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FINANCIAL MODELING

BUSI 584
Mustafa N. Gltekin
August 25, 2014


Overview of Financial Modeling & Preliminaries I
Introduction to Capital Market Lab Resources
External Research Tools
Excel Basics
Wednesday:
Overview of Financial Modeling with Excel
Next Week:
September 3, Wednesday: Case Discussion O.M. Scott & Sons
Company
See questions posted at the end of class notes
Readings
Survival Accounting for Financial Modeling (Income Statement, Balance Sheet,
Cash Flow Statements)
Preparing & Using the Statement of Cash Flows
Solving the Puzzle of the Cash Flow Statements
Beware of Accounting Mine Fields
Financial Statement Analysis

Agenda
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CAPITAL MARKETS LAB
https://home.kenan-
flagler.unc.edu/Resources/cml/Pages/default.aspx
Bloomberg
FactSet
PerTrack
Check the calendar for ongoing training sessions

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Bloomberg Essentials Online Training
Program

What is Bloomberg Essentials Online Training
Program?
Formerly known as Bloomberg University Certification
Program, it is Bloombergs online school, teaching the
basics of Bloomberg system and functionality. This is a
self-paced program.
Where do I take my training?
At the Bloomberg terminals in the Capital Markets Lab
(CML) on the 2nd (main) floor of the McColl Building at
Kenan-Flagler Business School; the terminals are
accessible anytime the CML is open. You cannot remote
into the Bloomberg terminal.

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Bloomberg Training & Certification
How do I get started?
1. Create a personal username and password
At the Bloomberg terminal, hit the red CONN/DEFAULT
key (upper right on keyboard) or UREG<GO>
Click on Create a New Login link
Complete the series of templates.
Bloomberg will request verification of the validation code
that appears on the screen before you can proceed
further.
Each time you use Bloomberg to view a video/take an
exam, you will need to log in using your personal
username/password; DO NOT USE THE KFBS
USERNAME/PASSWORD located on the terminals for
this purpose.
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Bloomberg Training
Where are the Bloomberg Essentials
Videos/Exams located on the terminal?
Type BESS<GO>
What classes must I take?
You must take a minimum of 5 sessions in order to
receive a Bloomberg Acknowledgement of Completion
(certificate)
Bloomberg 4 Core Videos
1. Getting Started
2. Bloomberg News
3. Market Monitors and Launchpad
4. API (Bloomberg Data in Excel)
After viewing the 4 Core Videos you will automatically be enabled to take the Core
Exam. You only take 1 Exam for the 4 Core Videos



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Bloomberg
Bloomberg Market Sector Videos (Chose 1)
Equity Essentials (recommended)
Fixed Income Essentials
FX Essentials
Commodity Essentials
You must view at least 1 Market Sector video and take the
accompanying Exam
You can additionally view any or all of the other Market Sector
videos; each has its own Exam which you must take
How long will it take to complete the program?
Each video runs approximately 30-40 minutes; combined
with completing the exams, it takes approximately one 1
hour per video. Thus, four (4) Core Videos plus one (1)
Market Sector Video = 5 hours

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Bloomberg
How do I take the exam after each video?
You will automatically be enabled to take the exam once
you have viewed a video. If you coming back to the
terminal to take the exam, separate from viewing the
video, select BESS<GO>, and then select 10) View and
Take Exams
TIP: take advantage of the double screens to look up
answers to the exam questions while taking the exam.
It is highly recommended that you take the exam
immediately after completing the video rather than
waiting.
What is required to pass an exam?
You must make 75% or greater on each exam to pass.
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Bloomberg
Can I retake an exam?
You can retake any exam one time.
How do I request my Acknowledgement of
Completion (certificate)?
BESS <GO>, select 10<GO> Request Your
Acknowledgement of Completion. Fill out and submit the
detailed question page. Your acknowledgement should
be emailed to you within an hour. Bloomberg does not
send any paper/hardcopy acknowledgements. You will
print out this acknowledgement and submit to receive
credit in the course.
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Getting Help
Questions?
HELP HELP click the green HELP key (upper left,
keyboard) twice and chat live with Bloomberg Support.

Or, if you see someone in the CML that looks like they
know what they are doing, ask them!.

Shortcut templates are posted on the CML web site
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EXTERNAL RESEARCH
TOOLS
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World Wide Web
FED
St. Louis Fed: FRED
Bureau of Labor and Statistics
FDIC
Central Banks
OECD
Economist Intelligence Reports
Seeking Alpha
If everything else fails Google!
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External Research Tools
http://extranet.kenan-
flagler.unc.edu/research/Pages/default.aspx
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Research Tools - Investext
Investext is a product of Thomson One
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Investext All Publicly Traded Companies
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Investext Sell Side Reports

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Other Sources
17
Buy and Hold
Berkshire Hathaway Shareholder Letters
The Little Book that Builds Wealth
Trading
The Gartman Letter
The Disciplined Trader
Fundamental
Capital IQ
FactSet
Morningstar
Technical
Elliot Wave
Investors Business Daily
StockCharts.com
Top Down
Briefing.com
The Economist
ETFConnect
Bottom Up
Barrons
Motley Fool
Value
The Intelligent Investor
Growth
A Bull in China (Jim Rogers)
The Little Book that Makes You Rich
Large Cap
Yahoo! Finance
Small Cap
Seeking Alpha
Domestic
CNBC
Wall Street Journal
International
Bloomberg
Financial Times
Diversification
Pioneering Portfolio Management
Select Sector SPDR Correlation Tracker
Concentration
When Genius Failed
Other
DealBook @ The New York Times
Mutual Fund Facts About Individual Stocks
Real Options: A Practitioners Guide
Wikinvest
EXCEL BASICS
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Customize Excels Startup
Tell Excel Where to Look for Files
in Shortcuts to Excel
Use switch /p Directory

Other Switches:
/e Starts Excel without creating a
new Workbook
/i Start with a maximized window
/s Start Excel in safe mode

Shortcut key:
You dont have search for the
icon on the Desktop.
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Change Edit Options
Use Arrow keys to
move instead of Enter
key

Use Enter for entering
and editing formulas

There are more
efficient ways of
entering data
Select a range of cells
& use tab key to move
to next cell etc.


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Change Calculation Options
Keep it on Automatic unless you are editing a very large spreadsheet

Spreadsheets with Circular references must have Iteration on!

Accept labels in formulas NO!
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Why Not Accept Labels in Formulas?
Natural language in formulas seem
like an easy way to get around the
trouble of defining names

Formula =SUM(North) is the same
as =SUM(B2:B5)

Formula =Quarter 2 South is the
same as =C3

It is not always re-calculated when the
data changes!

Two identical formulas known to return
different results!
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Check View Options
Comments:
Comment indicator
Objects:
Show all
Window options:
Zero values
Sheet tabs

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Add-ins
Analysis ToolPak
Report Manager
Solver Add-in
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Excel Short Cuts
Dont be a slave to a
Mouse!

Shortcut = Efficiency!

Its worth your time to learn
the keyboard shortcuts

A comprehensive list is
posted on Blackboard
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Shortcut Keys - Formatting
CTRL+1 Display the Format Cells dialog box
CTRL+B Apply or remove bold formatting
CTRL+I Apply or remove italic formatting
CTRL+U Apply or remove an underline
CTRL+SHIFT+& Apply the outline border
CTRL+SHIFT+_ Remove outline borders
CTRL+SHIFT+( Unhide rows
CTRL+9 Hide rows
CTRL+SHIFT+) Unhide columns
CTRL+0 Hide columns
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Shortcut Keys Editing & Moving Around
F2 Edit the active cell and put the insertion point at the end of the line
CTRL+C Copy the selection
CTRL+X Cut the selection
CTRL+V Paste the selection
CTRL+Z Undo
CTRL+Y Redo
F4 Repeat
ALT+E+S+T Paste special formats
ALT+E+S+F Paste special formulas
SHIFT+SPACEBAR Highlight entire row
CTRL+SPACEBAR Highlight entire column
ALT+T+U Auditing Toolbar
CTRL+. (period) Move clockwise to the next corner of selection
F5 Go to
CTRL+[ Go to precedents
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Shortcuts Entering Data
ALT+ENTER Start a new line in the same cell
CTRL+ENTER Fill the selected cell range with the current entry
SHIFT+ENTER Complete a cell entry and move up in the selection
TAB Complete a cell entry and move to the right in the selection
SHIFT+TAB Complete a cell entry and move to the left in the selection
CTRL+D Fill Down
CTRL+R Fill to the right
SHIFT+F2 Edit a cell comment
F4 or CTRL+Y Repeat the last action
F4 (in edit mode, F2) Anchor the cell
CTRL+F3 Define a name
CTRL+SHIFT+F3 Create names from row & column labels
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Excel Formats Custom Formats
Custom format codes are arranged as:

Positive format; Negative format; Zero format; Text format

If you use only one section it applies to all values

If you use two sections, first one applies to positive values &
zeros, second one applies to negative values

If you use three sections, first applies to positive, second to
negative, and the third to zero values

If you use all four sections, the last section applies to text
stored in the cell

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Custom Number Formatting
Purpose: Allows for more creative, easier formatting
Access: Ctrl+1 (Format cells), Number tab, Custom
Create desired format in Type
4 essential aspects to know:
1. Semi-colon (;) separates positive, negative, zero, and text formats
2. Underscore (_), serves as a character spacing
Moves over by the following character

Example aligns the decimal for positive and negative percentage
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Custom Number Formatting
3. Double semi-colon (;;) hides contents
Use to hide something for presentation purposes
Better than white font
White font prints as BLACK when using Print Black & White
Be sure to include a comment to identify the text!

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Custom Number Formatting
4. Can also enter letters or words following a number
Multiples
Basis points
0.0x
Example add a bps suffix
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Excel Custom Formats - details
Custom formats can be augmented with condition
or color codes, or both
[condition value][color]Positive format;
[condition value][color]Negative format;
[condition value][color]Zero format;
[color]Text format
Or
[condition value][COLOR n]Positive format;
[condition value][COLOR n]Negative format;
[condition value][COLOR n]Zero format;
[COLOR n]Text format
See Formats.xls for examples
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Codes Used to Create Custom Number Formats
Code Comments
General Displays the number in General Format
# Digit placeholder that displays only significant digits
0 Digit Placeholder that display insignificant zeros
? Digit placeholder that add spaces for insignificant zeros on either side of decimal point
. Decimal point
% Percentage
, Thousands separator
E- E+ e- e+ Scientific notation
$ - + / ( ) : space Displays this character
\ Displays the next character in the format
* Repeats the next character to fill the column width
_ (underscore) Leaves a space equal to the with of the next character
text Displays the text inside the double quotation marks
@ Text placeholder
[color] Displays the characters in the color specified: Black, Blue, Cyan, Green, Magenta, Red, White, Yellow
[COLOR n] Displays the corresponding color in the color palette where n=0,,56
[condition value] Enables you set your own criteria for each section of number format
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Custom Number Formats Scaling Values
Value Number Format Display
123456 #,###, 123
1234565 #,###, 1,235
499 #,###, (blank)
500 #,###, 1
123456 #,###.00, 123.46
499 #,###.00, .50
500 #,###.00, .50
546 0.00 5.46
1000000 #,###,,M 1M
5.5 #,000 6,000
154.87
0 and ??/100 Dollars
154 and 87/100 Dollars
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Conditional Formatting
Enables applying cell formatting selectively and
automatically based on the contents of the cells
Useful identifying erroneous cell entries or certain types
By adding formulas you can perform amazing feats!
1. Select the cell or range
2. Choose Format > Conditional Formatting
3. In the drop-down box, select either Cell Value Is or Formula Is
4. Specify condition or enter a formula
5. Click the Format Button and specify the formatting to apply if the
condition is TRUE
6. To add additional conditions (three max), click ADD and repeat
steps 3 to 5.
7. Click OK
Now you have a dynamic formatting. Excel reevaluates
new contents and applies or removes the formatting!

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WEDNESDAY, SEPTEMBER 3:
O.M. SCOTT & COMPANY CASE
DISCUSSION
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O.M. Scott & Company: Discussion Points
1. How has Scott Achieved its rapid growth from a local to a national company?
What were the key factors in its success?
2. How big is the market?
3. Is Scotts strategy working?
a) Profit margins in 1957 vs. 1961
b) Return on equity in 1957 and 1961
c) Current ratio in 1957 vs. 1961
d) Leverage in 1957 vs. 1961
4. What are Scotts goals and how can it meet those goals?
5. How did the trust receipt and seasonal dating programs fit into Scotts corporate
strategy?
6. What are Scotts sources and uses of funds between 1957 and 1961?
7. How has the price of Scotts stock moved in the market? Why is the stock price
so high relative to earnings and dividends?
8. How has Scott financed its growth over the last four years?
9. What are Scotts prospects for future years? In particular, what do you expect
Scotts sales and earnings to be for the next three years?
10. Can Scott meet the restrictions in its debt covenants for 1961?
11. Can Scott meet its restrictions of debt covenants for 1962?
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Assignment 1: Complete the following two tables:
Sources & Uses of Funds (19571961)
Sources Uses
A/P Cash
Accrued Int. A/R
Sinking Fund Inventory
LTD Fixed Assets
Capital Stock Other
Investments Notes Payable
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Key Indicators
Year-ending 30 September 1957 1958 1959 1960 1961
Return on Sales (ROS=NI/Sales)
Total Asset Turnover (=Sales/Total Assets)
Return on Assets (ROA=NI/TA)
Leverage (=Total Assets/ Net Worth)
ROE (common equity only)
Equity Working Capital (EWC = CA CL LTD)
Total Debt Limit (TDL= 3 x EWC)
Total Debt (TD=Long Term Debt + Notes Payable)
Total Debt Capacity (TDC=TDLTD)
Subordinated Debt Limit (SDL= .6 x TDL)
Subordinated Debt (SD)
Subordinated Debt Capacity (SDC=SDL SD)
Fixed Charge Coverage (=EBT/(Interest + Leases)
Contribution Margin (=1-[CGS+Leases]/Sales
PBT Break Even Sales
F.C. Coverage Sales
Cash Flow from Operations
Cumulative Cash Flow
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