Top positive review
Chicken Soup for the Financial Analyst's Soul
on July 20, 2003
If you need to build a working valuation model, calculate the risk of a portfolio with 100+ securities, or figure out what return you might expect to get from a portfolio of high-yield bonds, then you'll find Simon Beninga's "Financial Modeling" merits far more than five stars: this is one book that is indispensable.
One of the biggest problems I ran into during my MBA program was the way my professors taught Corporate Finance. I had great profs, true, but they were teaching theoretical concepts from theoretical textbooks. Sure, you learned the basics: CAPM, net present value, basic options and futures, Arbitrage Pricing Theory, VAR and TEV, but I have always maintained that the best way of learning a subject---particularly corporate finance---is by getting your hands dirty and digging into the guts of the material.
Since Corporate Finance, off-balance sheet instruments aside, isn't very dirty, the best way to get a hands-on practical approach in terms of Capital Structure, the appropriate discount rate to use in pricing an asset, risk, and optimal debt and dividends is to program in Excel and Visual Basic. The problem is that many top finance texts don't offer supplemental material to translate the theoretical concepts into actual valuation and spreadsheet models, which any financial analyst will contend is the life-blood of the industry.
With that in mind, Simon Beninga's "Financial Modelling" is a kind of "Joy of Cooking" for initiate investment bankers, corporate financiers, controllers, analysts, and anyone who wants to use core Corporate Finance concepts in the real world. Beninga goes through the standard laundry list of Corporate Finance text topics---from the optimal risky portfolio to the term structure of interest rates---and shows you how to translate these concepts into workable spreadsheet models that can illustrate, illuminate, and get to the heart of a problem.
If you're a new MBA or financial analyst, you'll find much to love in Beninga's approach, and by pairing the newly expanded 2nd edition up with a top theoretical finance textbook (Ross, Westerfield et al.'s "Corporate Finance" is a fine example) you'll get the most out of your MBA program and have a solid foundation for building Excel and Visual Basic financial models that work.
I liken "Financial Modeling" to a cookbook, in that Beninga provides all the ingredients necessary to the model at hand: he begins with a sprinkling of theory, whether it's modeling a bond portfolio's immunization, calculating the cost of capital, estimating a portfolio's Beta with no short-selling, or pricing put and call options using both the binomial theorem and Black-Scholes. His writing is spare, terse, and to the point, but I have learned more about advanced corporate finance theory through Beninga's marvellously pithy writing and copious Excel examples than I have in reading ten 'top of the list' finance books.
In addition to nicely expanded sections on options (including portfolio insurance) and leasing (including the technically sophisticated subject of leveraged leasing, which requires Excel to comprehend), Beninga concludes his sprightly little tome with a section on getting the most out of Excel (useful little shortcuts that a financial analyst will need but may not have heard of) and a nice little introductory primer on programming in Visual Basic.
"Financial Modeling" is an absolute essential if you're going to make Corporate Finance your profession. For an equally elegant and practical treatment of building discounted cash flow models for businesses, the reader would be advised to pick up Beninga's "Corporate Finance", which, while not equally oriented in spreadsheet modeling, is one of the most terse, accessible, and reasonably technically sophisticated Corp-Fin books on the market today.