Course description

We believe that practice is the best way to learn. That is why we have created a practical course to help you to learn financial modelling from scratch (or improve your skills).

In this course, we are going to build a financial model of Alphabet, a parent company of Google. We aim to show how financial models are created at the leading financial institutions. That is why we have decided to pick up a real company and prepare a proper financial model, i.e. not the simplified version as most of the other courses do.

We understand the challenges of building full-blown models from scratch for people who have little experience in the field. That is why we have decided to split the course into three substantial parts:

In the first stage, we are going to prepare a three statement model. We'll start by downloading the financials of Alphabet. Then step-by-step, we'll show how forecasts are built for every line in each financial statement. We'll use the format in which Alphabet reports, not a simplified version. In order not to confuse you at this stage, for some metrics (e.g. revenue), we are going to use broker consensus forecasts. We'll come back to such metrics later in the course
In the second stage, we are going to build a DCF valuation using both FCFF and FCFE approaches. We'll base our DCF valuation on the three-statement model we have developed on the first stage
After we finish DCF valuation, we'll enhance our forecasts. We are going to replace the metrics for which we used broker consensus with our estimates. This way, the course participants will be able to focus first on the three-statement model and then on building forecasts. We think that such streamlining will make the process much more efficient.

Along the way, we'll describe some corporate finance concepts as well as common practices used in the industry.

Files used in the course

You can find files used in the process (excel files and a file with links to download financials) in the project section.

IMPORTANT: Iterative calculations should be turned on. Instruction is available on the official Microsoft Office Help page (https://support.office.com/en-gb/article/remove-or-allow-a-circular-reference-8540bd0f-6e97-4483-bcf7-1b49cd50d123). Go to the "Learn about iterative calculation" section and follow the steps outlined there.

Prior knowledge required

We expect you to have:

Knowledge of Microsoft Excel
Basic understanding of corporate finance

You can still take the course without the skills above. We'll try to explain things on the go. However, in this case, be prepared to spend additional time educating yourself too.

Applications required for financial modelling

You can use any spreadsheet application you would like to. We highly recommend Microsoft Excel (2007 version onwards) on a Windows machine since it is the most common set-up used for financial modelling. However, the model should work the same way on most other applications. It even works on Google Sheets (which do not require you to install an app locally on your machine, you can use a browser instead). But please beware that (i) some of the functionality of Microsoft Excel could be unavailable on Google Sheets, Apple Numbers, LibreOffice Calc and other packages, and (ii) the files created in the packages might not be fully cross-compatible. Thus, we recommend using Microsoft Excel when building a model for external use or review.

We will be using Microsoft Excel on a Windows machine, and all shortcuts and tips will be relevant for this set-up only.

Who is this course for

A wide range of people might be interested in gaining financial modelling skills. Below are some possible scenarios:

To make investment decisions for example whether to buy or sell stocks of a particular company
To support your assumptions on a project or justify a business case
While starting a new business to estimate the financial results of a venture
In your existing startup - for fundraising objectives. Most investors will require a financial model as a part of your fundraising pack to better understand how you plan to make money, etc.

Knowledge of financial modelling is instrumental:

When pursuing a degree in business or finance
For your job interviews especially in the financial industry

"Disclaimers"

IMPORTANT: Please note that this course is not optimized/designed to be watched on small screens (e.g. mobile phones)

While this course covers all main financial modelling topics, it is not a comprehensive guide. We are going to cover most topics in detail. However, there are some things which will be modelled only high-level. The reason for this is that you need a lot of information (which is usually not available) to model such items. All such topics are in the vast majority of cases modelled high-level as we do in this course. We'll demonstrate that brokers are also using the same approach later in the course. These topics are taxes, stock-based compensation, goodwill, minority interest, associates, and some other. In some instances, people model these advanced topics in greater detail. Still, usually, such calculations are possible when you have access to non-public company information, e.g. you are working on a deal.

Like every human, we make mistakes when we speak or type. However, these are not critical things, they do not change the messages, and most people won't even notice them.

We followed the 80/20 rule when we were preparing this course (this is an excellent way to fight the natural desire to improve things continuously). We have not polished every single thing (e.g. change wording, take out every parasite words, clear sound like "aaa", "mmm"). Instead, we have left most of the course in the way we have recorded it the first time with some minor edits (e.g. taking out pauses). Polishing would take so much time that developing this course would become unreasonable for us. Moreover, it would not add any real value. Also, we think for most people, it would be easier to understand the content of the course in the shape and form we have recorded it initially. Usually, it is easier to digest unpolished (natural) content.

When you watch the videos, the screen might change rapidly since we move between the pages. If you are lost, it might make sense to have a look at the bottom of the workbook - the active worksheet is always highlighted. Please also note that you can change the speed of the video. We tried to speak slowly to make it easier to digest the information for some readers, but many people prefer more dynamic videos, in such cases, you can increase the playback speed to 1.25x or 1.5x. At higher speeds (1.75x+), the videos might sound a bit "robotic".

Harry Lipscomb

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