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BonaSIMM Handbook

BonaSIMM Handbook

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Published by JimMahar
Students in Money Management is a student run fund at St. Bonaventure University. The students manage over $500,000 USD.
Students in Money Management is a student run fund at St. Bonaventure University. The students manage over $500,000 USD.

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Published by: JimMahar on Jun 26, 2014
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Student Handbook

St. Bonaventure University
2013 – 2014

SIMM - Handbook 1
St. Bonaventure University
Students in Money Management

Welcome to the Fund!
Dear Member,
Congratulations! You’ve taken the first step towards building
the foundation for your future business career. With hundreds of
thousands of business students across the world, differentiating
yourself is of utmost importance. Active participation in SIMM is
the most effective way to best-position yourself for success upon
As a member of SIMM, you will gain hands-on experience in
portfolio management, investment strategies, valuation
techniques and more. The tools and experience you gain in SIMM
prepare you for a seamless transition from the classroom into the
real world. Regardless of your major or prior experiences, SIMM
welcomes you to join our team and assume a role that matches
your career objectives. Commitment to the fund will not only
benefit the progress of the fund, but it will also provide you with a
unique skill set that is coveted by recruiters seeking young talent.
As a new member we expect you to take a proactive approach
to learning, embrace self-education and seek the fund leaders for
assistance when needed. If at any point you are confused about a
topic and have a question, feel free to reach out to the professor
or other members for guidance. We are a student-run portfolio
and are reliant upon each other to learn more about stock
valuation, the financial markets, and the overall economies of the
world in order to further advance our fund.
This guide is to serve as a foundation for your learning and
integration into the Fund. It outlines the benefits and the
structure of the fund and serves as a reference to help assist you
in stock valuation techniques. In conclusion, Students in Money
Management would formally like to welcome you to the fund.


Management Follow us on Twitter @BonaSIMM
Welcome Letter 1

Why Join? 2

Fund Breakdown 3

Responsibilities 4

Key Terms 6

Stock Pitch 11

Bloomberg Login 13

Valuation Guide 18

SIMM - Handbook 2
Why Join?
Students in Money Management provides an experiential learning opportunity that
extends beyond a normal classroom environment. Here in SIMM we manage money based on
our own valuation techniques and portfolio strategies, and the gains and losses we experience
are real. Although we are largely finance based, SIMM welcomes students from any major to
get involved in the Fund. There are opportunities in accounting, marketing, management, and
to extend beyond the School of Business, we have a need for English and journalism and mass
communication majors. We are always looking for ways to improve upon our foundation, and
new students generating new ideas can only help further our goals.
The fall is an especially exciting time for us, as SIMM will be the center piece of the new
School of Business. There is no better time to get involved in this program, and we look forward
to you becoming an active member.

Learn Valuable Skills
 Equity Forecasting & Research
 Fundamental & Technical Analysis
 Investment Strategies
Bloomberg Certification
In the new School of Business, students will have access to multiple
Bloomberg terminals. These terminals are financial computers that provide
current, in-depth information on the financial markets, and are a great resource
for stock valuation. In addition, employers seeking young, talented individuals will
be especially impressed with a Bloomberg Certification that can be received via
any terminal.

One of the greatest resources available to you as a member of SIMM is the Alumni
network. We have had many students pass through the program and go on to find careers in
major financial firms. Listed below are some of the company’s where we have Alumni

SIMM - Handbook 3
Fund Breakdown
In SIMM, there are many opportunities to get involved and further enhance your
learning experience. SIMM consists of three separate funds: the Long Fund, the Energy Hedge
Fund, and the MicroFinance Fund. Please take a look at the breakdown of each fund below, and
see which fund suits your needs best.

Long Fund $230,000
As a member of the Long Fund, you will gain hands-on experience with stock valuation
techniques and gain greater insights into the financial markets. The Long Fund consists of both
equity and fixed income positions, and we also have the ability to use derivatives to hedge
against market risks. The Fund provides plenty of opportunity to enter an analyst position in an
industry that interests you.


Energy Hedge Fund $264,000
The Energy Hedge Fund takes a step into the world of commodities. In this fund, you will
gain valuable knowledge about the commodity markets, particularly the energy side, and learn
about options and futures trading. The Fund also holds equity positions in energy companies.
As an analyst in the Energy Hedge Fund, you will review in-depth how macroeconomic
conditions can severely impact valuation strategies.


MicroFinance Fund $5,000
The newest addition to SIMM, the MicroFinance Fund, further enhances the learning
environment for members. It also provides a unique element to our investment operations
where we can incorporate community service initiatives into the Fund. Students engaged in the
MicroFinance Fund will gain credit analysis experience and understand the processes of making
a loan. We are excited for our new addition, and will be looking to grow the fund dramatically
over the course of the next few years, starting with the establishment of a 501c3.
Basic Materials Financials Utilities
Consumer Discretionary Healthcare Fixed Income
Consumer Staples Industrials Risk Management
Energy Technology

Gasoline Natural Gas Oil
Commodities Options/Futures Energy Equities
SIMM - Handbook 4
An Analyst in Students in Money Management is responsible for the coverage of a
particular sector by providing regular sector updates, following earnings releases for portfolio
holdings, analysis of equities in their sector, and buy/sell recommendations for companies
within their sector. The expectations of an Analyst are as follows:
 One minute sector updates at the beginning of every class.
 Analysts are required to track earnings for portfolio holdings in their particular sector.
The following activities are required:
o Must provide a brief opinion on an earnings release the day before the
o PowerPoint presentations are required in class after an earnings release detailing
earnings figures and qualitative information supporting these figures.
 Analysts are responsible for drafting and updating stock theses’ for all new buy/sell
recommendations and for holdings in place prior to accepting the position. All theses’
should include:
o Why do we own the security?
o Where have they been?
o Where are they going?
 Analysts are required to give at least 1 pitch a month. These recommendations could be
a buy/sell recommendation, a pitch to scrape profits or a pitch to cut losses.
 Analysts must create an accurate sector write-up for all annual reports and semi-annual
reports. This should be taken very seriously and if reports are not acceptable, they must
be redone until deemed satisfactory.
 If a student cannot attend a class, a written sector update must be posted to Google
Docs for the class to reference.
 If analysts fail to meet any or all of the expectations listed below, a primary warning will
be issued. If after the primary warning an Analyst still fails to meet these expectations,
they will have a sit down meeting with SIMM management to discuss core roles and
expectations. If an analyst is still failing to meet their core roles, they will be asked to
leave Students in Money Management for a minimum of one semester.
o One minute sector updates
o Tracking earnings releases
o Updating stock theses’
o One pitch a month minimum
o Posting written sector updates if an analyst cannot attend class
SIMM - Handbook 5
 If an analyst does not complete a sector write-up for the annual report, they will
immediately be asked to leave SIMM for a minimum of one semester.
o If the sector write-up is completed but deemed unsatisfactory, the analyst is
required to rewrite the update to a satisfactory level. If after a second
submission the sector update is again deemed unsatisfactory, management
reserves the right to instill consequences including a semester ban.
o It is the analysts’ responsibility to obtain as much help as necessary, if their
report is deemed unsatisfactory, from management or peers with sufficient
Please note, if you are ever confused as to what your responsibilities are as an active member or
as a student enrolled in the course, please feel free to reach out to management with any and
all questions.

SIMM - Handbook 6
Key Terms

52-Week High/Low
The 52-week high and low refers to the highest/lowest market price of a given security over a
52-week (one-year) period. These two figures serve as a range for investors to consider when a
stock may be undervalued or overvalued. However, it does not necessarily mean the stock
cannot break through either of these thresholds.

An acquisition is the purchase of all or a portion of a corporate asset or target company. Once a
target company is acquired by another company, the company ceases to exist and integrates
into the purchasing company.

The simultaneous buying and selling of a security, currency, or commodity in different markets
or in derivative forms in order to take advantage of differing prices for the same asset.

The lowest price at which someone is willing to sell the security. When combined with the bid
price information, it forms the basis of a stock quote.

Basis Point
One-hundredth of a percentage point. For example, the difference between 0.75% and 1.0% is
25 basis points. It is often used to describe market or equity movements.

Blue Chip Stocks
Stocks of leading and nationally known companies that offer a record of continuous dividend
payments and other strong investment qualities.
Bear Market
A market in which stock prices are falling. If you are bearish, that means you feel an equity or
the overall market will be entering or is in a downward trend.

A measure of a stock’s volatility relative to the overall market; usually calculated relative to the
S&P 500 Index over the trailing 12-month period. A stock with a beta of 1.0 follows the current
market trends. Stocks with betas greater than 1.0 fluctuate more heavily than the market, and
stocks with betas less than 1.0 tend to be less volatile than the market.

The highest price a buyer is willing to pay for a stock. When combined with the ask price
information, it forms the basis of a stock quote.

SIMM - Handbook 7
Promissory notes issued by a corporation or government to its lenders, usually with a specified
amount of interest for a specified length of time.

Bull Market
A market in which stock prices are rising. If you are bullish, that means you feel an equity or the
overall market will be entering or is in an upward trend.

Call Option
An option which gives the holder the right, but not the obligation, to buy a fixed amount of a
certain stock at a specified price at a specified time in the future. Calls are purchased by
investors who expect a price increase.

Capital Asset Pricing Model (CAPM)
CAPM is used to calculate the required rate of return for an asset, adjusted for the level of risk
associated with the asset. The greater the risk of an asset, the more return an investor will
require in order to invest in the asset, and vice versa. CAPM also takes into account the time
value of money represented in the equation by the risk-free rate, which compensates investors
for taking the time to invest their money.
= r
+ β
– r
Cost of Capital
Cost of capital refers to the opportunity cost of making a specific investment. It is the rate of
return that could have been earned by putting the same money into a different investment
with equal risk.

Dilution is a reduction in proportional ownership caused when a company issues additional
shares. It typically occurs when a company introduces a secondary public offering, and is not
well received by investors because shares lose their value when more are issued.
Discounted Cash Flow (DCF) Analysis
A DCF valuation is the process of calculating the present value of an investment’s future cash
flows in order to arrive at a current fair value estimate for the investment. DCF analysis is one
of the most fundamental and pervasive concepts in finance and is largely popular because it
accounts for the time value of money. See page _ for a more comprehensive explanation on
how to perform a DCF Analysis.

The portion of the issuer’s equity paid directly to shareholders. It is generally paid on common
or preferred shares. An issuer is under no obligation to pay either preferred or common
dividends. It is seen more as an add-on to reward investors for investing their money in a firm.

SIMM - Handbook 8
Dow Jones Industrial Average (DJIA)
A stock index that is an average of the 30 most actively traded stocks. It is calculated by adding
the prices of each of the 30 stocks and dividing by a divisor.

Earnings per Share (EPS)
The portion of a company’s profit allocated to each outstanding share of common stock. EPS
serves as an indicator of a company’s profitability.

Equity Risk Premium
The equity risk premium is the difference between the rate of return of a risk-free investment
and the rate of return of an individual stock over the same time period. Since all investments
vary in their degrees of risk, the equity risk premium is a measure of the cost of that risk.

Enterprise value over EBITDA refers to a ratio that is used to value a company. The multiple
takes debt into account, and is a quick indicator of whether or not a company seems
overvalued or undervalued.

Exchange-Traded Fund (ETF)
A special type of financial trust that allows an investor to buy an entire basket of stocks through
a single security, which tracks and matches the returns of a stock market index. ETFs are
considered to be a special type of index mutual fund, but they are listed on an exchange and
trade like a stock.

A cash market transaction in which delivery of the commodity is deferred until after the
contract has been made. Although the delivery is made in the future, the price is determined on
the initial trade date. Forwards are traded over-the-counter and are customizable. They are
also created by a single market maker. For example, a forward can be used to “lock-in” the
price of grain in the future, so a farmer is guaranteed a certain dollar amount.

A future behaves in much the same way as a forward, but is traded on an exchange and the bid-
ask spread is much tighter due to many market makers in a competitive market.

A strategy used to limit investment loss by making a transaction that offsets an existing

SIMM - Handbook 9
Limit Oder
An order placed with a brokerage to buy or sell a set number of shares at a specified price or
better. Limit orders allow an investor to limit the length of time an order can be outstanding
before being canceled.

The buying of a security such as a stock, commodity or currency, with the expectation that the
asset will rise in value; most investors only enter long positions due to the limited downside
potential (an asset’s value can only go to zero).

Market Cap
The relative market value of a company’s outstanding shares:
I. Large: well established, $10-200B dollar companies (Microsoft, blue chips, etc.)
II. Mid: slightly more volatile than large, $2-10B companies (growth stocks)
III. Small: newer companies with potential for greater growth at the cost of greater risk

Market Order
An order that an investor makes through a broker or brokerage service to buy or sell an
investment immediately at the best available current price. A market order is the default option
and is likely to be executed because it does not contain restrictions on the buy/sell price or the
timeframe in which the order can be executed. Due to the nature of a market order, an investor
may end up buying or selling an asset at a price that is unfavorable to them.

Market Perform
An investment rating used by analysts when the expectation for a given stock or investment is
that it will provide returns in line with those of the S&P 500 or other leading market averages.
Market perform is a neutral assessment of a stock and is neither strongly positive or negative.

Money Market
A segment of the financial market in which financial instruments with high liquidity and very
short maturities are traded. The money market is used by participants as a means for
borrowing and lending in the short term, from several days to just under a year.

Market Risk Premium
The difference between the expected return on a market portfolio and the risk-free rate.

Mutual Fund
An investment vehicle that is made up of a pool of funds collected from many investors for the
purpose of investing in securities such as stocks, bonds, money market instruments and similar
assets. Mutual funds are operated by money managers, who invest the fund's capital and
attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio
is structured and maintained to match the investment objectives stated in its prospectus.

SIMM - Handbook 10
OTC Market
A security traded in some context other than on a formal exchange such as the NYSE, TSX,
AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer
network as opposed to on a centralized exchange. It also refers to debt securities and other
financial instruments such as derivatives, which are traded through a dealer network.

Price-to-Earnings Ratio
This is a method for judging whether a price-earnings ratio is reasonable in relation to market
conditions and historical P/Es. A quick analysis of how fairly priced a company is relative to its
peers within the same industry; cannot easily compare across industries due to balance sheet

Price-to-Book Ratio
A ratio used to compare a stock's market value to its book value. It is calculated by dividing the
current closing price of the stock by the latest quarter's book value per share.

Price-to-Sales Ratio
A ratio for valuing a stock relative to its own past performance, other companies or the market
itself. Price to sales is calculated by dividing a stock's current price by its revenue per share for
the trailing 12 months.

Price Target
A price that, if achieved, would result in a trader recognizing the best possible outcome for his
or her investment. This is the price at which the trader would like to exit his or her existing
position so that he or she can realize the most reward.

Standard & Poor’s 500 (S&P 500)
An index of 500 stocks chosen for market size, liquidity and industry grouping, among other
factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to
reflect the risk/return characteristics of the large cap universe.

The creation of an independent company through the sale or distribution of new shares of an
existing business/division of a parent company. A spinoff is a type of divestiture.

Stop-Loss Order
An order placed with a broker to sell a security when it reaches a certain price. A stop-loss
order is designed to limit an investor's loss on a security position.

SIMM - Handbook 11
Stock Split
A corporate action in which a company's existing shares are divided into multiple shares.
Although the number of shares outstanding increases by a specific multiple, the total dollar
value of the shares remains the same compared to pre-split amounts, because no real value has
been added as a result of the split.

A financial security or other type of investment that is selling for a price presumed to be below
the investment's true intrinsic value.

An analyst recommendation meaning a stock is expected to do slightly better/worse than the
market return.

A stock with a current price that is not justified by its earnings outlook or price/earnings (P/E)
ratio and, therefore, is expected to drop/rise in price. Overvaluation may result from an
emotional buying spurt, which inflates the stock's market price, or from a deterioration in a
company's financial strength. Undervaluation may occur after a stock experiences an
overcorrection from unfavorable news or a quick sell-off.

Put Option
An option contract giving the owner the right, but not the obligation, to sell a specified amount
of an underlying security at a specified price within a specified time.

The sale of a borrowed security, commodity or currency with the expectation that the asset will
fall in value.

Refers to the amount of uncertainty or risk about the size of changes in a security's value. A
higher volatility means that a security's value can potentially be spread out over a larger range
of values. This means that the price of the security can change dramatically over a short time
period in either direction.

Working Capital
A measure of both a company's efficiency and its short-term financial health. Calculated by
subtracting current liabilities from current assets. If a company's current assets do not exceed
its current liabilities, then it may run into trouble paying back creditors in the short term. The
worst-case scenario is bankruptcy. Source: Investopedia.com

SIMM - Handbook 12
Stock Pitch

As a new member of SIMM, it may seem like a daunting task to be able to recommend a
buy or sell pitch, especially if you are unfamiliar with what makes a stock “good” or “bad.” The
following questions outline some important factors to look at when researching a company and
analyzing their financial statements.

I. What is the financial performance of the company?
a. Where do the cash flows come from?
b. How much debt does the company have? Short-term debt?
c. What are analysts’ opinions?
d. What has the earnings history been like the past five years?
e. Do they have strong management with a proven track record?
II. What sector is the company in and what drives the stock?
a. How has the sector performed over the past 3-, 6- and 12-months?
b. How has the company performed within its sector?
c. What economic factors may hinder or help the company’s performance?
III. What is the company’s market share?
a. Who are the competitors? How is the firm positioned?
b. What is the P/E of the stock versus the industry average?
c. What is the P/E growth rate of the stock versus the industry average?
d. Is the stock under or overvalued relative to its peers?
IV. What is the outlook for the company?
a. What headwinds/tailwinds is the company facing?
b. How much risk is involved in the operations of the company?
c. Does the company make headlines regularly and what is the effect? (i.e. Boeing)

All of these questions and more need to be addressed when analyzing a company.
Despite years of industry experience and a breadth of financial information available, analysts
still fail to predict market movements. Well thought out ideas and in-depth analysis can
mitigate our risk and develop a healthy portfolio.

Seeking Alpha (Wall Street Breakfast): Quick morning note on major headlines in the market;
easy to read on the way to class. Also entails opinion articles for stock ideas.
Bloomberg Terminal: Incredible amount of information available on this machine; the most
reliable, up-to-date information available to us.
Yahoo Finance: Not the most reliable, but easy-to-use and will give the quick and dirty.

Follow Bona Simm on Facebook and Twitter (@BonaSIMM) for periodic portfolio updates.

SIMM - Handbook 13
Bloomberg Login

The following pages will provide step-by-step instructions to access the Bloomberg
terminal. A terminal is an incredibly useful financial computer that gives you access to an
infinite amount of data in seconds. It is highly recommended that you become well acquainted
with the many functions and tools the computer has to offer. Receiving the Bloomberg
certifications highlighted in the following pages will provide another dynamic to your resumé,
and be another step towards preparing you for the professional environment.

How to set up a new Bloomberg account:

1. Click on the Bloomberg Terminal icon on the desktop.

2. You will come to the main login screen. Press GO or the enter key on the keyboard.

SIMM - Handbook 14
3. You will see the screen listed below, click on create a new login.

4. Follow the on-screen instructions in order to create your login.

Please make sure to accurately fill out the required information, as contact information will be
important to contact the Help Desk with questions.
SIMM - Handbook 15
Now that you are a Bloomberg user, close out and open up the program again. You will notice
that when you open Bloomberg every time, four windows will pop up, one of them being this

You will need to complete the online training videos to become Bloomberg Certified.
To get started, click on 12) View Training Videos or just type 12 on the keyboard.
There are four core training videos, along with one additional sector video of your choosing. All
the videos do not need to be done at the same time, and it is not advised that you attempt to
complete them all at once. The entire four-video course can be completed in less than four
Once completed, click on 11) Request acknowledgment of completion or type 11 on the
keyboard. Your certificates will be emailed.

SIMM - Handbook 16
**IMPORTANT** There are two exams total to become Bloomberg certified. One covers the
four core videos, which is 30 multiple choice questions and the other covers the Bloomberg
market sector of your choice, which is 30 multiple choice questions as well. These exams are
not timed, so take as much time as necessary. You need to score 75% or higher to pass.
You can take the exam again, only one time, but you will need to contact the Bloomberg help
desk by pressing Help twice on the keyboard. Once you press Help twice, a screen comes up for
you to type. Ask for a retake on the exam and it will be ready for you to do again.
Once you have scored above 75% on both exams, congratulations, you are Bloomberg Certified!
You will need to print out the certificate or forward it to Dr. Mahar if you are taking the class for
credit since it is part of your grade.

Now that you are certified, let's take a look at the keyboard:

It may seem a bit intimidating at first but the more you practice, the easier it becomes. Let's
take a look at Apple. To do this, open Bloomberg on your desktop, and in one of the four
windows that pop up, make sure your mouse curser is flashing at the top left (where it says
<HELP> , For Explanation). Type Apple's ticker symbol “AAPL” then press the EQUITY (yellow
line) key on the keyboard, then hit <Go> (enter key).

SIMM - Handbook 17
This is the screen that will come up.

From here, you can see there are several options to delve deeper in to Apple. You can either
type the commands next to the description, type the number next to the command, or click on
the command to go to that page. This stays the same for any equity you want to research.
Other main functions you need to know:
N – News
WEI – World Equities
WEIS – Returns for World Equities
ECO – Economic Calendar by Country
TOP-Top Bloomberg News Stories
EE- Earnings & Estimates
RV- Relative Valuation (compare companies within the same industry)
RES- Research by sector
ANR – Analyst Recommendations

SIMM - Handbook 18
Stock Valuation Guide
Valuation Techniques
In order to accurately valuate a company, it is helpful to use several different techniques to
analyze a company’s performance top-to-bottom. Valuation techniques, which vary greatly in
their complexity, can be broken down into two different groups: relative and absolute.
Relative Valuation
Relative Valuation is valuing a company based upon the pricing of similar companies.
Generally, this is done by comparing multiples (P/E, P/B, and P/S) of a company to the multiples
of a similar company. The idea is that if two companies are in the same industry, they are likely
to have similar growth prospects going forward. Therefore, investors should be willing to pay a
similar price for the earnings/revenue of those companies. For example, if one company has a
lower P/E multiple than a competitor with nearly an identical structure, it could indicate that
this company is undervalued relative to that peer. However, this is not always the case.
Investors may be willing to pay more for one company’s earnings over another for many
reasons. A company’s management may have created a far better business model that leads to
more favorable growth strategies going forward. In this case, investors would be willing to pay a
higher price for future profits in expectations that the company’s earnings will increase more
than their competitors. The degree to which you value this technique in your model should vary
based upon the situation. Sometimes there may not be a close competitor, thus comparing
multiples would lead to inaccuracies in your valuation. Also, if you disagree with the market’s
view on a company’s quality of management or a company’s growth strategies, then you would
not consider their multiples in your valuation. As you can see, there are many factors to
consider when valuing a company and there is a great deal of speculation when doing so.
Absolute Valuation
The second type of valuation technique, called absolute valuation, deals with finding a
company’s true worth by looking at a specific company’s fundamentals. The most effective way
to do this is through a Discounted Cash Flow (DCF) Analysis. Although this technique can be
quite complex, it is probably the most accurate way to value a company, when done correctly.
The basic idea of a DCF is to project the future free cash flows of a company and discount them
back to the present. The present value of these cash flows calculates the true value of a
company. In order to create a DCF model, an in-depth analysis of a company’s financial
statements must be done. Creating a model based purely on a company’s past performance will
not be an accurate measure of their future growth opportunities. A company’s management
will project future numbers in their quarterly earnings calls. These projections tend to be fairly
SIMM - Handbook 19
accurate, as missing guidance can be detrimental to a company’s reputation. You can gain
insight into a company’s expected performance based on their ability to meet prior guidance.
Obviously, the more accurate they have been in the past, the more highly you weigh their
guidance in your model.
Creating a DCF Model
After finding a company that you think may be an attractive investment opportunity, the next
step is to create your valuation model. To start, login to the SIMM Google Drive given the login
info provided in class. From the “Templates” folder located in the “2013-2014” folder,
download the “Stock Valuation Model” Excel document. This template will provide you with a
basic DCF model that you can tweak relative to your own findings and market outlook.
Once you have opened the DCF model, it is important to update all of the queries inside the
spreadsheet by importing your company’s financial statements. The model is made to easily
import these from finance.yahoo.com. This can be very helpful when getting familiar with the
DCF technique, but Yahoo will only import the last three years of data. In order to get a larger
set of data, you can manually enter the financial statements for the past ten years from the
Bloomberg (assuming the company has been public for that duration). If using the Bloomberg
for more than the past three years of data, be sure to adjust formulas in the model to match
the criterion. To import your company’s financials from Yahoo, start in the first tab “Income
Statement” by right clicking in the yellow highlighted cell A3 containing the text “Period Ending”
and click on the “Edit Query” option. This will bring up a web query that will allow you to import
tabled data on the internet. The query will open to Yahoo Finance automatically. To import
your company’s data, type the company’s ticker symbol in the box under the “Home” tab and
hit the “Get Quotes” button. After the new page loads, scroll down and click on “Income
Statement” all the way on the left side of the page in the “Financials” section. When this page
loads, click on either of the two right pointing arrows that appear next to the words “Period
Ending.” The same process can be followed to import the company’s Balance Sheet and Cash
Flows statements in their respective tabs.
In order to import “Key Statistics” data, follow the same initial steps above to bring up the
query on the highlighted A3 cell in the “Key Statistics” tab. After bringing up your company’s
profile, the “Key Statistics” command is on the left hand side of the page in the “Company”
section. After bringing up this page, click on all of the arrows from the one next to the “Key
Statistics” text down to the arrow next to the “Cash Flow Statement” text and again clicking the
import button in the bottom right corner of page. Staying on the “Key Statistics” tab, you can
import analyst estimates via the query in the highlighted D3 cell. To get the most accurate
analysts’ price targets, it is best to manually input estimates from the Bloomberg. To bring up
analysts’ price targets of a certain company from the Bloomberg, type in the company ticker
SIMM - Handbook 20
into the main search box followed by the “US Equity” button and presses enter. After this page
loads, type “ANR” into the same box and press enter. The analysts’ targets will be in the lower
right hand corner of the page along with their name and the name of the company they work
for. Analysts covering larger firms will likely exert far greater resources to accurately reflect a
company’s value and will cover company news and projections far more closely. Because of
this, it is less frequent that news headlines will impact the stock price of a larger company
compared to a smaller one. This is something to consider when weighing analysts’ expectations
into your target price. The more coverage initiated on a company, the more likely the
company’s guidance and news headlines are factored into a company’s current value. Analysts’
individual historical predictions are available through the “ANR” command on the Bloomberg at
the end of the row for each analyst. If you find that a particular analyst has been more accurate
in past predictions related to a stock, it is a good idea to weigh that analyst’s price target higher
than those that have not been as accurate.
If you decide to manually enter this data from the Bloomberg (highly recommended) there is a
box set up for this purpose in cells AA1:AH18 titled “Analyst Estimates.” The first four columns
need to be manually entered via the Bloomberg. If you choose to give different analysts
different weights based upon their past performance, you can do so in the “Weight” column.
The cells AF15 and AF16 contain formulas to calculate the Median and Average Price Targets of
the analysts. Cell AF17 is a target based upon the weights assigned to the individual analyst’s
predictions. Depending on how confident you are in each of these targets, you can assign
different weights in cells AG15:AG17. After inputting analysts’ projections and your weightings,
a target price is calculated in Cell AH18. This value is automatically imported into the last sheet
of the model and will factor into your own price target, which will be discussed later.
Next, data needs to be imported on your company’s outstanding debt in order to calculate the
Weighted Average Cost of Capital (“WACC”). To do this, edit the query in cell P3 and type
“Morningstar.com” in the search box at the top of the page. When Morningstar loads, type the
ticker of your company in the “Quote” box towards the top of the page and press enter. When
the company’s profile loads, scroll down to the tabs under the company name that starts with
the “Quote” tab. The second to last tab in that row should read “Bonds.” Click on this tab and
scroll down to the table with the text “Name” in the upper left corner. Next, click on the two
arrow boxes in the table and press the “Import” button. With the exception of company
predictions, you have now successfully imported the company data required to complete your
The risk-free rates can be uploaded from Yahoo via the edit query function and clicking the
“Import” button after it loads. The risk-free rates are taken from the yields on the US Treasury
SIMM - Handbook 21
Bonds which are considered to be “risk free” as the government can print new money at will if
they become unable to pay off their debt.
Next, moving onto the “WACC” tab, we have two important calculations. WACC is the overall
required return of a firm. In DCF analysis, WACC is the discount rate used to “discount” future
cash flows of a company back to the present. This number reflects the return investors demand
to compensate for the risk of a company within a certain industry. The only numbers that are
not automatically imported here are the weight of equity/debt (found on the Bloomberg), and
the expected return to the market (calculated on the next tab). Although already imported, the
cost of equity/debt can be imported via the “WACC” command on the Bloomberg and more
accurately reflect the true values than Yahoo. After importing these numbers, the WACC will be
calculated automatically. The formula in cell B7 first multiplies the cost of equity by the weight
of equity. Cost of equity (B3) is calculated by adding the risk-free rate to one plus the
company’s Beta times the market risk premium. In general, the 5-year Treasury is used for the
risk-free rate. The cost of debt (C9) is calculated by taking the average yield of the bonds that
you previously imported from the Morningstar website. The cost of debt is then multiplied by
the company’s weight of debt. The product of these numbers is then multiplied by one minus
the company’s tax rate. When a company finances through debt, the interest payments they
make are tax deductible. The tax rate can be calculated by dividing all of the previous years’
income tax expenses by each year’s respective income before taxes.
On the next tab, “Growth Projections,” the first number to calculate is the return to market
which is the last component to the WACC calculation. There is much speculation as to market
performance, so you can input your own values based on research into the macro environment.
Below the market return is the revenue growth rate projection. Here, you also hypothesize the
anticipated growth rate based on your own opinions and analysts covering the company. The
historical method is based on the average growth rate over the past couple of years. If you have
imported more than those last could of years of data from the Bloomberg, you can have
multiple methods based on historical rates. These could include three, five, and even seven to
ten year growth rates.
Next, we must project depreciation. Depreciation expenses must be projected because it
negatively impacts the cash flows, when in fact no cash is being transacted. By adding back in
these values, the cash flows will be raised to more accurately reflect current conditions.
Depreciation is originally expensed for tax purposes. By reducing the net income of a company,
the firm can pay less in taxes to Uncle Sam without actually losing dollars. The best way to
project a company’s depreciation is as a percentage of fixed assets.
SIMM - Handbook 22
The next step in our model involves projecting changes in net working capital (NWC). We must
subtract NWC from our free cash flows to account for changes in inventories, increases in
investments and decreases in accounts payable, all of which cash is actually being transacted.
To calculate changes in NWC we need to project current assets and current liabilities. This is
best done in a similar way that we did revenue; by using past rates of change and company
projections. To import this data, see the “Growth Projections” tab and input your own guidance
Capital expenditures, as well as all of our expenses, will be projected using a percentage of
revenue method. We will base this calculation on historical percentages relative to revenues
and expenses. Capital expenditures and expenses for the DCF model can be calculated in the “%
of Revenue” sheet by inputting your own estimates. The default inputs are suggestions and can
be altered relative to their significance with each company you valuate. For a more accurate
reflection of true growth, utilize more historical figures for past years (if available). If you have
imported at least seven years of past financials, you should be able to get accurate projections.
If some outliers exist within the past years’ performance, take a look at press releases that
could support the fundamental changes. For extraordinary events that impact your projections,
simply remove the outlying data from your calculation for more accurate results.
Once you have finished your projected percentages of revenue, they are imported into the
“Discounted Cash Flow” sheet where your final calculations are made for your DCF based price
target. Your projected percentages are brought into columns “G” through “K” and then used to
calculate the company’s expenses for the next five years in columns “M” through “Q”. The
formulas in place will use these projections to calculate your earnings. The free cash flows will
then be discounted back to the present by using the WACC calculation. These now discounted
free cash flows represent the present value of the next five years of cash flows. We then must
find a company’s terminal value by calculating the long-term expected growth for a firm’s cash
To find the present value of all of the cash flows for all years after the next five, we must find
the company’s terminal value. The terminal value is the present value of all of a company’s cash
flows after the five years you have projected. This calculation is made in cell S16 in the “Growth
Projections” sheet. The terminal value is calculated by multiplying the 5
year free cash flow by
1 plus your long-term growth rate and then dividing all of this by your WACC minus the long-
term growth rate. The terminal value is to be added to the to the five discounted cash flows you
projected in cell T22 to get your Intrinsic Value. This value must then be multiplied by 1,000
because all of the numbers you have imported were recorded in thousands. If, instead, they
were recorded in the millions, the number in cell T22 must be multiplied by 1,000,000 to
receive the intrinsic value. This must be divided by shares outstanding to receive the per share
SIMM - Handbook 23
value. The number of shares outstanding may not import as a whole number from yahoo but
instead with a “B” or “M” after a number indicating the number is recorded in billions or
millions. If this is the case, you will need to manually type this number in.
Final Valuation
In the “Valuation” sheet, you will see the 5 different values that you have calculated based
upon those the different types of techniques in cells C4:C8. As we have done throughout the
valuation process, you will assign each of these techniques a different value based upon your
belief in their accuracy in cells D4:D8 making sure they total 100. The weighted average are
then calculated in Column E and added together in cell E10 to give you your final Target Price.

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