2025 LATEST FINANCIAL STATEMENT MODELLING
| NEWEST EXAM WITH CORRECT VERIFIED
ANSWERS FOR GUARANTEED EXAM AND
CERTIFICATION SUCCESS.
Where do you get the "base" case growth drivers from? (2 answers; one for public one for private)
1. For public companies, you get the information from Equity Research Reports on the company.
2. For private companies, you get the information from the current predictions of the management of
the company (called "management" case)
How many years out do FSMs normally forecast?
3-7 years (5 years being the most common)
What are the two exceptions to the fact that forecasting line items take a historical number and multiply
it by a predicted growth driver?
1. Interest Income and Interest Expense - you have to understand projected debt levels to derive a
projected interest expense and will need projected cash balances to get interest income
2. D&A Expense - this needs to be derived from PP&E projections
What should you do if the information in an Equity Research Report is different than what is reported on
the company's latest 10-k? Why does this difference occur?
This difference is normally due to changes in laws surrounding revenue recognition. As long as there are
not major differences, it is ok to ignore this and just use the 10-K data.
,Equity Research Reports normally only go out 1-3 years in forecast data. An FSM normally projects out
beyond this time frame. How do you estimate the data beyond the years that equity research provides?
A lot of banks will use a straight-line growth rate, which means they will just keep using the last growth
rate produced by the Equity Research Report. However, other methods might be needed if you notice
this number is abnormally high or low for the company.
What are the two common approaches for forecasting revenue?
1. Grow revenue using an aggregate growth rate
2. Segment level detail and price*volume approach
How do you forecast COGS on the income statement forecasting?
Make a percentage COGS margin (COGS/revenue) assumption and then back into a dollar amount of
COGS. You should start with historical margins as a benchmark and then either straight-line these
margins into the forecast period or reflect a thesis about why you plan to deviate from straight-line.
How do you forcast Operating Expenses? (Opex) What are the components of Opex?
Opex are all of the expenses related to the core operations of the company. These include selling costs,
general and administrative expense and Research and Development expenses.
All of these expenses are driven by revenue growth or you develop a specific thesis to reflect why you
think that these forecasts will deviate from the typical revenue growth.
How do you forecast Stock-based Compensation Expense? (SBC) Why do you forecast it this way?
SBC is normally forecast as a percentage of revenue because employees will be paid more and you will
have more employees as revenue grows
How do you forecast Other Non-Operating Items?
,This is a catch-all for all Other Non-Operating income and expenses not specified on the Income
Statement and are usually best forecast on a straight-line bases (as opposed to Opex, which are tied to
revenue growth)
How do you forecast Income Taxes?
Usually, simply straight-lining the last historical year's tax rate is sufficient
3 Balance Sheet Modeling Best Practices to Remember
1. Include at least two years of historical data - this is recommended to provide contexts for the
forecasts in the model
2. Reclassify GAAP to suit your needs - the way companies present information on their balance sheet
might not be the best for analysis. some line items will need to be adjusted.
3. Use Supporting Schedules - supporting schedules is where actual calculations take place
What is the growth driver for Accounts Receivable?
Grow with sales (net revenues)
What is the growth driver for Inventories?
Grow with COGS growth rate
What is the growth driver for Prepaid Expenses?
If prepaid expenses predominantly are comprised of SG&A, grow with SG&A. If you aren't sure, grow
with revenue.
, What is the growth driver for Other Current Assets?
Typically, you will grow these with revenues because it is assumed they are tied to core operations. If
there's reason to believe they are not tied to operations, straight-line the projections.
What is the growth driver for Accounts Payable?
If payables are generated predominantly through core operations, grow with inventory or COGS. if you
aren't sure, grow with revenue.
What is the growth driver for Accrued Expenses?
If the accrued expenses are largely for expenses in SG&A, grow with SG&A. if you are unsure, grow with
revenue.
What is the PP&E Roll-Forward formula? (used in the PP&E schedule to get to an EOP PP&E number)
BOP PP&E + CAPEX - Depreciation - Asset Sales = EOP PP&E
1. CapEx - Use Equity Research when available. Otherwise, grow in line with historical trends as a % of
net sales.
2. Depreciation - should be a historical average of % Depreciation related to PP&E against Capex
How do you forecast "Other" Balance Sheet line items? (asset sales or asset liabilities)
These line items are the catch-alls for the Balance Sheet. First, check the footnotes to see if you can find
a breakdown of what is inside of these line items. If the items are likely tied to operations, grow with
revenue. If the nature of the items are unrelated to operations, unclear or amount is immaterial,
straight-line prior period results.
How do you forecast Long-term Debt on the Balance Sheet?
| NEWEST EXAM WITH CORRECT VERIFIED
ANSWERS FOR GUARANTEED EXAM AND
CERTIFICATION SUCCESS.
Where do you get the "base" case growth drivers from? (2 answers; one for public one for private)
1. For public companies, you get the information from Equity Research Reports on the company.
2. For private companies, you get the information from the current predictions of the management of
the company (called "management" case)
How many years out do FSMs normally forecast?
3-7 years (5 years being the most common)
What are the two exceptions to the fact that forecasting line items take a historical number and multiply
it by a predicted growth driver?
1. Interest Income and Interest Expense - you have to understand projected debt levels to derive a
projected interest expense and will need projected cash balances to get interest income
2. D&A Expense - this needs to be derived from PP&E projections
What should you do if the information in an Equity Research Report is different than what is reported on
the company's latest 10-k? Why does this difference occur?
This difference is normally due to changes in laws surrounding revenue recognition. As long as there are
not major differences, it is ok to ignore this and just use the 10-K data.
,Equity Research Reports normally only go out 1-3 years in forecast data. An FSM normally projects out
beyond this time frame. How do you estimate the data beyond the years that equity research provides?
A lot of banks will use a straight-line growth rate, which means they will just keep using the last growth
rate produced by the Equity Research Report. However, other methods might be needed if you notice
this number is abnormally high or low for the company.
What are the two common approaches for forecasting revenue?
1. Grow revenue using an aggregate growth rate
2. Segment level detail and price*volume approach
How do you forecast COGS on the income statement forecasting?
Make a percentage COGS margin (COGS/revenue) assumption and then back into a dollar amount of
COGS. You should start with historical margins as a benchmark and then either straight-line these
margins into the forecast period or reflect a thesis about why you plan to deviate from straight-line.
How do you forcast Operating Expenses? (Opex) What are the components of Opex?
Opex are all of the expenses related to the core operations of the company. These include selling costs,
general and administrative expense and Research and Development expenses.
All of these expenses are driven by revenue growth or you develop a specific thesis to reflect why you
think that these forecasts will deviate from the typical revenue growth.
How do you forecast Stock-based Compensation Expense? (SBC) Why do you forecast it this way?
SBC is normally forecast as a percentage of revenue because employees will be paid more and you will
have more employees as revenue grows
How do you forecast Other Non-Operating Items?
,This is a catch-all for all Other Non-Operating income and expenses not specified on the Income
Statement and are usually best forecast on a straight-line bases (as opposed to Opex, which are tied to
revenue growth)
How do you forecast Income Taxes?
Usually, simply straight-lining the last historical year's tax rate is sufficient
3 Balance Sheet Modeling Best Practices to Remember
1. Include at least two years of historical data - this is recommended to provide contexts for the
forecasts in the model
2. Reclassify GAAP to suit your needs - the way companies present information on their balance sheet
might not be the best for analysis. some line items will need to be adjusted.
3. Use Supporting Schedules - supporting schedules is where actual calculations take place
What is the growth driver for Accounts Receivable?
Grow with sales (net revenues)
What is the growth driver for Inventories?
Grow with COGS growth rate
What is the growth driver for Prepaid Expenses?
If prepaid expenses predominantly are comprised of SG&A, grow with SG&A. If you aren't sure, grow
with revenue.
, What is the growth driver for Other Current Assets?
Typically, you will grow these with revenues because it is assumed they are tied to core operations. If
there's reason to believe they are not tied to operations, straight-line the projections.
What is the growth driver for Accounts Payable?
If payables are generated predominantly through core operations, grow with inventory or COGS. if you
aren't sure, grow with revenue.
What is the growth driver for Accrued Expenses?
If the accrued expenses are largely for expenses in SG&A, grow with SG&A. if you are unsure, grow with
revenue.
What is the PP&E Roll-Forward formula? (used in the PP&E schedule to get to an EOP PP&E number)
BOP PP&E + CAPEX - Depreciation - Asset Sales = EOP PP&E
1. CapEx - Use Equity Research when available. Otherwise, grow in line with historical trends as a % of
net sales.
2. Depreciation - should be a historical average of % Depreciation related to PP&E against Capex
How do you forecast "Other" Balance Sheet line items? (asset sales or asset liabilities)
These line items are the catch-alls for the Balance Sheet. First, check the footnotes to see if you can find
a breakdown of what is inside of these line items. If the items are likely tied to operations, grow with
revenue. If the nature of the items are unrelated to operations, unclear or amount is immaterial,
straight-line prior period results.
How do you forecast Long-term Debt on the Balance Sheet?
