Thursday, May 23, Building Financial Models 2nd edition, John Tjia This is a well written book, that takes and guides you gently through the intricacies of building financial models. It demonstrates practical examples and allows you to practice with live examples. Recommended reading for all investment bankers. I was looking for a textbook for my own Financial Modelling class.
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Skilled financial forecasting with inadequate tools is even harder. This book supplies the tools; that is, it supplies the structure of the Excel-designs used to try to model a companys financial future and the DCF used to assess its intrinsic value. John Tjia for a very long time used helped constructing the excel-models used by JP Morgans analysts before launching a consulting firm aiding clients within corporate finance.
The intent of the book is to show the reader how he Forecasting is hard. The intent of the book is to show the reader how he himself can develop a properly functioning model.
Pointing out that a model is an estimator, not a predictor, Tjia notes that its main utility is to provide a way of testing what needs to happen for a certain financial future to emerge. A special point is made out of the fact that the author presents an integrated financial statement projection model, meaning an Excel-model where the income statement, balance sheet and cash flow statement are interlinked.
In this way future estimates will follow the same accounting logic that was used historically by the company. Building Financial Models has four main parts. The first is a crash course in Excel plus a little accounting, and a step-by-step sneak peak on financial modeling , i.
They really should be read sitting by the computer while testing out the functionality in Excel; then there is a section with mixed add-ons to the basic model like financial ratios, a guide to building a DCF-model etc.
In the end - almost like an appendix - Tjia throws in a primer on Visual Basic. This is rather a book for the financially literate person who needs extra Excel skills. The first part of the text that spans over about half the book contains plenty of useful Excel-functions, commands and practices that will make the every day life of a financial analyst easier.
However, I first tried to go through chapters 11 — 13 while commuting but no matter how pedagogic the author is, without the ability to tinker with Excel while reading at the same time the value of these chapters will not be the same.
The book is supplemented by a website with downloadable Excel-files. To benefit fully from the book I would almost recommend not downloading the Excel-files and instead building a model according to the instructions in the book.
In this way the reader will get a better feel for the logic. Further, a chapter on banks and other financial companies would be highly valuable. Excel rules the financial world when it comes to forecasting companies. This book will provide the reader with skills to start modeling himself.
This is my first self taught excel exercise and I found it helpful.
Building Financial Models
Building financial models