PFM Curriculum focuses on two central principals:
- Sustainability Principle
PFM has adopted Sustainable Financial Modeling principles. That means, the model is developed with emphasis on model reasonableness in the long run. This is important because no one can really predict the future. By developing a sustainable model, the potential for future deviation from prediction is much reduced.
- Asset and Metric Connectivity
PFM has strong focus on the connectivity between different asset classes such as equity and bonds as the movement of different asset classes can be modeled. The result of various valuation, feasibility and credit analysis methods are interconnected and candidate needs to understand the relationship between them.
PFM curriculum is organized into seven main sections:
- Accounts and Reports Used for Financial Model
Study about the common format and accounts of generic financial statement (income statement, balance sheet, cash flow statement) used for building a financial model. Learn about the use, purpose and basic calculation of each account and how to balance the projection.
- Forecasting Techniques and Assumptions
Focus on forecasting techniques used to estimate important assumptions by using techniques ranging from simple to more complex methods based on linear, non-linear, cyclical and Monte Carlo simulation based forecasting methods. Candidate needs to how to model macro and company assumptions, including to model FX rate, interest and inflation rate.
- Financial Projection
Learn to calculate accounts in financial model based on the developed assumptions. There are specific calculations on continuous asset investments, continuous loan, intangibles, goodwill, and how to consolidate subsidiaries to parents by using different methods. Understand how to develop full set financial projection.
- Valuation Methodologies
Understand present value and market based valuation methods and how to prepare models on each method. Candidate needs to know how to connect the metrics in different valuation methods and understand the weaknesses of the calculations in each valuation model. Candidate understands how to model dynamic valuation which continually interacts with the change of certain market elements such as by using multiple interest rates.
The models tested in PFM Curriculum are:
- Discounted Cash Flows: FCFF, FCFE based methods
- Enterprise Value Based Discounted Cash Flow
- Dividend Discount Model
- Residual Income
- Enterprise Value Multiples
- Price Multiples
The discounted based valuation is conducted by using single or multiple interest rates.
- Project Financial Model and Feasibility Analysis
Candidate needs to understand how to prepare financial model for a project and conduct feasibility analysis by using various methods and understand the weakness. Understand the anomolous interaction of various models which can create artificially feasible results. Learn to use term structure based feasibility tools. Understand to turn feasibility into valuation.
- Financial Model Sustainability and Risk Analysis
Candidate needs to understand how to prepare model which is sustainable in the long run. The level of sustainability can be determined by using various analytical tools, some of them are Financial Ratios and Delta Ratios. Candidate is able to calculate sensitivity to change of assumptions to change in valuation or feasibility metrics such as by using various duration methods.
- Credit Analysis Based on Financial Model
Describes the methods to determine whether a company or project is credit worthy based on simple or complex financing structure. Candidate understand how to connect the relationships and co-movement between valuation, feasibility and credit analysis metrics and cash flows.