Someday, I'll be a real modeler...

November 19, 2008 8:00 PM

How can I master financial modeling?

I'm a first-year analyst at a small investment bank. We had internal training in financial modeling (rather than contracting to an outside firm for classroom training), and I left feeling confused and wanting to really grasp it. Although I majored in finance and have an IT background, I never had the opportunity to really build a model from scratch myself. I'm interested in learning to build DCF, M&A, and LBO models. My grounding in accounting is relatively solid, though a bit of review wouldn't hurt.


I've been looking into courses in my area (NYC) and they seem to run $2,000 or so a course. I'd try to teach myself, but I have a short attention span, relatively limited free time, and am not sure I could seriously dedicate myself to learning without professional instruction. I'd also like to wipe it out over the course of a few weekends, so the courses seem ideal in that regard due to their compressed format.


So, should I bite the bullet and shell out $2K for each course (each teaching one concept, like just DCF, or just Public Comps), or are there other alternatives I should be considering? Thanks!

posted by xiaolongbao to work & money (7 comments total)

Why would you pay for this course yourself? I'm not a financial analyst, but I know my boss would be willing to pay such a small amount if it would ensure that I would be more efficient, or if it would help me learn skills that the company needs to do their job right.

Think about how many man-hours $2,000 would ordinarily pay for. If you can justify that taking such a course would save you that much time/money spent mucking around/asking for help/getting things wrong, then your boss would be short-sighted to turn you down.
posted by muddgirl at 8:19 PM on November 19, 2008

I haven't looked into it, but something like MIT's Open CourseWare could have information that would help your grasp of the concepts. Who is giving these $2k courses? I'm not familiar with reputable schools in your area, but maybe a community college or CCIM course could get you the same information for cheaper. Nonetheless, I agree with muddgirl that career-related training expenses should be covered by your employer. It really doesn't hurt to ask, and you can make a pretty good case.
posted by Chris4d at 9:23 PM on November 19, 2008

Calm down. Just about every first year analyst goes through this. They all put on a show of confidence after training is over, but I bet at least half of your analyst class is shitting their pants too. The truth is that most analysts take a good chunk of their first year to really grasp LBO and DCF models. And some take even longer--that's why private equity firms give basic LBO modeling tests when they interview 2nd year i-banking analysts. Staffers and senior bankers know many first year analysts are struggling. It's brutal on-the-job training.

When I was a second year analyst, I was more than happy to help out first year analysts that came to me for help. Too many new analysts thought this was a sign of weakness or incompetence. It's not. You should approach a second year analyst or a 1st/2nd year associate and ask for some help. Your staffer doesn't need to know about this--but even if he or she finds out, it'll reflect well on you (and whoever is helping you).

The typical two-year analyst program sucks. In my opinion, you need to bond with your fellow 1st and 2nd year analysts and lean on each other for help. Paying money for outside classes is just going to eat up what little free time you have and the education is not going to be nearly as good as what a savvy 2nd year analyst can show you about how such-and-such senior banker likes to see their LBO models. Being an i-banking analyst is all about learning, asking questions and forming strong relationships with your fellow analysts/associates (...and also expensing as many dinners and town car rides as possible). Good luck.
posted by mullacc at 10:26 PM on November 19, 2008

Thanks, everyone, for the suggestions so far. These are useful and I am looking into them.

It's unlikely that my company will pay for the training - we, like many financial firms, have gone through several rounds of layoffs and costs are being tightly controlled. I agree that it would have made us analysts more productive had we had the training from the get-go, but it looks like I'm on my own on this one.

Also, my firm is small. The 1-2 associates who do model have been somewhat helpful to me (I'm not afraid to ask questions), but it's always more of a one-off, acquire knowledge as I "need to know" type thing. They're also busy, and unfortunately, we're not based out of the same office.

I'm looking at modeling not just as a skill I can put to use at this firm (in fact, opportunities to do so have been rather limited), but also keep in my bag of tricks for application down the road at future firms/positions.

I'd be thrilled if you'd keep the suggestions coming!
posted by xiaolongbao at 2:06 PM on November 20, 2008

I do a fair amount of financial modeling of a different nature in a small consulting firm. Honestly, there's no better or faster way to learn than to sit down with a previously-built model and replicate it on your own. Excel skills are one of those things you get good at by doing and no amount of classes will help.

Start at the top and follow all the formulas and calculations. Liberally use the Evaluate Formula, Trace Precedents, and Trace Dependents functions and the Help to understand how to use Excel functions you don't know. Rebuild the model on a new workbook or better yet, apply the existing financial model to a new project/client/company or update it for the current year.
posted by junesix at 4:45 PM on November 20, 2008 [1 favorite]

Oh, the best part about learning by building is that you learn to solve errors and problems and you develop hacks for doing things faster and easier. When you learn in a class or from a book and simply follow examples, you never learn about why things don't work the way they should.
posted by junesix at 4:49 PM on November 20, 2008

junesix - that's a great suggestion, and I hadn't thought of that. I do have a fair number of previously-built models at my disposal, and I'm relatively comfortable with the formula auditing tools. Good thought.
posted by xiaolongbao at 7:25 PM on November 20, 2008