Rus News Journal

Modelling miracles

to Financial models often attribute a magic power, and the result of their work is capable to surprise even the person to whom it seems that he knows all cherished secrets of business.

financial model of the company - a set of formulas. Variables used in them - key parametres of business. Result of financial modelling - the complete set from three all known forms of the financial reporting - balance, the report on profits and losses and the report on movement of funds. Accompanies their analytical block which problem to answer on a question for the sake of what this model was made. So, the investment bankers preparing the company to sale, in the analytical block will count up its cost. The credit officer of bank will understand, whether the company can serve a debt. The financial director will see, during what moments and in what volume of the company external financing is required. The owner or a top - the manager will estimate strategic prospects of business - for example, whether the big share of the market is necessary to it. Often happens and so that the conclusions made on the basis of model of business, contradict intuition of the person which is taken by it many years.

the Step out of operation
Agregirovannost of the initial data, flexibility and a sight in far enough future - here that distinguishes financial model from “ near relations “ (various registration systems, budgeting systems, business - plans). From the philosophical point of view, it too business models, and they too “ about the finance “.

the Registration systems applied by bookkeepers, use, from the point of view of the composer of financial models, too detailed information. In opinion Andrey Dikushina, the company partner “ the Financial chronograph “ giving lectures on financial modelling for students LBS, use of the primary information taken from accounting - a frequent error of beginners or the bookkeepers put before necessity to make financial model. Data should be aggregated, choosing compact, but at the same time adequately reflecting validity and an essence of business the form. We will tell, for restaurant it can be “ passableness “ and the average check.

the Patrimonial sign of budgeting - use of the historical data - also is counter-indicative to the composer of models. Andrey Dikushin: “ Completely to lean against the last data - all the same what to go by the car, looking in a rear-view mirror. If the situation is stable enough, “stretched“ for a year forward the data at budget drawing up can give quite adequate picture. But if you want to glance forward for longer term, simply extrapolating available data in most cases receive nonsense. You, most likely, will appear “tomorrow“ essentially other “.

the Model always assumes flexibility. She should allow “ to play “ the initial data. For this reason the financial model, according to mister Dikushina, is not synonymous business - to the plan, at least, to that understand as this term more often. From the point of view of financial modelling drawing up of models with use of different assumptions for different addressees will be quite natural. For example, if you go with the financial model to bank behind the credit your assumptions of the future of the company and environment change should be conservative, assuming not the best variant of succession of events. So you will find common language with the credit officer faster. If you have gone to the venture capitalist, your assumptions of rates of development of your company should be much more aggressive. A problem will convince the investor that your command is capable to realise these ambitious plans.

to Understand business
Financial model consists of several blocks. Basis of good financial model - qualitative operational model. Its problem - to describe in the equations “ material “ (it is industrial - marketing) a part of ability to live of the company. By words Dmitry Pejlja from “ the Financial chronograph “ when there is an adequate operational model, places for imaginations in a financial part of model almost does not remain. Fairly and the return: if “ a picture “ the business, drawn in operational model, nerealistichna or sins with blanks, it will inevitably lead ushcherbnosti to financial model.

For drawing up of operational model heads of all functional services - production workers, experts in marketing, personnel officers, logisty, branch experts should be involved. The operational model should contain adequate representation about the future of the market of the market, whether it be the description of seasonal jumps of demand, realistic sales volume or a trend of movement of the prices. Production workers should give the exact data about when there will be a necessity of replacement of the equipment, to have near at hand specifications of expenses and etc. And practice shows that it is not always simple. As Yury Volkov, the teacher of the Higher school of management at GU - VSHE tells , a word “ the estimate “ long time was abusive, very many companies have lost traditions of cost management. More often at the enterprises well understand, how much they can sell the product. But hardly can explain industrial laws and as pricing is built. In model we receive the incorrect forecast of expenses, paternal its value sharply falls.

Participation of all divisions in drawing up of all models, necessity to reflect as their service and that ahead works, common language finding between divisions can be a self-valuable problem.

Valuable sheets
One more component of financial model - disklajmer (sheet of assumptions). Its purpose - to give the information on the composer of the model proceeded from what assumptions of an external world, what variables were used at its drawing up and what range of change of their values.

According to Yury Volkova, on sheet of assumptions can be both 20, and 30, and 50 parametres. The data undertakes from authoritative independent sources - for example, it can be forecasts of the Central Bank, the Ministry of Finance, branch associations, eminent analysts. As Nikolay Sergeev, the expert of investment company Eastway Capital considers , independence and authoritativeness of sources of the data helps to narrow at negotiations a field for discussions: “ If we build the forecast of development of the company „from the market”, it is easier to us to prove the received results, rather than in a case when it is our own estimation “.

For disklajmerom the block of calculations consisting of sheet of incomes, sheet of expenses and financing sheet follows. The most primitive way of calculations of incomes and expenses - it is proportional to growth of sales. But, according to Nikolay Sergeeva, very often such assumption leads to distortion of results, other dependences are possible. For example, growth of sales not always leads to proportional growth of number sales - managers that again - taki does not demand proportional expansion of office space.

the financing Sheet is necessary to understand, when also what money arrives from the outside (debt or from shareholders), and what available assets are generated in business and as they are distributed: that is invested that is paid in the form of dividends. So, one of applied problems of sheet - definition of requirements for external financing. Having counted model without external financing, it is possible “ to see ruptures “ - To obtain the data about the periods when also what money will be necessary. Further it is possible to pick up comprehensible characteristics of financing - ways, rates, currency, schedules of repayment and etc., solving, what of them are more adequate to requirements.

finding-out of what debt loading on forces to the enterprise can be One more purpose of use of sheet of financing. Still more recently, according to Andrey Dikushina, the right answer was “ how many will give “ and today already it is necessary to think, how many money and under what rates is necessary to you. The model will answer and this question.

That the finance
After the block of calculations feels look-ahead forms - those three kinds of the reporting (balance, the report on profits and losses, the report on movement of funds) follow. However, sometimes the situation can be simplified. According to Yury Volkova, happens so that the balance does not bear any essential information (we will tell, in sphere of services) then it is possible to refuse its drawing up. Month, quarter or year can be time step to reception of forms of account - depends on the modelling purposes. For an estimation of business by an interval year gets out, for credit model quarter more often gets out. At terms of less month it is difficult to obtain the initial data, and such reporting of the company do not conduct.

the Role of the analytical block carries out the block of totals. Those target indicators for the sake of which the financial model is made Here contain. The latest sheet - sheet of the analysis of sensitivity. Changing values of introduction parametres (for example, substituting different values of inflation) in sheet of assumptions, in operational model or changing formulas in the block of calculations, it is possible to reveal indicators to which your model is most sensitive.

Here - that the greatest unexpectedness also are possible. So, according to Yury Volkova having behind shoulders experience of drawing up of models for oil and gas business, it can appear that fluctuations of the world prices for oil are not so important for the Russian oil company. And for the certain investment project the size of the rate of discounting - one of the major indicators, let us assume, is indifferent.

do not complicate
One of the most widespread disputes round financial modelling dispute on what their complexity should be is. Clearly that the model should not contain the minimum quantity of absolutely primitive dependences. Nikolay Sergeev: “ the Majority of my colleagues say that I make difficult models, they block requirement of time for two. But on difficult negotiations of the buyer to convince easier, if he knows that we, predicting company growth, have considered influence of different parametres. I consider that so it is more reliable “. With such campaign Andrey Dikushin agrees also: “ At too primitive model the opponent is put in a binary situation „I trust - I do not trust”. If there is a possibility to see influence of different factors, to play the data there is a subject for dialogue “.

However complexity of model can deliver and an array of problems. Dmitry Pejl: “ When the composer of model appears the person with good mathematical preparation, ritual dancings round figures often begin. Quite often forget that intelligent interpretation, understanding of an essence of the processes which have led to this dependence, and difficult mathematical and statistical methods is necessary, as a rule, a little to it promote “. Practically always enough arithmetic actions and exponentiation.

Yury Volkov says that in model should be no more than five important introduction parametres from which total results change. If them it will appear more received results, in its opinion, simply cease to perceive. Besides more often it is supposed that the initial data is independent from each other. And though it not always so to enter into model their interdependences only all confuse attempts.

Elena Kuvshinnikova, the manager of the Center of vocational training of the company “ Ernest end Young “ considers that if a model problem - to be defined with a strategy choice, with a choice of ways of growth of cost of business it is not necessary to complicate all: “ Even opposite: simplification of model to a certain set of key indicators can simplify acceptance of the strategic decision, highlight essential and separate grains from plevel “.

the conclusion of experts is that: the majority of the difficult models made “ as in the theory “ in practice are inapplicable. Simplicity - a sign of skill of the financier.