How to learn financial modeling as an undergrad: a 6-week plan

How much modeling do you actually need for an internship?

Less than the course ads suggest. Summer analyst interviews test whether you understand how the statements link, how a DCF values a company, and why an LBO makes money. Nobody expects a sophomore to build a full merger model in a timed test. Private equity and some hedge funds do give modeling tests, but mostly to people with banking experience.

So the goal is understanding, not speed. If you can build a simple three statement model yourself and explain each line out loud, you are ahead of most applicants who only memorized answers.

What does the six week plan look like?

Budget about five hours a week, in two or three sittings. Pick one public company you understand, such as a retailer or a software company, and use its annual report for every week. Working on one company the whole time is what makes the pieces connect.

1. Week 1, accounting: read the company's income statement, balance sheet, and cash flow statement line by line. Write down how each line on the cash flow statement comes from the other two.
2. Week 2, three statements, historical: type three years of the company's statements into a blank sheet. Make the balance sheet balance using formulas, not hardcodes.
3. Week 3, three statements, projected: project five years. Drive revenue with a growth rate, costs as a percent of revenue, capital spending and working capital from simple assumptions. Link cash into the balance sheet and check it still balances.
4. Week 4, DCF: compute unlevered free cash flow from your projection, discount it at an assumed rate, add a terminal value, and go from enterprise value to equity value per share.
5. Week 5, LBO: take the same company, buy it with a mix of debt and equity, pay down debt with cash flow for five years, sell at an assumed multiple, and compute the return on the equity.
6. Week 6, merger math and review: work an accretion and dilution example by hand, then rebuild your three statement model from a blank sheet in one sitting without looking at the old one.

What does a worked example look like?

The question every first round asks is some version of this: depreciation goes up by $10, walk me through the three statements. Assume a 25% tax rate. On the income statement, operating income falls by $10, taxes fall by $2.50, and net income falls by $7.50.

On the cash flow statement, net income is down $7.50, but depreciation is a non-cash expense and is added back, so add $10. Cash from operations is up $2.50. On the balance sheet, cash is up $2.50 and the asset that was depreciated is down $10, so assets are down $7.50. On the other side, retained earnings are down $7.50 from the lower net income. Both sides fall by $7.50 and the sheet balances.

If you can produce that answer from your own model by changing one cell and watching it flow, you understand the statements. That is the test of whether week 3 worked.

What should you skip?

A lot of what is sold as modeling training is formatting and keyboard speed. Those matter on the job, and you will learn them in the first weeks of your internship. Before then, they cost time you should spend on understanding.

• Skip: memorizing keyboard shortcuts before you can build the model.
• Skip: complex circular references, debt schedules with many tranches, and detailed stub periods.
• Skip: paying for a long course before you have tried the free material.
• Keep: building from a blank sheet, balancing the balance sheet, and explaining every line out loud.
• Keep: one company, all six weeks.

Which modeling questions will you be asked?

The questions below come from the IB bank and are tagged to modeling. Try each one out loud after week 5. If you cannot answer one, go back to your own model and find where the answer lives in it, rather than reading a memorized line.

Questions students ask

Do I need to pay for a modeling course?

No, not to start. Free articles and template sites cover the basics, and building from a real company's filings teaches more than watching videos. A paid course is worth it later if your school has a license or a PE modeling test is coming.

Can I learn modeling as a freshman?

Yes. Accounting and a simple three statement model are a good freshman summer project, and they make your club work and your sophomore interviews much easier.

Excel or Google Sheets?

Excel. Banks use it, and modeling tests are given in it. If you only have Sheets, the logic transfers, but switch before any test.

How long should a three statement model take to build?

Your first one may take several sittings. By the time you rebuild it in week 6, a simple version should take a few hours. Speed comes from repetition, not from shortcuts.

Should I put modeling skills on my resume?

Only as part of something you did, such as a valuation for a club pitch. A skills line that just says financial modeling invites a hard question and adds little on its own.