Financial Modeling Case Study With Questions And Answers

Financial Modeling Case Study with Questions and Answers As per the quote of the billionaire investor Warren Buffet "In the business world, the rearview mirror is always clearer than the windshield" perfectly reflects the purpose of the financial models and their case studies. Economic models with the help of historical information on companies help in analyzing the company performance on the relevant parameters. This analysis is used as an input to build future financial models. These economic models help in explaining the company's future financial performance and also give an estimate of the valuation of the company.

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Finance modeling case study for jobs in the financial world:

In the Interviews for employment in the financial world, case studies and modeling tests have become prominent. Mastering case studies and financial modeling is pertinent for any professional to get the ultimate job. Financial modeling is building a model of a real-world financial situation. This is the task of developing an abstract representation of the mathematical model in a simplified version to represent the performance of the financial asset or any investment.

Few financial modeling case studies with questions and answers that could help in interviews:

Financial modeling generally implies financial statement forecasting. It is usually for a specific company used for its economic analysis and decision-making. Some basic facts about the financial modeling case studies will help in getting the offers rather than never hearing back from the companies for which interviews are attended. These are only the fundamental details of financial models and their case studies. Some simple financial modeling includes:

  1. What is the asset valuation of a company?

The assets of the company could be in the form of stocks, business enterprises, and intangible assets like patents and trademarks. It also could be on the liabilities of the company including the bonds issued by the company. Valuations are the basis for investment analysis, capital budgeting, financial reporting, and for acquisitions and mergers.

  1. What is capital budgeting?

Capital budgeting or investment appraisal is the process used to determine whether a company's long-term investments are worth the funding of cash through the firm's capitalization. The primary goal of capital budgeting is to increase the value of the firm's shareholders.

  1. What are the applications of financial modeling?

There are six financial models.

  • Investment banking.
  • Equity research.
  • Credit ranking.
  • Project finance.
  • Mergers & acquisitions.
  • Corporate finance.
  1. What are the applications of non-financial modeling?

There are five non-financial models:

  • Critical thinking and analytical skills.
  • Business plan preparation.
  • Excel proficiency.
  • Decision making.
  • Theory to practice.
  1. What are the fundamental statement models?

There are three basic statement models to understand financial performance.

  • Income statement.
  • Balance sheet.
  • Cash flow statement.
  1. What is a credit score?

The weighted average of the financial risk score, management risk score, business risk score, and industry risk score is the total credit score of a company.

What is CCA?

CCA is the comparable company analysis which determines a set of similar companies. It uses different types of financial ratios such as PE multiplies or price-earnings multiples, EV/EBIDTA, P/B ratio or price to book value and many more.

  1. What is the DCF model?

DCF or the discounted cash flow model is the valuation analysis model used to project future cash flow to assess a company's value.

  1. What is the LBO model and what are its purposes?

LBO or the leveraged buyout model takes into account significant debt financing.

There are three purposes of the LBO model. They are:

  • Balance sheet adjustment for debt-heavy capital structure.
  • To arrive at an acceptable IRR or the internal rate of return.
  • Exit value based on EV/EBITDA multiple.
  1. What is EV value?

Debt in the form of financial commitments less any net debt or cash without debt is the EV value of a company.

  1. What is EBITDA?

EBITDA or earnings before tax, depreciation, and amortization is the method to evaluate the company's performance without having to the fact in financing decisions, accounting decisions, and tax environments. It is only the measure of a company's operating performance.

  1. What is the M&A model of financial case studies?

The M&A model is used for mergers and acquisitions. When two companies decide to merge for possible higher market share, diversification, and possible synergy or to acquire another company this model would be suggested for determining the accretion or dilution.

The above financial modeling case study with questions and answers will help in getting through any interviews or attaining financial modeling certification.

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