Financial Modeling and Valuation: A Practical Guide to Investment Banking and Private Equity

Preface

The markets are vast and complex—not only the United States, but also the global markets. Stocks, bonds, mutual funds, derivatives, options—yes, choices are endless, literally. Everyone wants to make money. Yet, throughout the past years we have faced tremendous market swings, rendering investors (and their money) in a sea of lost hopes and few investors with a plethora of wealth. Many of these market anomalies and swings are dependent, and in a sense dictated by the investor—you. The investor plays a part in setting the current stock price. The reaction of the investor can aid in determining the success of an initial public offering (IPO). Yes, the collective psychology of the market as a whole plays a major role, but if the everyday investor were better equipped with the proper tools to understand the underlying fundamentals of a rational investment, smarter investment decisions could be made, more rational investments would be made, and the markets would be a more efficient environment.

This book sets out to give any investor the fundamental tools to help determine if a stock investment is a rational one; if a stock price is undervalued, overvalued, or appropriately valued. These fundamental tools are used by investment banks, private equity firms, and Wall Street analysts.

We will evaluate Walmart, determining its current financial standing, projecting its future performance, and estimating a target stock price. We will further assess if this is a viable investment ...