I need an extensive notes for all the topics and

terms that he used in his videos upto the 6th video

in playlist, that is introduction to DCF modeling, in
order to understand those better also to make
myself acquaint with th basics too
Here are extensive notes covering all the foundational topics and terms used by Parth Verma
in his first six financial modeling videos up to “Introduction to DCF Modeling” from The
Valuation School’s YouTube playlist. These notes will help you both understand the discussed
concepts and get a strong grip on the basics of financial modeling and DCF analysis:

1. What is Financial Modeling?

Financial Modeling involves creating a structured representation (usually in Excel) of a real-
world financial situation for a business or investment.
Models typically forecast financial performance based on assumptions about future
revenue, expenses, capital structure, etc. [1] [2] .

2. Valuation: The Big Picture

Valuation is the process of determining the current worth of an asset, company, or
investment.
Approaches include:
Intrinsic Valuation: Based on fundamentals (e.g., DCF).
Relative Valuation: Based on peer company comparisons (e.g., P/E, EV/EBITDA
multiples).
Asset-based Valuation: Based on net asset value [1] [2] .

3. The Architecture of a Financial Model

A robust model typically includes:
Assumptions Sheet/Input Sheet: Where key variables are set.
Historical Financial Statements: Past data used for trend analysis and grounding
forecasts.
Revenue & Cost Schedules: For modeling future income and expenses.
Depreciation & Amortization: For non-cash expenses and tax impact.
 Working Capital Schedule: Modeling changes in current assets and liabilities.
Debt & Interest Schedule: For modeling funding and related costs.
Income Statement, Balance Sheet, and Cash Flow Statement: All linked and calculated
(known as “three-statement modeling”).
Output/Results Sheet: For key metrics and scenarios.

4. Key Excel Concepts and Tools

Cell Anchoring, Dynamic References: Using $ signs (e.g., $A$1) to fix cells in calculations.
Shortcuts & Zero-Mouse Technique: Efficient navigation and data entry in Excel.
Advanced Formatting & Data Visualization: For presenting results clearly.
Master layouts: Consistent formats for quick understanding and auditability [1] .

5. Core Financial Statements

Income Statement (P&L): Details revenues, costs, and profits for a period.
Balance Sheet: Shows assets, liabilities, and equity at a specific date.
Cash Flow Statement: Summarizes inflows and outflows of cash, divided into operations,
investing, and financing.
Linking statements: Interconnections such as profits from P&L adding to retained earnings
in equity, depreciation linking to both P&L and balance sheet, etc. [1] [2] .

6. Key Terms and Concepts Introduced

a) Revenue Modeling
Forecasting revenues based on drivers like price, quantity, market growth, etc.

b) Cost Modeling
Projecting cost of goods sold (COGS) and operating expenses.

c) Capex & Depreciation

Capex: Capital Expenditure—money spent by a firm to acquire or upgrade assets.
Depreciation: Allocating the cost of tangible assets over their useful lives.

d) Working Capital
The capital available to fund day-to-day operations, calculated as current assets minus
current liabilities.
e) Debt & Interest
Modeling the impact of loans (debt) and the associated interest expense on financial
statements.

f) Retained Earnings
Profits kept within the business rather than paid out as dividends; links between the P&L
and balance sheet.

7. Fundamental Ratios & Analysis

Liquidity Ratios (e.g., current, quick ratio): Indicate a company’s capability to meet short-
term obligations.
Solvency Ratios (e.g., debt/equity ratio): Assess long-term stability and leverage.
Profitability Ratios (e.g., net margin, ROE): Indicate efficiency and returns.
Efficiency Ratios (e.g., asset turnover): Show how well resources are used.
Common Size Statements: Every line item expressed as a percentage of revenue or total
assets for easy comparison [1] .

8. Core Modeling Techniques

Three-Statement Model: Building linked projections for the income statement, balance
sheet, and cash flow statement from scratch.
Scenario/Sensitivity Analysis: Changing key inputs (growth, margins, interest rate) to see
impact on outcomes.
No Pre-Built Templates: Parth emphasizes building models from scratch for true
understanding and adaptability [3] .

9. Introduction to DCF Modeling (Video 6)

A. What is DCF?
Discounted Cash Flow (DCF): An intrinsic valuation method that estimates the present
value of a company based on its projected future free cash flows.
Used to answer: “What is this company/business worth today if I owned all of its future cash
flows?”

B. Key Steps and Terms:

1. Forecast Free Cash Flows (usually FCFF):
Unlevered Free Cash Flow (UFCF): Cash available to all capital providers, before
considering debt payments.
2. Estimate Terminal Value:
 The value of the business beyond the explicit forecast period (often using Gordon
Growth or exit multiples).
3. Discount Rate (usually WACC):
Weighted Average Cost of Capital—average rate of return required by all providers of
capital.
4. Present Value Calculation:
Discount all forecasted free cash flows and terminal value to today using WACC.
5. Enterprise Value and Equity Value:
Enterprise Value: Value as per DCF, before subtracting net debt.
Equity Value: Enterprise value minus net debt equals the value of equity (for
shareholders).
6. Sensitivity Analysis:
Testing different key assumptions to understand the range of possible values [4] [1] .

C. Basic DCF Formula

Where FCFF = Free cash flow to the firm in year $ t $, and WACC = Discount rate.
Terminal Value (TV): Estimated by perpetuity growth or exit multiple [4] [1] .

10. Terminology Refresher

Term Meaning

Assumption Sheet Input section for key drivers/variables

Schedule Detailed breakdown (e.g., depreciation, debt, working capital)

Unlevered Free Cash Flow Cash available to all capital holders, before interest payments

Debt Schedule Table outlining repayment of principal, interest, new borrowings, etc.

Terminal Value Value at the end of the projection period

WACC Weighted Average Cost of Capital

Enterprise Value Value of the whole firm, including debt and equity

Equity Value Value belonging to shareholders after subtracting net debt from enterprise value

Sensitivity Analysis Scenarios to see how valuation changes with key inputs

Common Size Statements Expressing line items as a % of a base (e.g., revenue, total assets)

Ratio Analysis Key financial metrics to assess health/performance

Scenario Analysis Creating cases (“base,” “bull,” “bear”) to test impact of assumptions

Three-Statement Modeling Linking the P&L, balance sheet, and cash flow models
Closing Tips
Build from scratch: Construct each model stepwise to ensure a solid grip on logic and
assumptions.
Understand each driver and link: Always know how changes in assumptions ripple through
statements and valuation.
Validate with ratios and cross-checks: Regularly check reasonableness and integrity of
outputs.
Interpret, Don’t Just Calculate: The ultimate goal is interpretation—drawing actionable
conclusions from the analysis for investment, lending, or management decisions [1] [4] .
If you need more details or practical Excel examples on any of these points, let me know!Here
are comprehensive notes on all the core topics and terms Parth Verma discusses in his
financial modeling videos up to and including the 6th video (“Introduction to DCF
Modeling”). These notes cover key concepts and their basics so you can build a solid
foundation for understanding DCF modeling and financial modeling in general.

1. Financial Modeling Basics

Financial Modeling: The structured process of translating real-world business scenarios into
Excel spreadsheets that forecast a company’s financial performance. It helps in decision
making, valuation, and strategic analysis [1] [2] .

2. Three-Statement Model
The backbone of financial modeling, involving:
Income Statement (P&L): Revenue, costs, and profit over a period.
Balance Sheet: Assets, liabilities, and equity at a specific date.
Cash Flow Statement: Summarizes cash inflows/outflows from operations, investing,
and financing.
Linking: Net income from P&L affects equity in the Balance Sheet while non-cash expenses
(like depreciation) flow through to the Cash Flow Statement [1] [2] .

3. Schedules and Key Building Blocks

Revenue Schedule: Projection using volume, price, growth rates.
Expense/COGS Schedule: Projects costs based on variables or revenue proportions.
Depreciation & Amortization: Schedules linked to capital expenditure (Capex).
Working Capital Schedule: Models short-term assets/liabilities (inventory, payables,
receivables).
Debt Schedule: Loan balances and interest calculations.
Retained Earnings Schedule: Accumulated profits after dividends.
Interest Schedule: Shows interest expenses based on outstanding debt [1] [4] .
4. Ratio Analysis Basics
Liquidity Ratios: Current Ratio, Quick Ratio.
Profitability Ratios: Gross, Operating, and Net Margin.
Solvency Ratios: Debt to Equity, Interest Coverage.
Efficiency Ratios: Asset Turnover, Inventory Turnover.
Common Size Statements: Financials expressed as % of sales/assets for easy
comparison [1] .

5. Financial Model Structure & Best Practices

Input/Assumptions Sheet: Centralizes all key drivers for easy scenario/sensitivity updates.
Output/Results Page: Key metrics, valuation results, dashboards.
No Pre-built Templates: Build from scratch for conceptual clarity [3] .
Model Documentation: Documenting logic, version, and changes is crucial for clarity [1] .

6. Introduction to DCF Modeling (Video 6)

DCF (Discounted Cash Flow): The core intrinsic valuation method. It values a business by
projecting its future unlevered free cash flows and discounting them to present value.
Unlevered Free Cash Flow (UFCF): Cash available to all capital providers before interest
expense.
Enterprise Value: The total value, from DCF, of the business before subtracting net debt.
Equity Value: Enterprise value minus net debt—what is “left” for shareholders.
Discount Rate (WACC): Combines cost of equity and after-tax cost of debt, weighted by
capital structure.
Terminal Value: Represents business value beyond the explicit forecast period (using
perpetuity growth or exit multiple).
Sensitivity Analysis: Examines how changes in assumptions (growth, margin, WACC)
impact value.

Core DCF Formula:

7. Key Terms & Concepts Refresher

Term Meaning

Input Sheet Where core model variables are set

Schedule Detailed workings for items like depreciation, debt, WC

 Term Meaning

Terminal Value Value of cash flows beyond forecast horizon

WACC Weighted Average Cost of Capital; discounted rate in DCF

Sensitivity Testing outcome changes with different key variable assumptions

Scenario Analysis Creating “cases” (base, worst, best) for drivers/variables

Common Size Percentages for comparative analysis

Ratio Analysis Checking model/realism by major financial metrics

Linking Statements Ensuring IS, BS, CFS changes flow logically together

Study Tip:
Build models and schedules manually first to fully grasp dependencies.
Always check for model integrity (statements balance, flows make sense, ratios are logical).
The foundation is interpretation, not mere calculation—understand why numbers move as
they do.
If you want specific stepwise Excel examples for any of these concepts, just let me know! [1] [4]
[2]

1. https://thevaluationschool.com/Home/ProgramDetails?Package=Advanced+Valuation+and+Financial+Mo
delling|1686|
2. https://www.scribd.com/document/656627006/Financial-Modelling-1
3. https://www.youtube.com/watch?v=pEt7LFDoM80
4. https://www.scribd.com/document/691457702/DCF-Modelling-by-parth