understand their company
• anybody can talk to microsoft investor relations
• their job to help you
• small companies that are publicly traded might outsource it
• go to web site and find contact info

model valuation

sources

• sec.gov
• investor relations of the company

publicly traded companies

• you have the info and sources

  • first source is investor relations
  • e.g. search for 'microsoft investor relations'

investor relations website

• events
• past earnings releases

• earnings and financials

  • download an excel spreadsheet

sec.gov

• put in the ticker e.g. "MSFT" for Micrasoft

• download the 10-K

  • business of the company
  • risk factors
  • legal proceedings
  • etc

other forms:

• 8-K is press release
• S-1 all companies must file which tells you everything you need to know about the company

basics

rule

• everything is a % of revenue
• look for trends in the historical data
• make assumptions about future
• cash flow and earnings are effectively the same in the long run
• debt is only relevant if it's huge
• balance sheet, cash flow, irrelevant in the long run

layering

1. revenue

   1. cost of revenue
   2. gross profit (margin)

   3. add % of revenue to

      • cost of revenu
      • gross profit

2. operating expenses

   1. research and development
   2. sales and marketing
   3. general and administrative
   4. operating income (same as EBIT)
   5. add % of revenue to the above

3. below the bottom line

   1. taxes
   2. net income
   3. shares
   4. diluted shares

4. add YOY

   • revenue
   • research and development
   • sales and marketing
   • general and administrative
5. on taxes add % of EBIT

result

revenue

• revenue

  • % YOY

• cost of revenue

  • % of revenue

• gross profit

  • % of revenue

operating expenses

• research and development

  • % YOY
  • % of revenue

• sales and marketing

  • % YOY
  • % of revenue

• general and administrative

  • % YOY
  • % of revenue

• operating income (same as EBIT)

  • % of revenue

below the line items

• taxes

  • % of EBIT
• net income
• shares
• diluted earnings per share

forecasting

• add the years you want to the model
• then add columns for the projecting years with each column name having an 'e' for estimate after the year name. ie. FY2027e

• look for patterns

  • try to determine why revenue grew or contracted