Chapter 9

Financial Modeling Basics

Abstract

Financial models are widely used in a variety of business applications from financial reporting to capital budgeting to valuing and structuring mergers and acquisitions. The purpose of this chapter is to discuss the basics of applying financial modeling methods to firm valuation and to assist the reader in understanding the power (and limitations) of models in analyzing real world situations. The model discussed in this chapter is relatively simple consisting of four Microsoft Excel worksheets and is applied to the valuation of a single firm. This chapter discusses commonly used model data requirements, the impact of the 2017 Tax Cuts and Jobs Act, accounting linkages within models, suggestions ...

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