Company Valuation & Financial Modeling

Explore what valuation means and why price differs from value. Compare fundamental and technical valuation approaches and identify the industries and job areas where valuation skills apply.

Define valuation as the fair price of a company. Learn the art and science of estimating its intrinsic price using examples from GE, Kellogg's, Walmart, AT&T, and Google.

Explore fundamental valuation, based on future cash flows for long-term investments, and contrast it with technical valuation, which uses past price trends for short-term trading; course centers on fundamental framework.

Explore where valuation analyst skills apply across industries—equity research, investment banking, M&A, private equity, consulting, and asset management—covering roles from stock recommendations to portfolio managers and client advisory.

Learn to conceptualize the valuation exercise with a structured framework. Follow a step-by-step process to value any company.

Learn the first step of valuation: build a clear understanding of the company's business model, including how it makes money, revenue and cost structure, distribution channels, investments, and management quality.

Capture historical financial statements to assess past performance, including the income statement, balance sheet, and cash flow statement, sourced from investor relations sites or company disclosures for valuation.

Forecast forward-looking financial statements by extrapolating trends from historical data and current company and economy news. Systematically project these numbers to differentiate a good analyst through the art of valuation.

Apply the discounted cash flow technique in step four to estimate the share price, and complement it with a multiples-based valuation to yield a price range.

Use sensitivity analysis to see how share price may change with key inputs like growth and cost of capital. It highlights risk and guides valuation decisions.

Explore how the valuation exercise blends art and science through a systematic framework, balancing scientific techniques with judgment in forecasting to value a real company.

Apply a valuation framework to Walmart by modeling five-year forecasts, applying valuation techniques, and performing sensitivity analysis to assess whether around $80 per share reflects fair value.

Learn the overview of a business model, the five elements that define it, credible information sources for large and small companies, and map Walmart's business model from its annual report.

Explore the five elements of a business model, starting with the product mix—the goods, demand, and pricing that drive revenue—and assess geography and ancillary income to inform valuation.

Assess the cost structure, detailing direct and indirect costs, cost of sales, raw materials, overhead, fixed versus variable costs, and marketing spend, to reveal profitability.

Explore the operations backbone of a business, from plant locations and centralized versus local operations to talent sourcing, distribution channels, and decisions on physical stores or online growth.

Assess the financing element of the business model by evaluating funding sources, equity-to-debt mix, working capital, cash flow, and the company’s ability to raise money from equity or debt markets.

Understand how strategy differentiates a company across product mix, operations, cost, and financing, binding the five elements of the business model and informing forward-looking assumptions, as illustrated with Walmart.

Identify key sources for capturing a company's business model: public firms' annual reports and 10k filings, paid databases for private firms, and direct management insights for startups, illustrated by Walmart.

Download a company's annual report through the investor relations page, using Walmart's latest report as an example, and review the management discussion and analysis section to understand the business model.

Extract a business perspective from Walmart’s annual report by examining the management's discussion and analysis, growth and profitability metrics, segment results, liquidity, and future outlook.

Walmart operates as a global retailer and wholesaler of FMCG products, offering the lowest prices across grocery, health and wellness, entertainment, hardlines, apparel, and home.

Analyze Walmart's cost structure, emphasizing procurement from external suppliers, cost of sales, transportation, and SG&A including warehousing and advertising, and note how high volumes enable lower costs through bargaining power.

Walmart expands with brick-and-mortar stores and clubs while prioritizing digital retail, online channels, and in-store pickups; capex in 2018 focuses on digital investments.

Walmart's financing section shows strong cash flow, a strong credit rating enabling external borrowings, minimal working capital, and a share buyback alongside projected 4 to 5 billion annual payments.

Explore Walmart's price leadership and low-cost strategy, enabled by supplier terms, to pass savings to customers, while expanding accessibility, assortment, and a great shopping experience through physical and online channels.

Acquire the ability to capture historical financial statements, understand the income statement, balance sheet, and cash flow statement, and convert as-reported data into standardized statements using Walmart as an example.

Understand the three key financial statements: income statement, balance sheet, and cash flow statement. Learn how they reveal profit, assets and liabilities, and cash flow from operations, financing, and investing.

Explore the typical income statement structure, from revenues to profits after taxes, detailing direct and indirect costs, EBITDA, depreciation, EBIT, EBT, and finance charges.

Explore the balance sheet structure, detailing assets—fixed and short-term like inventory, receivables, and cash—and liabilities, including current and long-term debt and shareholders’ equity, with assets equaling liabilities.

The typical cash flow statement breaks a year’s cash into three buckets: cash flows from operations, cash flows from investment, and cash flows from financing.

Identify primary sources of historical financial statements by company type: public (annual reports and 10k filings), private (regulated filings or paid databases), and startups (management guidance), essential for valuation.

Source Walmart's consolidated historical income statement and balance sheet from its annual report and capture the 2017–2015 figures into a standardized Excel income statement and balance sheet.

Download the Excel template attached with this lecture and use the same file the instructor uses to illustrate the module's illustrations for hands-on practice.

Explain minority interests using a joint venture example where a 40% partner earns 40 of 100 million consolidated profit, and subtract minority interest to obtain the majority partner's share.

Subtract the minority interest from consolidated net income to obtain Walmart's profit, clarifying how minority partners' profits are excluded from the consolidated figure.

Translate a company’s annual report into a standardized balance sheet to support valuation exercise, outlining assets (current and long-term) and liabilities (current and long-term) plus minority interest and equity.

analyze walmart's balance sheet by tracing cash, accounts receivable, and inventory across current assets, then compare long-term assets, liabilities, and equity to confirm total assets equal total liabilities and equity.

Analyze Walmart's income statement and balance sheet from 2012–2017 using a standardized template, translate data from consolidated financial sections in reports into standardized statements, and save template for company valuation.

Learn to forecast next five years of forward-looking financial statements using historical ratios and trend analysis, with Walmart illustrations of linked income statement, balance sheet, and cash flow.

Forecast the financial statements in five steps: compute historical ratios, analyze trends, project forward statements, and build an integrated cash flow linkage across statements using the Walmart example.

Download the Excel template attached to this lecture to practice the module alongside the instructor’s illustrations. Use the same spreadsheet the instructor uses to teach and gain hands-on experience.

Compute Walmart's key historical ratios from the income statement and balance sheet, including year-on-year revenue growth, COGS margin, and SG&A margin for 2013–2017 using the provided Excel 'Key ratios' tab.

Calculate depreciation as a percentage of opening plant and machinery for Walmart, using 2013 data and closing 2012 balances, and calculate interest expense as a percentage of opening total debt.

Compute Walmart's effective tax rate and minority share of profits using historical income statements, showing 2013 figures and the 3–5% range.

Learn to calculate Walmart’s balance sheet ratios: accounts receivable, inventory, plant and machinery as % of revenue, and accounts payable as % of cost of goods sold across five years.

Summarizes Walmart's cash flow statement, detailing operating, investing, and financing activities, and captures changes in short-term borrowings, long-term borrowings, dividends, and common equity share buybacks for 2017 (and 2016–2015).

Re-download the Excel template for this module to follow the instructor’s illustrations with hands-on practice using the attached file.

Update the Walmart cash flow model with 2013–2017 borrowings, dividends, and buybacks, then compute the dividend payout ratio as dividends over net income, noting a rise from 32% to 46%.

Forecast Walmart's revenue growth for the next five years by extrapolating historical income statement and balance sheet ratios in an Excel model, considering US economic trends and competition from Amazon.

Forecast Walmart's cost of goods sold as a percentage of revenues, declining 1% over five years (0.2% annually), and SG&A rising 2% (0.4% annually) using historical trends and extrapolation.

Forecast Walmart's depreciation expenses as a percentage of opening plant and machinery, keeping an 8% rate aligned with five years of history by linking forward-looking depreciation rate to previous year.

Forecasts interest expense ratio from 5% to 6% over five years with a 0.2 percentage point annual increase, keeping the 30% tax rate and minority share of profit at 5%.

Forecast Walmart balance sheet ratios: keep accounts receivable at 1% and inventory at 9%, lift plant and machinery to 24% over five-year, and hold accounts payable at 12% of COGS.

Forecast short-term borrowings for Walmart over the next five years, noting zero additions due to strong cash flow and a 1.099 billion repayment in 2018 from contractual obligations.

Forecast Walmart's long-term borrowings by assuming no new long-term debt over the next five years, and allocate projected repayments from the annual report across 2018–2022.

Forecast Walmart dividends by averaging the last five years to about 6 billion annually, and project 9.2 billion buybacks as 1.8 billion per year; dividend payout ratio awaits net income.

Forecast Walmart’s income statement and balance sheet for the next five years by using forecasted ratios from prior lectures to project key financials.

Forecast Walmart's revenues for 2018–2022 by applying the year-on-year growth rate from the key ratios tab to the prior year's revenue using the spreadsheet formula.

Forecast Walmart's cost of goods sold as a percentage of revenue using the revenue forecast, then derive gross profit and forecast SG&A as a percentage of revenue.

Forecast Walmart's depreciation and amortization for 2018 by applying the depreciation ratio to plant and machinery and linking to 2017 balance; compute EBIT from gross profit minus SG&A and D&A.

Forecast Walmart's five-year interest expense using an opening debt ratio, link debt from the prior year, then derive EBT by subtracting interest expense from EBIT.

Project Walmart's taxes from 2018 to 2022 by applying a 30% tax rate to pre-tax profit, compute consolidated net income, and determine minority share to yield Walmart's consolidated net income.

Forecast Walmart's balance sheet 2018–2022 by estimating accounts receivable as a revenue percentage. Forecast inventory, other current assets, and total current assets, and populate cash from the cash flow statement.

Forecast fixed assets by projecting plant and machinery as a revenue percentage, update depreciation and amortization automatically, and keep goodwill and long-term assets at last year’s level to compute assets.

Forecast short-term borrowings for Walmart by applying the previous year's debt plus new borrowings minus repayments, using key ratios inputs; project 2018 debt at 3 billion and hold steady 2019–2022.

Forecast Walmart's current liabilities by applying the 12% accounts payable to 2018 cogs and extend through 2022; anchor other short-term liabilities to 2017, and sum for total current liabilities.

Forecast Walmart’s five-year long-term debt and other liabilities by applying the same method as short-term debt, using key ratios to add or repay, updating from the previous year.

Project the minority interest in Walmart's common equity by adding the minority share of profits from the income statement to the last balance, producing year-end balances for 2018 to 2022.

Forecast Walmart's common equity by adding net income attributable to shareholders and subtracting projected dividends and share buybacks, then project liabilities and equity through 2022.

Recap the five-step forecasting process for Walmart's financials, using historical ratios and trend analysis to project the income statement and balance sheet, then move to the cash flow statement.

Explore the forecasted cash flow statement for Walmart (2018–2022), detailing operations, investing, and financing, and how net cash flow and opening balance are calculated using add and less.

Start with consolidated net income from continuing operations, then add back non-cash items like depreciation and amortization to estimate cash flow from operations.

Add back depreciation and amortization and interest expense to consolidated net income to estimate cash flow from operations using forecasted income statement data.

Learn to adjust Walmart's cash flow from operations by adding increases in accounts payable and other short term liabilities, and compute year by year changes from forecasted statements.

Discover how to adjust Walmart's cash flow from operations by subtracting increases in inventory, accounts receivable, and other short-term assets, using year-over-year changes from forecasted income statements and balance sheets.

Calculate Walmart's cash flow from operations in Excel by summing the items to add and subtracting the items to subtract, yielding about 25 billion for 2018 and extending to 2018–2022.

Calculate the cash flow from investment by identifying capital expenditures in plant and machinery and increases in goodwill, and subtract these outflows.

Compute Walmart's 2018 capital expenditure by taking the end minus beginning plant and machinery plus depreciation, yielding about 11 billion.

Calculate Walmart's cash flow from investments by applying capital expenditure and the increase in goodwill (I30 minus H30) across 2018–2022, using forecasted income statement and balance sheet data.

Calculate cash flow from financing by tracking cash inflows and outflows related to borrowings and equity, including new short-term and long-term debt.

Record interest expense as a cash outflow in cash flow from financing, then account for short-term debt to be repaid and long-term debt to be repaid.

Analyze cash flows to equity providers by recording dividends and share buybacks as financing outflows for Walmart, using the 2018 dividends of 6 billion and a 2 billion buyback.

Calculate the cash flow from financing for Walmart by summing inflows (I21–I22) and subtracting outflows (I23–I27) to forecast 14 billion in 2018 and extend the formula across 2018–2022.

Forecast Walmart’s cash flow by computing net cash flows from operations, investments, and financing, then project end-of-year cash balances from 2018 to 2022.

Apply the fundamental five-step valuation framework, analyze Walmart's business model using products, cost, operations, financing and strategy, review historical statements, and forecast future finances to align assets and liabilities.