Welcome to the Financial Modeler's Corner (FMC), where we discuss the Art and Science of Financial Modeling with your host Paul Barnhurst.

Financial Modeler's Corner is sponsored by the Financial Modeling Institute (FMI), the most respected accreditation in Financial Modeling globally.

In today’s episode, Paul engages in a conversation with Stephen Aldridge, to discuss developing and implementing Financial Modeling standards and best practices, including insights from his work on the Financial Modelling Code. This conversation is packed with practical advice and fascinating anecdotes.

Stephen, the founder of Numeritas, has over 20 years of experience in Financial Modeling. Stephen has worked with and for top firms like KPMG and Deloitte. With a background in engineering, sales, and corporate management, he offers a unique perspective on Financial Modeling standards and best practices.

Key takeaways from this week's episode include:

• Standards in Financial Modeling ensure consistency and reliability in financial models. Having an agreed-upon approach within a firm allows for seamless transitions when different individuals work on the same model, promoting accuracy and ease of understanding.

• Financial modeling involves various acceptable methodologies, making consensus on best practices challenging. Flexible guidelines, like the Financial Modeling Code, help streamline processes and ensure consistency across different approaches.

• Prototyping in Financial Modeling bridges the gap between modelers and users by creating early mock-ups of input areas. This approach ensures the model meets user expectations and captures necessary inputs accurately, saving time and resources in the long run.

• Human factors, such as biases and assumptions, significantly impact financial modeling. Effective communication and understanding stakeholder interactions are crucial for creating accurate and practical models.

• In implementing Modeling Standards, Firms should adapt modeling standards to their specific needs with a focus on basic principles like avoiding hard coding and maintaining consistency to enhance model quality and reliability.

Quotes: 

Here are a few relevant quotes from the episode on financial analysis and modeling:

Sign up for the Advanced Financial Modeler Accreditation Today and receive 15% off by using the special show code ‘Podcast’. Visit www.fminstitute.com/podcast and use...

Welcome to the Financial Modeler's Corner (FMC), where we discuss the art and science of financial modeling with your host Paul Barnhurst.

Financial Modeler's Corner is sponsored by the Financial Modeling Institute (FMI), the most respected accreditation in Financial Modeling globally.

In today’s episode, Paul engages in an interaction with Carolina Lago and discusses the essential tips for transforming data into actionable insights and the strategic approach to avoiding common modeling pitfalls. This discussion offers valuable wisdom that will enhance your analytical skills and financial acumen.

Carolina, a seasoned FP&A professional with over 15 years of international experience, shares profound insights from her extensive career, including her role in a significant IPO and leading software implementation across global departments.

Key takeaways from this week's episode include:

• An early career encounter with a poorly designed financial model, filled with hard-coded numbers, underscores the necessity for creating flexible and dynamic financial models that can adapt to changing business needs.

• The discussion highlights the critical need to avoid hardcoded data and external links in financial models, which can lead to rigidity and errors.

• Insights from the financial modeling newsletter and courses show a wide range of professionals benefiting, from newcomers to seasoned directors. This variety demonstrates the widespread need for improved modeling skills.

• The discussion focuses on the importance of transforming data into actionable insights. It's stressed that without the ability to analyze and interpret data effectively, its value is minimal.

• The conversation sheds light on techniques for deriving actionable insights from complex data, crucial for any financial modeler. It also discusses the value of formal certifications like the Advanced Financial Modeler Certification as tools for professional development and skill validation.

Quotes: 

Here are a few relevant quotes from the episode on financial analysis and modeling:

• “I inherited one, and I had to try to change it. I spent probably a couple of weeks trying to make it better, and I couldn't. It was just too full of hardcoded numbers and I had to find everything the way around and no design at all.”

• “The first thing I learned about financial modeling was not to use hard codes and don't link outside of the spreadsheet.”

• “Data is only useful if it can be transformed into actionable insights.”

• “The TACTIC is (Targets, Assets, Calculations, Tools, Insights, and Correlations.) You start with the target which is the question that you need to answer with that financial model.”

• “That's why I like financial modeling so much because it can transform data into something. So you can make decisions on top of that data.”

Sign up for the Advanced Financial Modeler Accreditation or FMI Fundamentals Today and receive 15% off by using the special show code ‘Podcast’.

Visit www.fminstitute.com/podcast and use code Podcast to save 15% when you register. 

Go to https://earmarkcpe.com, download the app, take the quiz and you can receive CPE credit....

Welcome to the Financial Modeler's Corner (FMC), where we discuss the art and science of financial modeling with your host Paul Barnhurst.

Financial Modeler's Corner is sponsored by the Financial Modeling Institute (FMI), the most respected accreditation in Financial Modeling globally. https://www.abacum.io

In today’s episode, Paul engages in a conversation with Geoff Robinson, to discuss the financial modeling world, blending technical skills with behavioral economics to enhance decision-making in finance.

Geoff Robinson, founder of TheInvestmentAnalyst.com and seasoned financial modeler with a rich background in investment banking and education, notably as a former managing director at UBS.

Key takeaways from this week's episode include:

• An unconventional entry into investment banking at 43, highlighting how the background in education enriches the approach to financial analysis and modeling, emphasizing the crossover skills between teaching and financial analysis. This highlights how teaching skills are transferable and beneficial in the financial analysis and modeling sectors.
• An anecdote about a significant error in a financial model, which failed to detect a $29 billion discrepancy, underscoring the critical importance of rigorous validation and diagnostic checks in financial modeling.
• In the role of behavioral factors in financial modeling, adopting a stance of professional skepticism and the need for understanding and questioning the assumptions underlying a model before trusting its output.
• For simplicity and planning in financial modeling, the most effective models are those that are straightforward, well-planned, and can communicate complex financial insights in an accessible manner.
• Strategies for mitigating bias, such as incorporating different perspectives and rigorous testing of hypotheses, as the influence of cognitive biases on financial modeling to enhance the reliability of financial models.

Quotes:

Here are a few relevant quotes from the episode on financial analysis and modeling:

"The diagnostic on this model was said if total assets equal total liabilities and equity, okay. So no matter what happened, your balance sheet, even if it was mashed up, the diagnostics said it was fine and when you went into the detail, there was a $29 billion hole in that balance sheet."

"Financial models are a real kind of insight and window into the personality of the modeler. You can see how they think, you can see how they overcomplicate things. You can see if they're sloppy."

“Models are question-asking tools. One of your questions was is it a primary decision maker, a financial model? I don't think models are decision-makers. I think models are the way you test a hypothesis.”

"I suppose the blunt thing to say is don't trust anything until you understand it."

Follow Geoff:

LinkedIn - https://www.linkedin.com/in/geofftheinvestmentanalyst

Website - https://theinvestmentanalyst.com

Follow Paul:

Website - https://www.thefpandaguy.com

LinkedIn - https://www.linkedin.com/in/thefpandaguy

For an experienced-based approach to financial modeling, emphasizing skepticism, the effective communication of complex financial data, and the intersection of analytical rigor, educational techniques, and behavioral economics, visit FMI at www.fminstitute.com/podcast and use code ‘Podcast’ to save 15% when you register. Contact Paul Barnhurst for further details.

In today’s episode:

(01:58) Introduction

(02:44) Guest Introduction

(03:00) Horrifying Financial Models

(04:01) Joking on Big Numbers

(04:24) Approach to Financial Modeling

(05:14) Behavioral Insights in Modeling

(05:56) Best Practices and Lessons Learned

(42:40) Rapid-Fire Question...