The thing I probably love doing most in my job is building financial models. A financial model is a mathematical representation of the financial position of a firm. The main output is a set of projected financial statements (balance sheet aka statement of financial position, cashflow statement aka statement of sources and uses of funds and an income statement aka profit and loss statement) and sometimes an investment appraisal. A good model starts with a set of assumptions which are usually lifted from historical data and hardcoded into the spreadsheet. These assumptions are then combined in various formulas to produce each of the statements previously listed. At my level, I ought not to be building models. Rather, I should be having them built by analysts and associates, reviewing them and pitching them to clients. But I enjoy the nuts and bolts of building one. There is a thrill to finally linking all one's data and seeing those null cells which indicate that the balance sheet has balanced because the first test of a model is a balance sheet whose 2 sides are equal.

I never took a formal modeling class. But I have the basic knowledge required - accounting, finance and spreadsheets. My first degree is in business administration. I studied it to please my father even though I wanted to study law partly because I come from a judicial extended family and I wanted to continue the tradition, partly because I loved literature which was a prerequisite to study law, and partly because I thought I was bad at mathematics. Then I took my first finance class and I loved it, even though I did not like the lecturer. I had an intuitive understanding of things like NPV, the aim of things like beta and how to calculate or estimate it, and the importance of an appropriate cost of capital. My second degree is in accounting which I got as a byproduct of a professional accounting qualification that I only did because I imagined the person who was telling me about it was sneering at me, doubting my ability to do it. As an undergraduate, I never really liked accounting partly because my teachers in secondary school did not make it pleasant. Not that accounting is a pleasant subject to study anyway. At one point, I only attended the classes because I had a crush on the teacher.

Modeling is predictive, so it usually comes with lots of caveats because no matter how complex or dynamic a model is, it cannot account for all real world variables. It is also both science and art. It is science because the rules governing financial statements are fixed. The assumptions have to be reasonable and based in reality. It is art because there is much scope for imagination. One has to know how to massage the inputs to get the desired outputs. It is a case of knowing the desired result and then looking for the components that can give that result. It also sometimes needs inspiration because there are times when the model fails to give the desired output and the solution can come while one is having a shower or on a run or watching a movie (all 3 have happened to me). It is also a means of showing off. If you see someone in a coffeeshop staring at a laptop screen full of numbers, the person is probably building a model. I have never done that, I think it is ostentatious.

Generally, model builders only share the results of their models and they guard their editable spreadsheets jealously. Sometimes, this is ridiculous. Right now, I am about to sign a mandate with an airline which would require building their projections. One of the contact people fancies himself to be an expert and he is guarding a rather crude sales projection that he thinks is a model. I am rather amused because just last month, I finished a difficult model for a bank that required modeling each of the products. It was a difficult job because the products are all Islamic Finance products which I knew nothing about when I took the job. So I had to spend 2 weeks just reading up on them so that I could accurately reproduce their behavior. Investment banking is a knowledge intensive industry. One learns a lot from the different clients. Right now, I don't know much about the economics of the Nigerian airline industry. But by the time I deliver this job, I probably will. By the time I submit my model and valuation document, the man who thinks he has something worth being proud of will probably feel stupid. I am looking forward to that, which is one of the few stereotypical traits of investment bankers that I have - a sense of intellectual superiority. That is probably why I like modeling. I am not particularly competitive, nor ostentatious, nor aggressive, but (I think) I am smart. Modeling is a technical skill that is respected in the industry. And if I am required to be unpleasant while defending my model, such unpleasantness can be justified.

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