In this episode of What’s New at CFI on FinPod, we dive into the latest addition to our course lineup, Comparable Valuation Fundamentals. Our expert instructors discuss designing the course specifically to make valuation concepts more accessible for learners without extensive finance backgrounds.

You’ll hear about the decision to use fictional companies for easier digestion of the fundamentals and the exciting new feature—Grade Your Progress—an innovative tool that guides learners through Excel models with real-time feedback.

Tune in to learn about the challenges of valuation, the fundamentals of comparable valuation, and why it’s a critical skill for financial professionals at any level!

Transcript

Ryan (00:13)
Hello, welcome to this episode of What’s New at CFI. My name is Ryan Spendelow Senior Vice President of Training and Curriculum. So today, we’re joined by my fellow subject matter expert, Mr. Jeff Schmidt. So, hello Jeff! How are you doing today?

Jeff Schmidt (00:30)
I’m doing great. How are you?

Ryan (00:31)
I’m doing very well. Thanks ever so much for asking. And today, we’re talking about a new course that you’ve created and the course is called Comparable Evaluation Fundamentals. I hope I’ve got that name right. So, Jeff, as one of our SMEs responsible for our FMVA program, can you just explain a bit of background? Why did we create this course and what’s new with it?

Jeff Schmidt (00:57)
Great question.

As we develop courses, always constantly reviewing learner feedback and incorporating that feedback when we create new courses. And valuation is one of the most important topics in finance, and it’s obviously a huge part of the FMVA program as well. So what we wanted to do with this course, we wanted to create a course that addresses things that we’ve learned along the way from learner

feedback as well as making it a bit more user-friendly for new learners that don’t have as much finance experience. One of the big differences, we already have a comparable valuation course, but Comparable Valuation Fundamentals, we’re not using real-life companies or real-life transactions. Real-life companies, real-life transactions can really

complicate things and obscure the fundamentals that we’re trying to teach. So we have some made-up companies, and it’s a made-up transaction as part of this new course that’s just a little easier to digest if you are brand new to this. So,

again, we still show you a typical layout of how companies report numbers on the income statement, on the balance sheet, or on the cash flow statement. But we don’t have all of the real-world complications that we do in our existing course that’s called Comparable Valuation Analysis.

Ryan (02:43)
All right, Jeff, that’s a fantastic explanation and rationale. And as you say, our student feedback is so important to us here at CFI. And we take the feedback that we get really, really seriously. It’s very, very valuable. And it’s a great demonstration this course of how we take that feedback and we actually put it to action. So to anybody that’s listening to the podcast, please be aware that we do read your feedback. We do take your feedback very seriously. And we love getting your feedback as well.

Jeff Schmidt (03:11)
Yes.

Ryan (03:14)
So please don’t stop sending us your thoughts and feedback. So Jeff, what’s so important about valuation, and why do we spend so much time on it?

Jeff Schmidt (03:25)
So, I’m a little biased, admittedly. I work in the FMVA program. I’m a financial modeling and valuation SME. Again, maybe a little biased, but I really do think valuation is probably the most

crucial or fundamental aspect of finance and it comes up everywhere. Whether you’re taking the FMVA or whether you’re taking another certification, you’re still using a lot of valuation concepts. You might not know it, but you’re still using a lot of valuation concepts because you’re trying to figure out…

Do I make a loan? What’s this derivative worth or something of that nature? What’s this bond worth? So we’re always thinking about valuation, even if it’s not strictly speaking in the FMVA curriculum. So it’s really one of the most fundamental, if not the most fundamental concept in finance. So, you know, as it applies to this course and the FMVA in particular, you know, think about it. We use valuation for investment purposes. So,

if we’re going to buy, sell, or hold a stock or bond, or invest in a project, we’re going to need to do some valuation work to make that investment decision. And it’s the same thing with corporations and businesses. They always think about valuation when making strategic decisions and corporate actions. as an example, if a company wants to make

an acquisition, it’s going to have to value the target company that it wants to acquire. It really needs to know that so it knows what a reasonable valuation or reasonable offer price is for that company. Alternatively if a company, corporation is trying to dispose of a business unit or division or business line or something of that nature the company needs to know the value of that business line so it knows

what it can expect to receive and also help formulate a plan for selling that you know that business for you know close to to to fair value so you know valuation really comes up in so many different areas in finance.

Ryan (05:44)
Yeah, no, I couldn’t agree with you more, Jeff. Whether it be on the corporate finance side, valuing companies, whether it be on the market side, valuing equities or bonds or derivatives, Black Scholes, option pricing models, evaluation model. Evaluation is just essential to all so much of what we do in finance. So that’s a really, really good point for our listeners to take away. Now, Jeff, one of the most things that I’m most excited about

in this particular course. And I can see you smile because you know what I’m going to ask you about, I think. The course is really notable because we have a new feature with the Excel file, Grade Your Progress. And I know that you and another one of our SMEs, Duncan, has been working on this. Can you tell us a little bit about this?

Jeff Schmidt (06:41)
Yes, absolutely. So this is something that we’re working through with some of our more modeling-intensive courses. And you’ll see it first in this course. We’ve rolled it out a little bit in some of the other courses, but this is really the first course where we say, hey, these are what these checkboxes are doing. So when you take the comparable evaluation fundamentals course, and as you go through it, you’re going to see some,

I shouldn’t say random check boxes or random boxes. They’re strategically placed. But what they’re doing is they’re basically grading you as you go through the model.

Ryan (07:24)
Mmm.

Jeff Schmidt (07:24)
And so as you fill in some of the information in that Excel file, then the boxes will get checked off if you fill it in correctly. So again, it’s just, it’s an added feature that we’re trying out again on some of our kind of heavy Excel courses so that learners as they’re working through this, they can see.

If they’re doing everything correct or if the box doesn’t get checked, then there’s an issue that something’s missing. A formula or…

maybe the number was input incorrectly. So again, it’s just to give you a little guidance to say, okay, this box is checked. You can feel reasonably confident. You’ve got the right answer. If it’s not checked, even after filling it in, then there’s something going on. There’s something wrong. So, it identifies pretty much exactly where the issue is. And so it’s a really, really nice feature for learners to be able to…

Ryan (08:24)
Yeah.

Jeff Schmidt (08:30)
figure out exactly where the problem is and there’s also a little bit of a gamification aspect to it. So as you’re working through it, there’s a sense of accomplishment Getting those boxes checked off as you work through the file so, so there’s a couple of reasons why we put that in there again to help learners and also to make it a bit more fun and Again to feel better as you’re working through these models and you get these boxes checked and you’re like, okay I’m doing it. I’m doing it correctly

Ryan (08:45)
Yeah.

Yeah, it’s a fantastic feature, and I know when you and our other colleague, the SME Duncan McKeen, when you showed me it and I had a go at it, it is fantastic. I absolutely love it. You want to get all the ticks on the worksheet that you’re working on and like you said, there’s a gamification element to it. But what’s really, really valuable I think, is it gives you that instantaneous feedback so that as soon as you’ve made a mistake,

Jeff Schmidt (09:26)
Yep.

Ryan (09:29)
don’t get the checkbox and you think, there’s a mistake here. And what you and Duncan have done really, really well is you’ve built the model so that if you do a mistake part way through a table or a section, only the part that you get wrong is you don’t get the check. But then even if the numbers are wrong following that, but you’ve done it right because you’ve got an earlier mistake, the following checkbox is all ticked. So you can really zone in

Jeff Schmidt (09:59)
Yes.

Ryan (09:59)
to where you’ve got your major error. it’s a fantastic feature and I’m sure our learners are going to love it as much as I do. And yeah, you definitely want to get all ticked on you. It becomes a bit of a challenge, a personal challenge for you. So can’t wait to roll it out a bit more. Okay, speaking of challenges then, my final question to you, Jeff, and I think, you know, with your, with your

Jeff Schmidt (10:07)
Mm-hmm. Yep.

Absolutely!

Ryan (10:25)
professional background, I think you’re the ideal person to pose this question to. What are some challenges with valuation using comparable companies or transactions?

Jeff Schmidt (10:39)
So, again, I’m a little biased. I do really, really like using comparable companies or precedent transactions, comps analysis, we call it for short.

But there are some significant drawbacks. The biggest one is that no two companies or transactions are exactly alike. So there’s always going to be some challenges there. So you basically have to pick the best companies and transactions using some of the criteria we discussed in the course. We go through operational characteristics or business characteristics and then financial characteristics in terms

of how to pick comparable companies, but again no two companies are exactly like so you have to use some judgment when you create a comp set or when you find peers to the company you’re trying to value so there’s a lot of judgment involved in that and you do the best with what you with what you can sometimes there, there are no perfect comps so you know again you have to do the best

you can and if you’re going to do a full comps analysis you know ideally you’d have five to ten companies or if you’re doing a precedent transaction analysis ideally you’d have five to ten transactions but again you know that’s kind of the that’s the goal to have five to ten of each but a lot of times

That’s not going to be possible and you might only have three peer companies or three similar transactions. So that’s really the biggest challenge.

Ryan (12:31)
Yeah, evaluation, the ultimate mix of art and science. So yeah, and that example that you’ve just given us, Jeff, I think perfectly captures that sentiment. So, right, Jeff, it’s a fantastic course. I’m sure that our learners, particularly our learners that are looking to complete the FMVA, that perhaps have a little less finance background will find this course

Jeff Schmidt (12:35)
Yeah, definitely, yeah.

Mmm.

Ryan (12:59)
extremely valuable. I’m really excited that you’ve created it and thanks ever so much for taking time out of your busy day to come onto the podcast and give us a little bit of an explanation about it and hopefully I know that you’ve got some other exciting courses up your sleeve and you’ll be back soon to tell us about those.

Jeff Schmidt (13:08)
Definitely. Thank you for having me.

Ryan (13:18)
Awesome. No problem at all, Jeff. All right, everybody. Thanks ever so much for listening to this episode of What’s New at CFI. My name’s Ryan Spendelow and I hope to have you sign up again and listen to our next podcast soon. Take care, everybody. Bye-bye.