Session recording
Patrick Daguet, AFMProfessor of Practice in Finance, IÉSEG School of Management
Recording and slides free until 11:59 p.m. ET on Sunday, November 8
A 15-minute edit of Patrick's session.
The recording of Patrick's session is included with FMI Foundations and the Advanced Financial Modeler (AFM) Program, along with every other session from the conference.
But Patrick's scenario workbook is free. Download below.
“One of the most important things in any model is ranges of possibilities and understanding how to capture cases, ranges, scenarios, sensitivities.” Ian Schnoor, Executive Director, Financial Modeling Institute, during the 24-Hour Global Financial Modeling Conference
Patrick's workbook from the session: a five-year mini-LBO wired to a scenario cockpit. Pick a case from the drop-down and watch exit equity, IRR, cash-on-cash and debt cover recalculate, then compare all eight cases side by side.
Best, Base and Worst profiles for volume, price, cost inflation and capex, year by year, chosen from drop-downs.
Eight named cases on one panel. One drop-down sends the chosen case into the model, with an On/Off switch.
A five-year deal: €40m of EBITDA bought at 8x with 4x leverage, returning exit equity, IRR, cash-on-cash and DSCR.
Entry versus exit multiple grids for IRR and cash-on-cash, and a summary sheet with the key scenarios and the sensitivity analysis.
Patrick's argument is that every model needs an anchor: a Base, or Sponsor's, case that can be defended and keeps the model in a sound position. One case is not enough. He runs alternate views around it, then builds a compact cockpit so the results can be read and believed.
Choose the inputs that move the business and the outputs that matter. In the workbook: volume, price, cost inflation, capex, and entry and exit multiples.
One compact panel that runs every case. Eight named cases sit side by side, and a single drop-down sends the chosen one into the model.
An aggregate view that stays dynamic and interactive: all eight cases in one data table, and an executive summary that updates when a case changes.
A sensitivity measures, a scenario tells a story. Patrick's closing slides put robust design and clear communication on the same footing.
A sensitivity moves one variable at a time and measures its impact. A scenario moves several at once and tells a story. In the workbook, the Inflation and Capex cases each change a single input, while Sc1 to Sc3 change inflation, capex and both multiples together, and Sc2 and Sc3 change the growth profiles as well. Either way, keep the cases sensible and business minded.
The cockpit runs all eight cases through a one-variable data table keyed to the case number, so every output lands in one grid without copying the model. A rankings table shows each case's IRR against base, and two-way data tables test entry against exit multiple.
The base case buys a business with €40m of EBITDA at 8x, funded with 4x leverage and €160m of equity. Five years on, it returns €424m of exit equity, a 21.5% IRR and 2.65x cash-on-cash. Double cost inflation from 2% to 4% and the IRR drops to 16.9%. Raise capex from 5% to 8% of revenue and the IRR falls by a point, to 20.5%, while average debt cover falls from 1.35x to 1.21x.
Sc1 ends with more exit equity than base, €435m, yet returns only 14.6%. It paid 9.5x EBITDA to get in, against 8x for base. The two-way tables make the same point: half a turn on the entry multiple moves the IRR about 3 points, half a turn on exit about 1.6.
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“Build a tool to communicate efficiently your key message.”
“Run sensitivities and scenarios that are sensible, business minded.”
“Each model should have a Base (Sponsor's) Case aka the anchor case. This case should be defendable and defended.”
“Sensitivity: one variable at a time: allows to measure the impact of a given variable.”
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