Corporate and Project Finance Modeling

Chapter 2Becoming a Black Belt Modeler

The four parts of this book explain how to: (1) build and interpret corporate finance, project finance, and acquisition financial models; (2) perform risk analysis using all different kinds of financial models; (3) analyze multiples, terminal values, the bridge between equity value and enterprise value, and normalized cash flow in deriving value from corporate models; and (4) use mathematical programming techniques to resolve circular logic problems related to financing, sculpting, and credit enhancements in corporate and project finance models. While the mechanical descriptions along with practical exercises of these subjects will make your life easier, explaining on a step-by-step basis how to construct the best financial models in the world has little direct effect on the recurring human mistakes discussed in Chapter 1. Because of the importance of recurring valuation mistakes that are a backdrop to the description of modeling techniques, introduction to various subjects in the four parts of the book will periodically return to these chronic errors.

In describing model structure, risk analysis, corporate valuation, and circular logic, this book discusses different model types, including corporate finance models, project finance models, and acquisition models. You may wonder whether the subject is too broad for a single book and if some of the intricate issues that arise in different modeling contexts can be adequately all addressed in ...