Agent skill
financial-modeling
Financial modeling patterns, valuation methodologies, and quantitative analysis for investment decisions. Includes DCF, LBO, and scenario modeling techniques.
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SKILL.md
Financial Modeling Skill
Comprehensive financial modeling patterns for investment analysis and valuation.
Valuation Methodologies
Discounted Cash Flow (DCF)
The fundamental intrinsic valuation approach based on future cash flows.
Enterprise Value = Sum of PV(FCF) + PV(Terminal Value)
Where:
- FCF = Free Cash Flow for each projection year
- Terminal Value = Perpetuity or exit multiple value
- Discount Rate = WACC or required return
Key Assumptions to Document
- Revenue growth rates and drivers
- Margin assumptions (gross, EBITDA, net)
- Working capital requirements
- Capital expenditure needs
- Terminal growth rate (typically 2-3%)
- Discount rate components
Comparable Company Analysis
Relative valuation using public company multiples.
| Metric | Formula | When to Use |
|---|---|---|
| EV/Revenue | For high-growth, unprofitable companies | |
| EV/EBITDA | Standard for mature companies | |
| P/E | For stable, profitable businesses | |
| P/B | For asset-intensive businesses |
Cannabis Industry Multiples (2024-2025)
- MSOs (Multi-State Operators): 3-6x EV/Revenue
- Cultivation: 1-3x EV/Revenue
- Retail: 4-8x EV/EBITDA (adjusted)
- Manufacturing: 2-4x EV/Revenue
Precedent Transactions
Analyze historical M&A transactions for valuation benchmarks.
- Control premium typically 20-40%
- Synergy assumptions affect deal multiples
- Market conditions at time of deal matter
Cash Flow Modeling
Unlevered Free Cash Flow
def calculate_ufcf(
revenue: float,
ebitda_margin: float,
da_pct: float,
capex_pct: float,
nwc_change: float,
tax_rate: float
) -> float:
"""Calculate Unlevered Free Cash Flow."""
ebitda = revenue * ebitda_margin
da = revenue * da_pct
ebit = ebitda - da
nopat = ebit * (1 - tax_rate)
ufcf = nopat + da - (revenue * capex_pct) - nwc_change
return ufcf
Levered Free Cash Flow
UFCF
- Interest Expense * (1 - Tax Rate)
- Mandatory Debt Repayment
+ Net Debt Proceeds
= Levered Free Cash Flow (to Equity)
LBO Modeling
Equity Returns Framework
IRR = (Exit Equity / Entry Equity)^(1/Years) - 1
Multiple = Exit Equity / Entry Equity
Components of Value Creation:
1. EBITDA Growth (organic + acquisitions)
2. Multiple Expansion (entry vs exit multiple)
3. Debt Paydown (deleveraging)
4. Cash Generation (dividends)
Debt Capacity Analysis
Maximum Debt = Min of:
- EBITDA * Target Leverage (e.g., 4.0x)
- Free Cash Flow / Minimum DSCR
- Collateral Value * Advance Rate
Cash Sweep Mechanics
def calculate_cash_sweep(
excess_cash: float,
sweep_percentage: float,
minimum_cash: float,
available_cash: float
) -> float:
"""Calculate mandatory debt prepayment from excess cash."""
sweepable = max(0, available_cash - minimum_cash)
sweep_amount = sweepable * sweep_percentage
return min(sweep_amount, excess_cash)
Scenario Analysis Framework
Three Scenario Model
| Scenario | Assumptions | Probability |
|---|---|---|
| Base | Management case with haircut | 50% |
| Downside | Revenue -20%, margins -5% | 30% |
| Upside | Outperformance on key metrics | 20% |
Sensitivity Analysis
Two-way sensitivity tables for key value drivers:
Revenue Growth (%)
5% 8% 10% 12% 15%
EBITDA
Margin
20% X% X% X% X% X%
25% X% X% X% X% X% <- Base Case
30% X% X% X% X% X%
35% X% X% X% X% X%
Monte Carlo Simulation
For more sophisticated analysis, simulate thousands of scenarios:
import numpy as np
def monte_carlo_irr(
base_case: dict,
assumptions: dict,
n_simulations: int = 10000
) -> dict:
"""
Run Monte Carlo simulation on IRR.
Returns distribution of outcomes.
"""
results = []
for _ in range(n_simulations):
# Randomize assumptions within ranges
scenario = {
k: np.random.triangular(v['min'], v['mode'], v['max'])
for k, v in assumptions.items()
}
irr = calculate_irr(base_case, scenario)
results.append(irr)
return {
'mean': np.mean(results),
'median': np.median(results),
'std': np.std(results),
'p10': np.percentile(results, 10),
'p90': np.percentile(results, 90)
}
Working Capital Modeling
Net Working Capital Definition
NWC = Current Operating Assets - Current Operating Liabilities
Typical Components:
+ Accounts Receivable
+ Inventory
+ Prepaid Expenses
- Accounts Payable
- Accrued Expenses
= Net Working Capital
Days Calculation
DSO (Days Sales Outstanding) = AR / Revenue * 365
DIO (Days Inventory Outstanding) = Inventory / COGS * 365
DPO (Days Payables Outstanding) = AP / COGS * 365
Cash Conversion Cycle = DSO + DIO - DPO
Model Quality Checklist
Structure
- Inputs separated from calculations
- Consistent formatting throughout
- Clear navigation and flow
- Summary dashboard
Accuracy
- Balance sheet balances
- Cash flow ties to balance sheet
- Debt schedule ties to financials
- Circular references resolved
Flexibility
- Easy to change assumptions
- Scenario switches work
- Date handling is robust
- Handles edge cases
Documentation
- All assumptions documented
- Sources cited
- Version control in place
- User guide included
Output Standards
Investment Memo Format
- Executive Summary with recommendation
- Key metrics summary table
- Valuation range with methodology
- Risk factors and mitigants
- Sensitivity analysis results
Presentation Deck Format
- Investment highlights (1 slide)
- Company overview (1-2 slides)
- Financial summary (2-3 slides)
- Valuation analysis (2 slides)
- Returns analysis (1-2 slides)
- Risk factors (1 slide)
- Appendix with detailed schedules
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