CAN YOU READ A MODEL?
Reading and communicating with a financial model in Excel is one of the most powerful finance skills today. The skill of reading, changing, and communicating in Excel is sought-after in a wide variety of finance applications from large consulting firms where it is used for say corporate strategic planning and budgeting; to investment banking where can be used in equity research, venture capital, and mergers and acquisitions.
Typically in these roles financial models are not created from scratch. They have been developed over many years within a group and are passed between colleagues who work on varying components of the project. Colleagues need to be able to understand, analyse and develop Insights into their project for themselves or their clients.
With this in mind we have prepared a link to publically available Web Sites with Free Models where we extracted some of the images below. Click on these images to see more details and then at the end of this article take a look at some of these models and ask yourself 'Can You Read a Model?'.
With RitchViewer reading, performing analysis, extracting insights, contributing, and communicating just got easier.
When starting out as an equity research analyst in an investment bank you will be dealing with existing financial models. Typically the format of the model is quarterly and annual data that matches the companies reporting requirements. The header of the model may look like the following. You will note the use of Quarterly and Annual data along with 'hidden' columns prior to 2012 and for quarters not in the current focus.
When you click on a cell, RitchViewer Finance Pack Smart Dates technology automatically separates the Annual data from the Quarterly data. It also colour codes historic versus forecast data. With a downward sweep of the mouse you can reveal the quarterly data by itself, or as per the right image the annual and quarterly data together. Note in this chart you are also seeing data from columns that are Hidden. The financial model above only shows full years starting at 2012 and the quarters for 2015, but RitchViewer can simply be manipulated to reveal both the Hidden and the Quarterly data and hence is showing all data between 2010 and 2019.
You might have also noticed that the RitchViewer Smart Charts also interpreted the label of Sales and is presenting Sales Growth as a line chart.
As we keep walking our cursor down the model, RitchViewer Smart Charts is both displaying the raw data, in this case "Adjusted EBITDA", and it is showing the proportion of this EBITDA against Sales, namely the EBITDA Margin. The owner of this model has supplied Row 51 to highlight this Margin, and so as we walk down to that row RitchViewer Smart Charts knows that as an analyst we would want to see the change in average Historic Margin against the Analysts' forecast. Because we are using RitchViewer, we could have equally stayed on Row 50 ("Adjusted EBITDA") and swiped our mouse sideways across the chart and obtained the same result; note the third chart has the header of "Adjusted EBITDA/Total Revenue" as per the right-axis of the first chart.
As per these examples, with RitchViewer Finance Pack you can quickly move through a financial model and explore relationships. For example, if this had been a Balance Sheet, then the third-chart would be any row of data against Total Assets.
PathFinder
The last product we are going to look at is PathFinder. PathFinder allows you to not only walk down a formula, but also to see each data point in context of its surrounding data points; You not only see the formula breakdown, but you see how each part of the formula relates to its surrounding values. In the example below, we had double-clicked the 2018 "Adjusted EBITDA" column. As we drilled down this formula in PathFinder, RitchViewer shows that data point in the context of its surrounding data; see the RitchViewer chart showing the full row of "Total Expenses".
There are many more features in RitchViewer and you can look at them here.
So the answer to 'Can You Read a Model?' depends on whether you want to use RitchViewer, or go it alone.
Watch the videos and see how skilled you will become at reading models using RitchViewer.