Yann DUPONT - 2023
Finance Lessons by Martin Shkreli
https://www.youtube.com/watch?v=VI_riscmviI&list=PLJsVF3gZDcuTxcdH5FmQRTd6MiJ29X_OQ
Lesson 1: Introduction to Investing and Finance
OPM = Other People’s Money
==> the best way to make money is not with your own money
it is with other people’s money (ex: hedge funds managing millions of $ ad taking commissions
“You can make more money advising people with capital than trying to grow your own capital”
a share = an equity (each share is the same)
a stock: you own a share of a business
a bond = a financial obligation = debt: a borrowing of money
10-K = quarterly report (3/year)
10-Q = annual report (1/year, includes the last quarter)
Market Capitalization (MC):
MC = Price x S/O
*Price: Stock/share Price, available by searching the last traded stock price
*S/O: Shares Outstanding (=nb d’actions en circulation), available on
https://www.sec.gov/edgar/searchedgar/companysearch by clicking in the last 10-Q report
3 Key Financial Statements:

Income Statement (IS) = compte de résultat
REVENUE/Sales/Turnover
EXPENSES/Costs
PROFIT/Income (= résultat)
Revenue – Costs = Profit/Losses
--> available in the 10-K report (Item 8: “Financial Statements and Supplementary Data”
-> “Consolidated Statements of Income/Operations/Earnings” = same thing

Balance Sheet (BS) = bilan
ASSETS: Cash, A/R = Accounts Receivables = créances, Inventory, PP&E (Property Plant and
Equipment = immobilisation de + d’1 an), Other assets
LIABILITIES: A/P = Accounts Payables = comptes/dettes fournisseurs, Debt, Employee Expenses
2(salaries, bonuses, …), Taxes, A/E, D/R
STOCKHOLDERS’ EQUITY (= capitaux propres/capitaux des actionnaires):
Assets – Liabilities = Stockholders’ Equity (A – L = S/E)
--> available in the 10-K report (Item 8: “Financial Statements and Supplementary Data” ->
“Consolidated Balance Sheets”/ “Consolidated Statement of Revenue/Earnings”)

Cash Flow Statement (CF)
--> available in 10-Q and 10-K too, used to determine CFFO, CFFI, CFFF, FCF, …
Yann DUPONT - 2023
Enterprise Value (EV):
EV = “cash-neutral” market cap
EV = MC – C + D
*C=Cash (“Cash and cash equivalents” + “Restricted cash” + ”Short-term investments” + ”Investments, ex:
equity method investment & other investments” + ”Marketable/Investment securities”=often bonds)
*D=Debt (“Long-term debt” + “Short-term debt” + ”Current maturities of long-term debt” + “Loans and
notes payable” + “Current portion of long-term debt”)
*Net Cash(Net Debt if < 0): Net Cash = Cash – Debt // EV = MC – Net Cash
Ex:
Price = 10$
S/O = 10 million shares
-> MC = 10$ x 1 million = 10 million $
Cash = 10 million $
Debt = 30 million $
-> Net Debt = 10 – 30 = 20 million $
-> EV = MC – C + D = 10 – 10 + 30 = 30 million $
*if the company makes 10 million/year, it will take 3 years to break even (= atteindre le seuil de rentabilité)
Example of calculating company’s EV: Lesson 1 Excel
Accounting – The Language of Business
Accounting = revenue recognition
Generally Accepting Accounting Principles (GAAP) are our rules
FASB is the group that promulgates GAAP
Non-GAAP financials are sometimes useful
(excluding “one-time” and especially “non-cash” costs can give us a better understanding of a business)
Costs are recognized in the period they are incurred and matched to the revenue recognized in the period.
Non-cash Expenses:
Depreciation = writing off a capital expenditure
Amortization = writing off and intangible asset
Expenses: expensed or capitalized ?
Some expenses are “capitalized”, they do not flow through the income statement !!
Capital expenditures (long-term assets with over 12 months of usable life) will be capitalized on the
balance sheet and recorded in the cash flow statement
Yann DUPONT - 2023
Lesson 2: Income Statements, Balance Sheets, Present Value Discounting
8-K = any disclosable/material/important event
SC 13G/A = ownership statement (if someone owns more than 5% of the company)
THE BALANCE SHEET ANALYSIS
Balance Sheet: in order of liquidity
Assets – Liabilities = Stockholders’ Equity
Assets = Liabilities + Stockholders’ Equity
ASSETS
Cash (most liquid)
Marketable Securities
= bonds, stocks, …
A/R:
= Accounts Receivables: usually paid in 30 to 60
days
= cash your customers owe you
*if paid after 60 or 90 days = “bad debt” (the
customer is not going to pay)
*the company must write off the bad debt to get
A/R net of bad debt in the BS
PP&E:
= Property Plant and Equipment
= hard asset which has a useful life of more than 12
months)
LIABILITIES
A/P:
= Accounts Payables
Accrued Expenses:
= fonds that you are going to have to pay for
running your business (A/P too)
D/R:
= Deferred Revenue
= product you owe your customers
= unearned revenue, payments made by customers
for products of services that have not been
delivered yet (ex: gift cards)
Debt:
= money borrowed by the company
ex: commercial paper = loans from banks
Inventories:
= raw materials, finished products, WIP/Work In
Progress/not finished products
Goodwill/Intangible Assets
= branding/trademark, patents, …
Other Assets
Total Assets
Total Liabilities
“Current Assets/Liabilities” = become cash within 12 months
*other/Long term Assets/Liabilities = become cash after 12 months or never
“long-term marketable securities”: can be considered as cash
Yann DUPONT - 2023
Counting CASH & DEBT in a company to get the EV:
Example of AAPL’s EV: Lesson 2 Excel – AAPL Analysis
10-Q used for example link:
https://www.sec.gov/Archives/edgar/data/320193/000119312516439878/d66145d10q.htm#tx66145_2
CASH:
DEBT:
Cash and cash equivalents
Short-term marketable securities
Long-term marketable securities
Commercial paper
Current portion of long-term debt
Long-term debt
So: EV = MC – C + D
= Share Price*Shares Outstanding
- (cash and cash equivalents + short-term marketable securities + long-term marketable securities)
+ (commercial paper + current portion of long-term debt + long-term debt)
Stockholders’ Equity  Book Value
THE INCOME STATEMENT ANALYSIS
Revenue/Sales/Turnover:
= when the company sells a product/service
*a promise of purchasing counts as a revenue, but according to certain rules
ex: a customer purchases for 12 000 000 upfront today, for a service that the company will provide to him
for 4 years
-> 12 000 000 is the cash you get, but you report 750 000 in revenue each quarter for the next 4 years (16
quarters), because 12 000 000 / 4 / 4 = 750 000
-> on the BS after the 1st quarter, there will be 12 000 000 – 750 000 = 11 250 000 in D/R (Deferred Revenue)
COGS = Cost Of Goods Sold
= “Cost of Sales” on the BS = direct and indirect (!) costs to make the revenue
*includes labor/people
Selling & Marketing:
= promotional costs, including people
Research & Development:
= project costs, including people
General & Administrative:
= legal costs, audit costs, rent, headquarters, employees, …
Indicators:
Gross Profit = Revenue – COGS
*Gross Margin (in %) = Gross Profit / Revenue
Yann DUPONT - 2023
Operating Expenses = R&D + SG&A
R&D = “Research and Development”
SG&A = “Selling, General and Administrative” (= headquarters expenses, CEO salary, …)
Operating Profit = Gross Profit – Operating Expenses
*Operating Margin (in %) = Operating Profit / Revenue
Interest Income
= “other income/expenses net” = interests made by the investment of the cash
Pre-tax Income = Operating Profit + Interest Income
Taxes
= ”Provision for income taxes”
Net Income = Pre-tax Income – Taxes
Net Margin (%) = Net Income / Revenue
Tax rate = Taxes / Pre-tax Income
Earnings Per Share:
EPS = Net Income / Number of Shares (diluted/basic)
Revenue Y/Y = increase/decrease of the revenue from the quarter of one year, compared to the same
quarter of the year before
The Value of a Company – Theory:
Discount Rate:
Why is one dollar today worth more than one dollar promised tomorrow ?
▪ Risk that you may not receive that dollar
▪ Inflation (consider risk of inflation/benefit of deflation)
▪ Opportunities to invest that dollar in higher-returning projects
Ex:
Would you prefer: 1 000$ today, or 1000$ in 3 years
The 1st option is more profitable because you can invest the 1 000$ now to get more $ in 3 years
-> if you invest 1 000$ today at 10%/year:
after 1 year you will get 1 100$
after 2 years you will get 1 210$
after 3 years you will get 1 331$
So 1 000$ today is worth than 1 000$ tomorrow.
And 1 000$ tomorrow is worth less than 1 000$ today.
Yann DUPONT - 2023
Imagine a contract that gives you 5$ today, and it will give you 5$ every next year to infinity
What it is contract worth ?
/!\ It is not worth +∞ because the value is not 5$ + 5$ + 5$ + …
The 5$ of today are worth 5$
But the next “5$” are worth less than 5$ (because of inflation and possibility of investment)
*they can be worth 4.999$ for example
And the “5$” of the next period will be worth less than 4.999$, maybe 4.998$
The “loss” from one value to the next value is determined by the discount rate.
If the discount rate is 3% --> for 1$ today, the next “1$” will be worth 1$*(1-3%)
<=> 1$*0.97 = 0.97$
then the 2nd next “1$” is worth 0.97$*0.97 = 0.94$
then the 3rd next “1$” is worth 0.94$*0.97 = 0.91$
…
For the example of the 5$ contract, let’s fix a 10% discount rate and forecast the sum to infinity.
Example of contract modeling: Lesson 2 Excel – Discount Rate intro
=> the value of the contract will approach 50$, it is the sum of all the future cash flows valued in the present
=> this is how you value a future source of cash flow in the present
Definition of the Discount Rate:
Discount Rate = Risk-free Rate + Risk Premium
*Risk-free rate: inflation rate, US government/treasury bond rate
*Risk Premium: the premium you pay because of the opportunity cost (opportunity = risk)
DR = return rate according to the risk of “not getting the money back”
DR > 0 because there is always a risk of default (“unless you have the money in your hands”)
Risk = Reward
*the more risk you take, the more reward you will get
Ex:
If I lend 1 000$ for 1 year to someone that is very trustable, I will charge him 10% interest, so he will refund
me 1 100$ at the end of the year.
If I lend 1 000$ for 1 year to someone that is more likely to not repay me, I will charge him 50% interest due
to this higher risk.
“Most fortunes are made/lost because someone predicts a very unlikely thing happens or doesn’t happen.”
Net Present Value (NPV): = Valeur Actuelle Nette (VAN)
*represents the present value of the future cash flows
on Excel: “NPV(DR; CF)” / NPV(Discount Rate; Cash Flows series)
VAN(taux d’actualisation; série de cashflows)
Yann DUPONT - 2023
DCF = Discounted Cash Flow
DDM = Discounted Dividend Model
*BONDS ARE SENIOR TO EQUITY
(if something goes wrong with the company, the bondholder gets paid first, then the stockholder)
Which Discount Rate to choose ?
To determine a fair value of the DR, you should be considering:
▪ risk/reward
▪ risk free rate
▪ equity risk premium
▪ bond market, equity yield
Discount Rate = WACC (Weighted Average Cost of Capital)
= CMPC (Coût Moyen Pondéré du Capital)
V=E+D
Yann DUPONT - 2023
Lesson 3: Apple Model, Discounting Cash Flows
Bonds:
Bonds are debt, loans, notes, … which a lender advances to a borrower and expects to be paid back, with
interest.
Detailed terms of the loan are extremely important !
▪ Principle = amount borrowed
▪ Coupon = interest payment (paid annually ? quarterly ? with interest on original or current principle ?)
▪ Payback period = balloon payback at the end ? prepayment anytime ? payment schedule ?
▪ Maturity = date on which the borrowed amounts are due
Bonds are almost always SENIOR to equity
If the borrower is unable to pay the lender, the lender can typically force the borrower into bankruptcy
Example of IBM bond: Lesson 3 Excel
EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization = Gross Profit
EBIT = Earnings Before Interest & Taxes = Operating Profit/Income
EBT = Earnings Before Taxes = Pre-Tax Profit/Income
“A company is worth the discounted sum of its cash flows from today until eternity.”
Forecasting those cash flows and assessing risk to cash flows is the job of an investor.
Example of Discounting AAPL Cash Flows: Lesson 3 Excel
Cash Flow ≈ Net Income
Net Income = FCF over long periods of time / in a business like AAPL
*FCF = Free Cash Flow
Calculating the Total Value of a Company:
Total Value = NPV + Net Cash
*NPV = Sum of all the cash-flows/net incomes generated by the company from today to infinity, discounted
by the discount rate
*Net Cash = Cash – Debt
(if < 0: Net Debt)
Total Value per Share = Total Value / S/O = “Stock Price”
Yann DUPONT - 2023
To be more accurate on the NPV: you need to forecast as well as possible the future value of the Net
Incomes of the company
--> assuming that the revenue of the company will grow or shrink by a certain percentage
*ex: (Revenue)2018 = (Revenue)2017*1.02 for a 2% increase in Revenue Y/Y
--> the Net Incomes will also fluctuate, considering a Maturity Value
*ex: (Net Income)2019 = (Net Income)2018*(1+maturity value)
*the Maturity Value is often < 0 if you forecast long-term, ex: Maturity Value = -4% for AAPL Analysis
*reproduce as well as possible the financial behavior that the company could follow in the years to come
(ex: reducing expenses in R&D and SG&A if the company starts shrinking sharply, keeping the gross margin
the same because it is always the goals of the company, keeping the tax rate the same, …)
The Value of a Company – Practice:
Bonds and equities have a parity concept (Shkreli Theory)
Bonds have an annual “cash flow” in the same sense equities have net income that shareholders may claim.
Fundamental Research:
= type of research you do to forecast future cash flows
Is the company going to shrink ? grow ?
Are their margins going to increase ? decrease ?
By how much would they shrink ? by how much would they grow ?
What is the risk to these numbers ??? (unlikely ? very likely ? no risk to having a downside ?...)
BOOK RECOMMENDATION:
Common Stocks and Uncommon Profits – Phil Fisher

Management
Update – Quarterly conference calls and meetings:
Listen to Earnings Calls
Ex : https://www.apple.com/investor/earnings-call/

Press Release
Read at least 1 year of prior releases and update your model with them
Ex : https://www.apple.com/newsroom/topics/company-news/
Q123 release : https://www.apple.com/newsroom/2023/02/apple-reports-first-quarter-results/
Press Releases : the company tells what they expect to make in revenue, in gross margin, … for the next
quarters. So, we should take the company’s guidance in consideration in our forecasting model.
Yann DUPONT - 2023
Ex: AAPL expects a revenue between 50 and 53 billion $, a gross margin between 39 and 39.5%, operating
expenses between 6 and 6.1 billion $, other income/(expenses) of $325 million, and a tax rate of 25.5%,
for its fiscal 2016 second quarter.
So we can put these data in our model to precisely forecast their incoming Net Income.

Forecasting
Traditional
Lateral
True Costs / One-Time Costs / Economic Reality

The Opinion of Others
Ignore other investors
Ignore Wall Street Research
Ignore TV/CNBC

Value VS Growth/Risk
Fundamental Research – Expectations
1 hour: barely any familiarity with the company (company history, current products, …
10 hours: slight familiarity with the company (basic working model, …)
100 hours: reasonable familiarity with the company (listened to/met with management, …)
1000 hours: decision making familiarity with the company
It should take a lot of time and thinking before you make the decision to invest !
/!\ SNP 500 is going up since 1950’s (and you should adjust it to inflation)
BUT an individual stock doesn’t go up all the time
stocks rise and go down all the time !!
some companies become giants and some old giants goes down !! (and so do their stock price)
Fundamental Research – Forecasting



Revenue forecasts
Prior forecasts must be adjusted for currency !
Parallels
Surveys
Yann DUPONT - 2023
Lesson 4: IBM Model Valuation
IBM = International Business Machines Corporation
Example of IBM’ modeling: Lesson 4 Excel
--> Q4 data can come either from an 8-K or from a 10-K
8-K = current report/press release: the data in the IS are for the last quarter
*it is generally the 8-K before the 10-K that reports the year you analyze, but it can be some 8-K even before
*ex: we use the 8-K from 2016-01-19 to fill the data of Q415
https://www.sec.gov/Archives/edgar/data/51143/000110465916090410/a16-1789_18k.htm
10-K = annual release: the data in the IS are for the entire year
*so if you want the data for the last quarter, you need to subtract the data from the first three quarters to
the data from the year
*ex: we use the 10-K from 2016-02-23 to fill the data of the 2015 year
--> to get the financial statements --> click the right document link: Seq 8 “EX-13”
page 76: https://www.sec.gov/Archives/edgar/data/51143/000104746916010329/a2226548zex-13.htm
(Service revenue)2015 = 49 911
(Service revenue)Q315 = 12 327
(Service revenue)Q215 = 12 597
(Service revenue)Q115 = 12 366
==> (Service revenue)Q415 = 49 911 – 12 327 – 12 597 – 12 366 = 12 621
Operating Income  EBIT (Earnings Before Interest and Taxes)
Shares Outstanding: can be calculated with the data from the BS
S/O = Shares issued – Shares in the treasury
*shares in the treasury stock = shares that the company bought back
∞
Terminal Value =∑𝑡=1 𝐶𝐹𝑡 ∗ (1 + 𝑚)
*CF = Cash Flow
*m = maturity rate
Ex: m = -5% ; CF1 = 5000
CF2 = 5000*(1+(-5%)) = 5000*0.95 = 4750
CF3 = 4750*0.95 = …
Terminal Value = CF1 + CF2 + CF3 + …for infinity
IBM’s Investor Relations website: https://www.ibm.com/investor/financials/financial-reporting
Q415 Press Release: https://www.ibm.com/investor/att/pdf/IBM-4Q15-Earnings-Press-Release.pdf
Yann DUPONT - 2023
/!\ Revenue reported is down 9%, but adjusted for currency it is only down 2%
*Revenue LC Y/Y = Revenue adjusted for Local Currency
We need to take into consideration the variation of the USD/EUR into our model
Prior forecast must be adjusted for currency !
==> Our forecast for the future, considering IBM shrinking by 5% may be too aggressive
So we can adjust our model and make IBM Revenue shrink by 2%
“Revenue 2016 = Revenue 2015 *0.98” (instead of *0.95)
& accordingly reducing the costs (SG&A and R&D) by 2% too year after year
Consolidated Statement of Financial Position = Balance Sheet
ROIC = Return On Invested Capital
ex: ROIC = 1% ==> IBM will make 1% every year on its cash balance
This income, provided by the investment of the company’s cash, is in the “Other Income” section.
So, if IBM invests its cash/capital, their cash will grow year after year, and so on for their Net Income.
Yann DUPONT - 2023
Portfolio Construction:

Market Neutral
No market exposure: long and short an equal amount
--> this is not the consensus
The consensus is to be long-biased
▪ Long = you own the stock (buy first, sell later)
▪ Short = you are the short (sell first, buy later)

Long-Biased
Popular, due to the belief that the stock prices go up over time

Shkreli’s First Rule – Realistic Expectations
For every 10 stocks you look at, in general:
▪ 8 will be fairly valued by the market: model price ≈ market price
▪ 1 will be overvalued by the market: model price < market price
▪ 1 will be undervalued by the market: model price > market price
When you short-sale: BET AGAINST OVERVALUED
When you buy: BET ON UNDERVALUED
Ex: AAPL: market price = 97 ; model price = 100
IBM: market price = 137 ; model price = 210
imagine that we are LONG for IBM and at the same time SHORT for AAPL
if a recession comes in, AAPL will maybe go from 97 to 77,
and IBM will more likely go from 137 to 127 (its price will fall less, because it is already undervalued
 so you will lose some money by being long on IBM, but you will win more by being short on AAPL

Concentration VS Diversification
Concentration  as few stocks “as necessary” and as large as possible % investment in those positions
(Buffett’s first partnership WEB had just 3 stocks)
Diversified  as many stocks “as possible” and as small as realistic % investment in those position

You don’t need to invest if you don’t have good investment ideas
No one is forcing you to make a bet
No third strikes in investing

Universe construction
Defining the equities you will focus on (detailed in Lesson 5)
Yann DUPONT - 2023

Shkreli’s Conjecture
As time ∞, alpha1
-->As time goes to infinity, your ability to tell whether a stock is cheap or not (how much alpha is involved)
tends to 1 (or 100%)
*if you had all the time in the world, you should be able to tell with certainty if a stock is cheap or not
/!\ You don’t have all the time in the world ! Time is your enemy
Over time/As you are researching the company, market will discover true value of the asset, and your
arbitrage (the α) will disappear
As time0, alpha0
-->As time goes to 0, your ability to calculate an arbitrage also approaches 0
*there is no alpha in day trading !
Stock Movement Equation (α/β):
α (alpha) = Model price vs market price variation
β (beta) = Market movement (“when the market is going up, most stocks are going up”)
Ex: IBM’s beta = 0.7 (“Raw BETA”)
This means that 70% of IBM’s stock movement is related to the market movement, and 30% is related to
IBM’s specific activity that transfers in the modeling valuation.
IBM’ stock movement = β*0.7 + α*0.3
The stock market movement has a large impact on company’s stock prices, that’s why hedging out the
market risk (= se couvrir du risque lié au marché) is a good idea.
Yann DUPONT - 2023
Lesson 5: Tech Industry Universe, More Modeling, Depreciation and Cash Flow
*in its models, Shkreli doesn’t include “Amortization and depreciation”, because it is a non-cash expense
This gives him a different net income in his excels than the net income announced by the company (more
realistic according to Shkreli)

Universe construction:
List of securities that we will focus on
▪ Sector focused (tech, healthcare, energy)
▪ Market-cap focused (small-cap, medium-cap or large-cap)
▪ Style focused (growth vs. value)
▪ Geographical (U.-S. vs. Global)
Ex of universe: the Tech Industry (+5000 companies) --> Lesson 5 Excel - Tech Universe
Apple (AAPL), Alphabet (GOOG), Microsoft (MSFT), IBM, AT&T, SAP, Tata, …
Many of these companies are interconnected (some are producers or customers for other companies of this
universe, some companies have influence on other companies’ performances, …)
Modeling single companies and benchmarking their key indicators in their Excel’s Universe allows to know
better the area we want to analyze
Alarm.com Analysis : Lesson 5 Excel – ALRM
CFFO: Cash Flow From Operations
CFFO = Uncollectible Accounts + D/T - Investments + A/R + OCA - A/P - Pension - Other
*D/T = Deferred Taxes
*A/R = Accounts Receivables
*OCA = Other Current Assets
= working capital
*A/P = Accounts Payable
*Pension = “Retirement benefit funding”
CFFO allows to see the flows, mainly from A/R and A/P
Ex: the Lemonade Stand has $25m in cash at the beginning of Q415
IS:
Revenue
Costs
Profit
BS:
A/R
Cash
CFFO:
Net Income
D&A
A/R
CFFO
Q415
Q116
Q216
50m
25m
25m
50m
25m
25m
60m
30m
30m
10
50
8
77
18
97
25m
0m
2m
27m
30m
0m
-10m
20m
*the cash increased by 27m in Q116, because the company made 25m of profit, and “made” 2m from A/R
Yann DUPONT - 2023
“2m” = the company cashed 10m of A/R from Q415, and its clients owe it 8m from Q116 sells (the clients
will pay 8m within the following 3 months)
*imagine that the company has 15m of A/P in Q116, and then only 5m of A/P in Q216
the company didn’t “make” 10m, it just didn’t spend 10m in the Q216 period
*we can see that the cash flow statement represents well the flows in the company’s cash.
But it doesn’t represent well the performance (net income) of the company, the income statement does a
better job (the company made 30m in profit in Q216, even if 18m are A/R, the performance in 30m)
CFFI: Cash Flow From Investments
CFFI = - CapEx - Acquisitions + Dispositions + Sale of securities
*CapEx = Capital Expenditures (= investments made during the period)
-->includes interests paid during the investment set up
Ex: for a new warehouse investment --> there will be “Interests during construction”
CFFF: Cash Flow From Financing
CFFF = Debt + Treasury stock – Dividends – Other
*Debt = debt – repayment of debt
CF: general Cash Flow
CF = CFFO + CFFI + CFFF
FCF: Free Cash Flow
FCF = CFFO – CapEx
Yann DUPONT - 2023
Depreciation & Amortization = write-off/expensing methods
▪ Depreciation: how we expense tangible assets (PP&E)
PP&E = any expense which has a useful life > 1 year
(not included in the IS)
*when a company buys PP&E, it is very interesting to expense it over time (depreciate it) to pay less taxes,
because it will lower the Pretax income for several years
Ex: the Lemonade Stand buys a factory for $50m
// if we by all out in Q2 // ==> if we start UNDERSTATING FROM Q3
IS:
Revenue
Costs
Profit/Net Income
PP&E
(10 years*)
PP&E/quarter
Costs + PP&E
CFFO (= NI)
D&A
CapEx
CFFI
CF = CFFO+CFFI
Q1
Q2
Q3
Q4
30m
15m
15m
0m
30m
16m
14m
50m
30m
15m
15m
0m
30m
17m
13m
0m
0m
15m
15m
0m
0m
0m
0m
50m
16m
14m
0m
-50m
-50m
-36m
1.25m
16.25m
15m
-1.25m
0m
-1.25m
13.75m
1.25m
18.25m
13m
-1.25m
0m
-1.25m
11.75m
*the PP&E will last 10 years for the company
so we can depreciate the $50m over 40 quarters: $50m/40 = $1.25m in depreciation each quarter
*CapEx = -50m and
▪ Amortization: how we expense intangible assets
“Non-GAAP Consolidated Reconciliation”:
Non-GAAP Reconciliation data allows to identify the income generated by the company without the “onetime” expenses
*Ex of a one-time expense: machine purchase of 100k (if not depreciated, it will affect negatively the net
income of the company)
Yann DUPONT - 2023
Lesson 6: Markets and Portfolios, MSFT modeling
 Markets and Portfolios:
Markets & Trading:

Stocks are traded on stock exchanges
U.S. stock exchanges: NASDAQ, NYSE, …

The concept of a trade: for every buyer there must be a seller
A trade happens when a buyer, who is “bidding”, agrees with a seller, who is “asking”

Important terms:
▪ Last Price: last traded price is often used in both private and public value as a valuation tool
▪ Bid, Bid Size (x100)
▪ Ask, Ask Size (x100)
▪ 52-Week High/Low
▪ Beta: correlation to the market
▪ Average Daily Value (AVD)
Fund Basics:

Using a collection of stocks (a portfolio), fund managers create funds intended to outperform each other

Two general approaches are passive investing (or index) and active investing
▪ passive investing involves selecting a pre-determined portfolio of stocks according to a list of metric
(ex: S&P 500, Russel Mid-Cap Index, …)
▪ active managers attempt to select their securities based on their potential ability to outperform their
“benchmark” passive index using skill

Some funds can short, invest in private securities and conduct other advanced operations
(Mutual fund, Hedge fund, VC fund, PE fund)

You don’t need to invest if you don’t have good investment ideas
IRR = Internal Rate of Return
Concept intro: Lesson 6 Excel - IRR intro
OCA = Other Current Assets
OLTA = Other Long-Term Assets
OCL = Other Current Liabilities
OLTL = Other Long-Time Liabilities
D/R = Deferred Revenue (or “Unearned Revenue”): the company got paid, but has not yet delivered the
product to the customers
Yann DUPONT - 2023
“Impairment, integration, and restructuring”: don’t include in the model because it’s a non-cash expense
 one-time expenses don’t reflect the real activity of a company
“Additions to property and equipment” <=> CapEx
Buybacks = Common stock issued - Common stock repurchased
We can take FCF (calculated with CFFO and CapEx) as the Earnings for the EV/E ratio
In the “Main” sheet: analyze the Segments, the % of Revenue per segment, what Products and Services the
segments contain, its Growth, its competition, …
 use the Investor Relations website to fill these Informations (Press Release section)
ex: MSFT: https://www.microsoft.com/en-us/Investor/earnings/FY-2023-Q2/press-release-webcast
EBIT <=> Income from Operations / Operating Income
EBIAT = Earnings Before Interest After Tax (= EBIT - Taxes or = Net Income + Interests)
TGR = Terminal Growth Rate (“Terminal” or “Maturity Rate”)
WACC (Weighted Average Cost of Capital) <=> Discount Rate
Excel functions to know:
=choose(index_num; value1; value2; value3; …)
 allows you to choose between multiple options with an index cell
(Excel français: =choisir(no_index; valeur1; valeur2; valeur3; …) )
*no_index = le numéro correspondant à la place de la valeur parmi celles sélectionnées
=offset(reference; rows; cols)
 “reference” is the cell where you want the value to change (don’t forget the $$)
“rows” is the cell where you will put the number (1,2,3…) of cells that you want to offset by rows
“cols” is the cell where you will put the number (1,2,3…) of cells that you want to offset by rows
(Excel français: =decaler(réf; lignes; colonnes) )
*mettre la cellule où l’on fait changer le nombre de cases à décaler dans “lignes” ou “colonnes” si l’on
souhaite décaler verticalement ou horizontalement
Special Paste Shortcut: ctrl+alt+V
Yann DUPONT - 2023