When you are given a large financial analysis project, what are the step by step things you would do?



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When you are given a large financial analysis project, what are the step by step things you would do?

2 Answer(s)


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The most important thing to do when somebody gives you a large financial analysis project is to start with the goal in mind. What that means is; we need to understand what the purpose of this financial analysis is. In most cases if you are working in an investment bank, the purpose of the financial analysis is to value, to provide valuation of the company or in some cases to calculate the return, return on investment. Even in the case of return on investment, you will most likely have to calculate the valuation of the project of the company or the cash flows you are working with. Now, assuming your end goal is to determine the equity value of this financial analysis of this company you are working on. So you backtrack from there to get equity value of the company. You already know that you need to project the company's financials into the future. This is because equity value is based on future performance of the company. So based on this you already know you need the projections. This is number 1 - based on this you already know you need the projections for income statement, balance sheet and cash flow statement. Number 2- to have these projections you need what are called assumptions. Assumptions are the various data that you use to project your various line items. For example to project income statement, or cash or balance sheet or cash flow or EBITDA, you will need to make some assumptions of future growth rates. So you will also need something called assumptions in financial analysis. The 3rd thing is - now if you have projections, you have assumptions to make projections apart from assumptions you also need what are called historicals. This is nothing but your historical old data for the previous 3-4 years. You have the income statement, balance sheet and cash flow statement. So, using the historical data, and the assumptions, you will project the 3 financial statements. Once you project the 3 financial statements, you will need what is called valuation. This is a separate tab. In the valuation tab, you will be using your discounted cash flow or any other valuation method you will come to an equity valuation of the company. Then you will build another tab in your excel sheet called summary. This is where you summarize your various assumptions, your projections and your final valuation. So that is a step by step process you have to follow to deal with large financial analysis project. So, in summary your final excel sheet will contain an assumption step, an income statement tab, a balance sheet tab, a cash flow statement tab, a valuation tab, and a summary tab. So, 6 steps to be followed.

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