This is a financial modeling course where we will learn how to build a full-blown 3-statement operating model. Previously, we learned about the different line items on the Income Statement, Cash Flow Statement and Balance Sheet as well as how they’re interconnected to one another. This course builds on top of that knowledge and shows how to integrate the three financial statements in Excel. We’ll learn how to project many different line items that we didn’t learn before, such as PP&E, Goodwill, Retained Earnings, Treasury Stock, AOIC, etc.

Key Takeaways:

• How to link the three financial statements
• How to build Working Capital Schedule
• How to balance the Balance Sheet

Balance sheet is one of the 3 major financial statements. It shows what the company owns and what it owes. We’ll start by learning about the purpose and accounting principles behind the balance sheet, how it’s organized, the common items that appear for most public companies, and then tie the balance sheet to our corporate valuation framework. This course will also set the stage for our upcoming course on Integrated Financial Statements, where we will learn how the 3 financial statements are interconnected with one another.

Key Takeaways:

• How balance sheet is organized
• Accounting principles and logic flow
• Common items and what they mean

A buyout is the purchase of all or substantially all of a company and obtaining control over it through the process. Buyouts are particularly attractive to private equity investors because they can drive organizational and operational change through the business once they control it. Prior to this course, we looked at investing from the lens of purchasing a small piece of a company. Beginning with this course, we’ll learn to also look at investing from the perspective of purchasing the entire company. By the end of this course, you’ll understand how buyouts work and how to build financial models for them in Excel.

Key Takeaways:

• How buyout works
• Sources and uses
• Modeling a buyout in Excel

Capital structure refers to the composition of debt and equity in a company. Debt and equity are forms of capital that finance every company and the make-up these sources of capital is important to understand because it affects the company’s future cash flow, risk profile, and valuation. In particular, we need to understand the terms surrounding each tranche of capital because these terms determine the value different investors in the company will receive.

Key Takeaways:

• Capital structure seniority and risk
• Characteristics of different debt tranches
• Leverage and coverage multiples

In the previous courses, we learned to analyze the Income Statement, Cash Flow Statement and Balance Sheet in silo. In practice, these 3-statements are deeply interconnected with one another where changes in any line on one statement will spillover and create changes in the other two statements. We’ll start by learning how the financial statements are integrated with one another (i.e. how changes in one line will impact other lines). Then based on this knowledge, we’ll learn how companies’ different business activities will flow through the 3-financial statements.

Key Takeaways:

• How the 3-statements are interconnected
• How different business actions will impact the 3-statements
• Major formulas integrating the 3-statements

Leveraged buyout (LBO) is the purchase of all or substantially all of a company using large amount of debt. Since the 1960s, LBO has been the primary investment strategy of private equity firms, such as KKR, Blackstone and TPG. The use of debt to fund the buyout offers compelling benefits to investors, such as increased spending power and enhanced IRR potential. In this course, we’ll not only learn how LBO works conceptually, but we’ll also learn how to build LBO models in Excel like how they are built at the private equity firms and how you’ll need to build them in many private equity interviews.

Key Takeaways:

• Why private equity investors use leverage
• How the debt schedule works
• How to build a LBO model in Excel

Mergers & Acquisitions (M&A) plays a critical role in business and in capital markets. It is the subject of companies buying and selling other companies. As investors, we may come across situations where the companies we own is attempting to acquire other companies. Similarly, we may also come across situations where other companies make us an offer to acquire a company that we own. We need to learn how to analyze the attractiveness of such proposed M&A transactions and how these proposed transactions will affect our investments. We’ll learn how M&A works conceptually and then apply these concepts into practice through an M&A case study where we evaluate Chipotle’s hypothetical acquisition of Wendy’s.

Key Takeaways:

• Different buyers in M&A and their motivations
• Acquisition currency mix and resulting impact on financials
• How to build an M&A accretion / dilution model

In this course, we’re going to take a deep dive into valuation multiples. Valuation multiples are ratios that measure how many times or “turns” investors are willing to pay for every dollar the company earns. They are the corporate finance equivalent of “Price per Square Foot” in real estate. Investors use multiples to evaluate whether the prices for a company are reasonable and to estimate how much the company will be worth in the future. By the end of the course, you’ll understand the common multiples (i.e. EV / EBITDA; P/E), timing considerations (i.e. forward vs. trailing) and their key drivers.

Key Takeaways:

• Timing consideration
• Using multiples to project future value
• Drivers of multiples

Working Capital is an important element on both the Balance Sheet and the Cash Flow Statement. It’s a measure of liquidity and its change from one period to another reconciles the time gap between when revenue / expenses are recorded on the Income Statement and when cash is actually received / paid on the Cash Flow Statement. We’ll learn about the concept of working capital first, then we’re going to dive deeper into the calculations, especially the opposite formulas when calculating changes in current assets versus current liabilities.

Key Takeaways:

• How working capital reconciles time gap between recognition and cash flow
• Why changes in working capital impact cash flow
• Analyzing a business’s efficiency and liquidity