Corporate and Project Finance Modeling: Theory and Practice

  • 10h 40m
  • Edward Bodmer
  • John Wiley & Sons (US)
  • 2015

A clear and comprehensive guide to financial modeling and valuation with extensive case studies and practice exercises

Corporate and Project Finance Modeling takes a clear, coherent approach to a complex and technical topic. Written by a globally-recognized financial and economic consultant, this book provides a thorough explanation of financial modeling and analysis while describing the practical application of newly-developed techniques. Theoretical discussion, case studies and step-by-step guides allow readers to master many difficult modeling problems and also explain how to build highly structured models from the ground up. The companion website includes downloadable examples, templates, and hundreds of exercises that allow readers to immediately apply the complex ideas discussed.

Financial valuation is an in-depth process, involving both objective and subjective parameters. Precise modeling is critical, and thorough, accurate analysis is what bridges the gap from model to value. This book allows readers to gain a true mastery of the principles underlying financial modeling and valuation by helping them to:

  • Develop flexible and accurate valuation analysis incorporating cash flow waterfalls, depreciation and retirements, updates for new historic periods, and dynamic presentation of scenario and sensitivity analysis;
  • Build customized spreadsheet functions that solve circular logic arising in project and corporate valuation without cumbersome copy and paste macros;
  • Derive accurate measures of normalized cash flow and implied valuation multiples that account for asset life, changing growth, taxes, varying returns and cost of capital;
  • Incorporate stochastic analysis with alternative time series equations and Monte Carlo simulation without add-ins;
  • Understand valuation effects of debt sizing, sculpting, project funding, re-financing, holding periods and credit enhancements.

Corporate and Project Finance Modeling provides comprehensive guidance and extensive explanation, making it essential reading for anyone in the field.

About the Author

EDWARD BODMER is an experienced financial and economic consultant, trainer, and lecturer. He has conducted many training programs around the world to both large corporations and public programs that have covered project finance, corporate finance, energy analysis, and mergers and acquisitions. Formerly, Bodmer was the Vice President at the First National Bank of Chicago, where he directed analysis of energy loans and also created financial modeling techniques used in advisory projects.

In this Book

  • Financial Modeling and Valuation Nightmares—Problems That Financial Models Cannot Solve
  • Becoming a Black Belt Modeler
  • General Model Objectives of Structuring Transactions, Risk Analysis, and Valuation
  • The Structure of Alternative Financial Models
  • Avoiding Bad Programming Practices and Creating Effective Auditing Processes
  • Developing and Efficiently Organizing Assumptions
  • Structuring Time Lines
  • Projecting Revenues, Expenses, and Capital Expenditures to Derive Pretax Cash Flow
  • Moving from Pretax Cash Flow to After-Tax Free Cash Flow
  • Adding Debt to a Corporate or Project Finance Model by Programming Cash Flow Waterfalls
  • Alternative Calculations of Equity Distributions
  • Putting Together Financial Statements and Calculating Income Taxes
  • Risk Assessment—The Centerpiece of All Valuation, Contracting, and Credit Issues in Finance
  • Defining, Describing, and Assessing Risk in a Risk Allocation Matrix
  • Presentation of Risk Analysis Through Adding Sensitivity Analysis to Financial Models
  • Using Financial Models to Establish Break-Even Points for Key Input Variables with Data Tables
  • Constructing Flexible Scenario Analysis for Risk Assessment
  • Generating Tornado Diagrams, Spider Charts, and Waterfall Graphs
  • Adding Probabilistic Risk Analysis and Time Series Equations to Financial Models
  • Taking the Mystery out of Applying Time Series Analysis and Monte Carlo Simulation in Financial Models
  • Constructing Probability Distributions with Trends, Mean Reversion, Price Boundaries, and Correlations among Variables
  • The Difficult Problem of Estimating Volatility, Mean Reversion, Time Trends, Correlations, and Price Boundaries from Historical Data or Market Data
  • Overview of Issues When Computing Normalized Cash Flow and Terminal Value
  • Computing the Return on Invested Capital for Historical and Projected Periods in Corporate Models
  • Calculation of Invested Capital
  • Complex Items in Balance Sheet Analysis—Deferred Taxes, Operating Cash, and Derivative Assets
  • Four General Terminal Value Methods
  • Terminal Value and Philosophy—Company Growth Rates and Overall Economic Growth
  • Normalizing Terminal Year Cash Flows for Stable Working Capital Investment
  • Relationship of Growth, Capital Expenditures, Depreciation, and Return on Investment
  • Computing Normalized Deferred Tax Changes
  • Terminal Value and the Ability of a Company to Earn Returns above the Cost of Capital
  • Errors and Distortions in Applying the Value Driver Formula
  • Computing Implied Price/Earnings Ratios for Use in Terminal Value Calculations
  • Computing an Implied EV/EBITDA Ratio in Terminal Value Calculations
  • Developing Value Drivers for P/E and EV/EBITDA Ratios with Benchmarking and Regression
  • Resolving Circular References in Acquisition Models—Computing Interest Expense on the Average Balance of Debt
  • Creating a Structured Cash Flow Process in a Corporate Model to Resolve Circular References
  • Overview of Complex Project Finance Modeling Structuring Issues
  • Funding Techniques in Project Finance and the Associated Circular Reference Problems
  • Debt Sculpting in a Project Finance Model
  • Automating the Goal Seek Process for Annuity and Equal Installment Repayments
  • Modeling Debt Service Reserve Accounts
  • Modeling Maintenance Reserve Accounts
  • Refinancing and Valuing a Project Given Risk Changes over the Life of a Project
  • Covenants and Cash Flow Sweeps in Project Finance Models
  • Asset Portfolios, Progress Payments, and Lease Rolls in Real Estate Models