Description
Preface xvii Acknowledgments xxiii PART I FINANCIAL MODELING STRUCTURE AND DESIGN: STRUCTURE AND MECHANICS OF DEVELOPING FINANCIAL MODELS FOR CORPORATE FINANCE AND PROJECT FINANCE ANALYSIS CHAPTER 1 Financial Modeling and Valuation Nightmares: Problems That Financial Models Cannot Solve 3 CHAPTER 2 Becoming a Black Belt Modeler 9 CHAPTER 3 General Model Objectives of Structuring Transactions, Risk Analysis, and Valuation 13 CHAPTER 4 The Structure of Alternative Financial Models 17 CHAPTER 5 Avoiding Bad Programming Practices and Creating Effective Auditing Processes 41 CHAPTER 6 Developing and Efficiently Organizing Assumptions 55 CHAPTER 7 Structuring Time Lines 67 CHAPTER 8 Projecting Revenues, Expenses, and Capital Expenditures to Derive Pretax Cash Flow 85 CHAPTER 9 Moving from Pretax Cash Flow to After-Tax Free Cash Flow 91 CHAPTER 10 Adding Debt to a Corporate or Project Finance Model by Programming Cash Flow Waterfalls 113 CHAPTER 11 Alternative Calculations of Equity Distributions 131 CHAPTER 12 Putting Together Financial Statements and Calculating Income Taxes 139 PART II ANALYZING RISKS WITH FINANCIAL MODELS: SENSITIVITY ANALYSIS, SCENARIO ANALYSIS, BREAK-EVEN ANALYSIS, TIME SERIES, AND MONTE CARLO SIMULATION CHAPTER 13 Risk Assessment: The Centerpiece of All Valuation, Contracting, and Credit Issues in Finance 149 CHAPTER 14 Defining, Describing, and Assessing Risk in a Risk Allocation Matrix 159 CHAPTER 15 Presentation of Risk Analysis through Adding Sensitivity Analysis to Financial Models 165 CHAPTER 16 Using Financial Models to Establish Break-Even Points for Key Input Variables with Data Tables 185 CHAPTER 17 Constructing Flexible Scenario Analysis for Risk Assessment 207 CHAPTER 18 Generating Tornado Diagrams, Spider Charts, and Waterfall Graphs 231 CHAPTER 19 Adding Probabilistic Risk Analysis and Time Series Equations to Financial Models 253 CHAPTER 20 Taking the Mystery out of Applying Time Series Analysis and Monte Carlo Simulation in Financial Models 263 CHAPTER 21 Constructing Probability Distributions with Trends, Mean Reversion, Price Boundaries, and Correlations among Variables 277 CHAPTER 22 The Difficult Problem of Estimating Volatility, Mean Reversion, Time Trends, Correlations, and Price Boundaries from Historical Data or Market Data 295 PART III ADVANCED CORPORATE MODELING: MODELING TERMINAL VALUE WITH STABLE RATIOS IN THE DISCOUNTED CASH FLOW MODEL, DERIVING IMPLIED MULTIPLES, AND COMPUTING THE BRIDGE BETWEEN EQUITY VALUE AND ENTERPRISE VALUE CHAPTER 23 Overview of Issues When Computing Normalized Cash Flow and Terminal Value 307 CHAPTER 24 Computing the Return on Invested Capital for Historical and Projected Periods in Corporate Models 313 CHAPTER 25 Calculation of Invested Capital 321 CHAPTER 26 Complex Items in Balance Sheet Analysis: Deferred Taxes, Operating Cash, and Derivative Assets 337 CHAPTER 27 Four General Terminal Value Methods 347 CHAPTER 28 Terminal Value and Philosophy: Company Growth Rates and Overall Economic Growth 357 CHAPTER 29 Normalizing Terminal Year Cash Flows for Stable Working Capital Investment 369 CHAPTER 30 Relationship of Growth, Capital Expenditures, Depreciation, and Return on Investment 377 CHAPTER 31 Computing Normalized Deferred Tax Changes 399 CHAPTER 32 Terminal Value and the Ability of a Company to Earn Returns above the Cost of Capital 407 CHAPTER 33 Errors and Distortions in Applying the Value Driver Formula 415 CHAPTER 34 Computing Implied Price/Earnings Ratios for Use in Terminal Value Calculations 435 CHAPTER 35 Computing an Implied EV/EBITDA Ratio in Terminal Value Calculations 445 CHAPTER 36 Developing Value Drivers for P/E and EV/EBITDA Ratios with Benchmarking and Regression 453 PART IV COMPLEX ISSUES: CIRCULAR REFERENCES AND OTHER COMPLEX ISSUES FROM FINANCIAL STRUCTURING IN PROJECT FINANCE AND CORPORATE FINANCE MODELS CHAPTER 37 Resolving Circular References in Acquisition Models: Computing Interest Expense on the Average Balance of Debt 465 CHAPTER 38 Creating a Structured Cash Flow Process in a Corporate Model to Resolve Circular References 483 CHAPTER 39 Overview of Complex Project Finance Modeling Structuring Issues 491 CHAPTER 40 Funding Techniques in Project Finance and the Associated Circular Reference Problems 497 CHAPTER 41 Debt Sculpting in a Project Finance Model 515 CHAPTER 42 Automating the Goal Seek Process for Annuity and Equal Installment Repayments 539 CHAPTER 43 Modeling Debt Service Reserve Accounts 547 CHAPTER 44 Modeling Maintenance Reserve Accounts 555 CHAPTER 45 Refinancing and Valuing a Project Given Risk Changes over the Life of a Project 563 CHAPTER 46 Covenants and Cash Flow Sweeps in Project Finance Models 571 CHAPTER 47 Asset Portfolios, Progress Payments, and Lease Rolls in Real Estate Models 577 About the Author 589 About the Website 591 Index 593
