Class notes 2

FINANCIAL MODELING

BUSI 584

Mustafa N. Gltekin

August 25, 2014

Overview of Financial Modeling & Preliminaries I Introduction to Capital Market Lab Resources

External Research Tools

Excel Basics

Wednesday:

Overview of Financial Modeling with Excel

Next Week:

September 3, Wednesday: Case Discussion O.M. Scott & Sons Company

See questions posted at the end of class notes

Readings

Survival Accounting for Financial Modeling (Income Statement, Balance Sheet, Cash Flow Statements)

Preparing & Using the Statement of Cash Flows

Solving the Puzzle of the Cash Flow Statements

Beware of Accounting Mine Fields

Financial Statement Analysis

Agenda

Financial Modeling Gltekin - 2

CAPITAL MARKETS LAB

https://home.kenan-

flagler.unc.edu/Resources/cml/Pages/default.aspx

Bloomberg

FactSet

PerTrack

Check the calendar for ongoing training sessions


Bloomberg Essentials Online Training

Program

What is Bloomberg Essentials Online Training Program?

Formerly known as Bloomberg University Certification Program, it is Bloombergs online school, teaching the basics of Bloomberg system and functionality. This is a self-paced program.

Where do I take my training?

At the Bloomberg terminals in the Capital Markets Lab (CML) on the 2nd (main) floor of the McColl Building at

Kenan-Flagler Business School; the terminals are

accessible anytime the CML is open. You cannot remote

into the Bloomberg terminal.


Bloomberg Training & Certification

How do I get started?

1. Create a personal username and password

At the Bloomberg terminal, hit the red CONN/DEFAULT key (upper right on keyboard) or UREG

Click on Create a New Login link

Complete the series of templates.

Bloomberg will request verification of the validation code that appears on the screen before you can proceed

further.

Each time you use Bloomberg to view a video/take an exam, you will need to log in using your personal

username/password; DO NOT USE THE KFBS

USERNAME/PASSWORD located on the terminals for

this purpose. Financial Modeling Gltekin - 5

Bloomberg Training

Where are the Bloomberg Essentials Videos/Exams located on the terminal?

Type BESS

What classes must I take?

You must take a minimum of 5 sessions in order to receive a Bloomberg Acknowledgement of Completion

(certificate)

Bloomberg 4 Core Videos

1. Getting Started

2. Bloomberg News

3. Market Monitors and Launchpad

4. API (Bloomberg Data in Excel) After viewing the 4 Core Videos you will automatically be enabled to take the Core

Exam. You only take 1 Exam for the 4 Core Videos


Bloomberg

Bloomberg Market Sector Videos (Chose 1)

Equity Essentials (recommended)

Fixed Income Essentials

FX Essentials

Commodity Essentials

You must view at least 1 Market Sector video and take the accompanying Exam

You can additionally view any or all of the other Market Sector videos; each has its own Exam which you must take

How long will it take to complete the program?

Each video runs approximately 30-40 minutes; combined with completing the exams, it takes approximately one 1

hour per video. Thus, four (4) Core Videos plus one (1)

Market Sector Video = 5 hours


Bloomberg

How do I take the exam after each video?

You will automatically be enabled to take the exam once you have viewed a video. If you coming back to the

terminal to take the exam, separate from viewing the

video, select BESS, and then select 10) View and

Take Exams

TIP: take advantage of the double screens to look up answers to the exam questions while taking the exam.

It is highly recommended that you take the exam immediately after completing the video rather than

waiting.

What is required to pass an exam?

You must make 75% or greater on each exam to pass.


Bloomberg

Can I retake an exam?

You can retake any exam one time.

How do I request my Acknowledgement of Completion (certificate)?

BESS , select 10 Request Your Acknowledgement of Completion. Fill out and submit the

detailed question page. Your acknowledgement should

be emailed to you within an hour. Bloomberg does not

send any paper/hardcopy acknowledgements. You will

print out this acknowledgement and submit to receive

credit in the course.


Getting Help

Questions?

HELP HELP click the green HELP key (upper left, keyboard) twice and chat live with Bloomberg Support.

Or, if you see someone in the CML that looks like they know what they are doing, ask them!.

Shortcut templates are posted on the CML web site


EXTERNAL RESEARCH

TOOLS


World Wide Web

FED

St. Louis Fed: FRED

Bureau of Labor and Statistics

FDIC

Central Banks

OECD

Economist Intelligence Reports

Seeking Alpha

If everything else fails Google!


External Research Tools http://extranet.kenan-

flagler.unc.edu/research/Pages/default.aspx


Research Tools - Investext

Investext is a product of Thomson One


Investext All Publicly Traded Companies


Investext Sell Side Reports


Other Sources

17

Buy and Hold

Berkshire Hathaway Shareholder Letters

The Little Book that Builds Wealth

Trading

The Gartman Letter

The Disciplined Trader

Fundamental

Capital IQ

FactSet

Morningstar

Technical

Elliot Wave

Investors Business Daily

StockCharts.com

Top Down

Briefing.com

The Economist

ETFConnect

Bottom Up

Barrons

Motley Fool

Value

The Intelligent Investor

Growth

A Bull in China (Jim Rogers)

The Little Book that Makes You Rich

Large Cap

Yahoo! Finance

Small Cap

Seeking Alpha

Domestic

CNBC

Wall Street Journal

International

Bloomberg

Financial Times

Diversification

Pioneering Portfolio Management

Select Sector SPDR Correlation Tracker

Concentration

When Genius Failed

Other

DealBook @ The New York Times

Mutual Fund Facts About Individual Stocks

Real Options: A Practitioners Guide

Wikinvest

EXCEL BASICS


Customize Excels Startup

Tell Excel Where to Look for Files in Shortcuts to Excel

Use switch /p Directory

Other Switches:

/e Starts Excel without creating a new Workbook

/i Start with a maximized window

/s Start Excel in safe mode

Shortcut key:

You dont have search for the icon on the Desktop.

Financial Modeling Gltekin -

19

Change Edit Options

Use Arrow keys to move instead of Enter key

Use Enter for entering and editing formulas

There are more efficient ways of

entering data

Select a range of cells & use tab key to move

to next cell etc.

Financial Modeling Gltekin

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Change Calculation Options

Keep it on Automatic unless you are editing a very large spreadsheet

Spreadsheets with Circular references must have Iteration on!

Accept labels in formulas NO!


21

Why Not Accept Labels in Formulas?

Natural language in formulas seem like an easy way to get around the

trouble of defining names

Formula =SUM(North) is the same as =SUM(B2:B5)

Formula =Quarter 2 South is the same as =C3

It is not always re-calculated when the data changes!

Two identical formulas known to return different results!


Check View Options

Comments:

Comment indicator

Objects:

Show all

Window options:

Zero values

Sheet tabs


23

Add-ins

Analysis ToolPak

Report Manager

Solver Add-in


24

Excel Short Cuts

Dont be a slave to a Mouse!

Shortcut = Efficiency!

Its worth your time to learn the keyboard shortcuts

A comprehensive list is posted on Blackboard

Financial Modeling Gltekin -

25

Shortcut Keys - Formatting

CTRL+1 Display the Format Cells dialog box

CTRL+B Apply or remove bold formatting

CTRL+I Apply or remove italic formatting

CTRL+U Apply or remove an underline

CTRL+SHIFT+& Apply the outline border

CTRL+SHIFT+_ Remove outline borders

CTRL+SHIFT+( Unhide rows

CTRL+9 Hide rows

CTRL+SHIFT+) Unhide columns

CTRL+0 Hide columns


Shortcut Keys Editing & Moving Around

F2 Edit the active cell and put the insertion point at the end of the line

CTRL+C Copy the selection

CTRL+X Cut the selection

CTRL+V Paste the selection

CTRL+Z Undo

CTRL+Y Redo

F4 Repeat

ALT+E+S+T Paste special formats

ALT+E+S+F Paste special formulas

SHIFT+SPACEBAR Highlight entire row

CTRL+SPACEBAR Highlight entire column

ALT+T+U Auditing Toolbar

CTRL+. (period) Move clockwise to the next corner of selection

F5 Go to

CTRL+[ Go to precedents


Shortcuts Entering Data

ALT+ENTER Start a new line in the same cell

CTRL+ENTER Fill the selected cell range with the current entry

SHIFT+ENTER Complete a cell entry and move up in the selection

TAB Complete a cell entry and move to the right in the selection

SHIFT+TAB Complete a cell entry and move to the left in the selection

CTRL+D Fill Down

CTRL+R Fill to the right

SHIFT+F2 Edit a cell comment

F4 or CTRL+Y Repeat the last action

F4 (in edit mode, F2) Anchor the cell

CTRL+F3 Define a name

CTRL+SHIFT+F3 Create names from row & column labels


Excel Formats Custom Formats

Custom format codes are arranged as:

Positive format; Negative format; Zero format; Text format

If you use only one section it applies to all values

If you use two sections, first one applies to positive values & zeros, second one applies to negative values

If you use three sections, first applies to positive, second to negative, and the third to zero values

If you use all four sections, the last section applies to text stored in the cell


Custom Number Formatting

Purpose: Allows for more creative, easier formatting

Access: Ctrl+1 (Format cells), Number tab, Custom

Create desired format in Type

4 essential aspects to know:

1. Semi-colon (;) separates positive, negative, zero, and text formats

2. Underscore (_), serves as a character spacing

Moves over by the following character

Example aligns the decimal for positive and negative percentage



3. Double semi-colon (;;) hides contents

Use to hide something for presentation purposes

Better than white font White font prints as BLACK when using Print Black & White

Be sure to include a comment to identify the text!



4. Can also enter letters or words following a number

Multiples

Basis points 0.0x

Example add a bps suffix


Excel Custom Formats - details

Custom formats can be augmented with condition or color codes, or both

[condition value][color]Positive format;

[condition value][color]Negative format;

[condition value][color]Zero format;

[color]Text format

Or

[condition value][COLOR n]Positive format;

[condition value][COLOR n]Negative format;

[condition value][COLOR n]Zero format;

[COLOR n]Text format

See Formats.xls for examples


Codes Used to Create Custom Number Formats Code Comments

General Displays the number in General Format

# Digit placeholder that displays only significant digits

0 Digit Placeholder that display insignificant zeros

? Digit placeholder that add spaces for insignificant zeros on either side of decimal point

. Decimal point

% Percentage

, Thousands separator

E- E+ e- e+ Scientific notation

$ - + / ( ) : space Displays this character

\ Displays the next character in the format

* Repeats the next character to fill the column width

_ (underscore) Leaves a space equal to the with of the next character

text Displays the text inside the double quotation marks

@ Text placeholder

[color] Displays the characters in the color specified: Black, Blue, Cyan, Green, Magenta, Red, White, Yellow

[COLOR n] Displays the corresponding color in the color palette where n=0,,56

[condition value] Enables you set your own criteria for each section of number format


Custom Number Formats Scaling Values Value Number Format Display

123456 #,###, 123

1234565 #,###, 1,235

499 #,###, (blank)

500 #,###, 1

123456 #,###.00, 123.46

499 #,###.00, .50

500 #,###.00, .50

546 0.00 5.46

1000000 #,###,,M 1M

5.5 #,000 6,000

154.87 0 and ??/100 Dollars 154 and 87/100 Dollars


Conditional Formatting

Enables applying cell formatting selectively and automatically based on the contents of the cells Useful identifying erroneous cell entries or certain types

By adding formulas you can perform amazing feats! 1. Select the cell or range

2. Choose Format > Conditional Formatting

3. In the drop-down box, select either Cell Value Is or Formula Is

4. Specify condition or enter a formula

5. Click the Format Button and specify the formatting to apply if the condition is TRUE

6. To add additional conditions (three max), click ADD and repeat steps 3 to 5.

7. Click OK

Now you have a dynamic formatting. Excel reevaluates new contents and applies or removes the formatting!


WEDNESDAY, SEPTEMBER 3:

O.M. SCOTT & COMPANY CASE

DISCUSSION


O.M. Scott & Company: Discussion Points

1. How has Scott Achieved its rapid growth from a local to a national company? What were the key factors in its success?

2. How big is the market?

3. Is Scotts strategy working? a) Profit margins in 1957 vs. 1961

b) Return on equity in 1957 and 1961

c) Current ratio in 1957 vs. 1961

d) Leverage in 1957 vs. 1961

4. What are Scotts goals and how can it meet those goals? 5. How did the trust receipt and seasonal dating programs fit into Scotts corporate

strategy?

6. What are Scotts sources and uses of funds between 1957 and 1961? 7. How has the price of Scotts stock moved in the market? Why is the stock price

so high relative to earnings and dividends?

8. How has Scott financed its growth over the last four years?

9. What are Scotts prospects for future years? In particular, what do you expect Scotts sales and earnings to be for the next three years?

10. Can Scott meet the restrictions in its debt covenants for 1961?

11. Can Scott meet its restrictions of debt covenants for 1962?


Assignment 1: Complete the following two tables:

Sources & Uses of Funds (19571961)

Sources Uses

A/P Cash

Accrued Int. A/R

Sinking Fund Inventory

LTD Fixed Assets

Capital Stock Other

Investments Notes Payable


Key Indicators Year-ending 30 September 1957 1958 1959 1960 1961

Return on Sales (ROS=NI/Sales)

Total Asset Turnover (=Sales/Total Assets)

Return on Assets (ROA=NI/TA)

Leverage (=Total Assets/ Net Worth)

ROE (common equity only)

Equity Working Capital (EWC = CA CL LTD)

Total Debt Limit (TDL= 3 x EWC)

Total Debt (TD=Long Term Debt + Notes Payable)

Total Debt Capacity (TDC=TDLTD)

Subordinated Debt Limit (SDL= .6 x TDL)

Subordinated Debt (SD)

Subordinated Debt Capacity (SDC=SDL SD)

Fixed Charge Coverage (=EBT/(Interest + Leases)

Contribution Margin (=1-[CGS+Leases]/Sales

PBT Break Even Sales

F.C. Coverage Sales

Cash Flow from Operations

Cumulative Cash Flow


Documents

Class notes 2