Articles

Predict. Do not extrapolate.

Car Inc’s short-term and long-term sustainability model

In the previous article, Modtris model reverse-computes the historical operating metrics of Car Inc using only balance sheet and income statements from 2013 to 2019. With these operating metrics, the short-term and long-term sustainability of the company are simulated. Short-term: cash position under extreme scenarios are simulated. Long-term: financial outcome under constant level of financing…
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DO CAR INC’S PAST FINANCIAL RESULTS MAKE SENSE?

Following the announcement of internal investigation of Luckin Coffee, Car Inc was immediately under fire for the guilt of association. Its stock price on HK stock exchange lost more than 50% value and subsequently Moody’s and S&P downgraded the company’s rating to Caa1 and CCC. The primary market concern may be that Car Inc, even…
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China Evergrande Group – Are the Management’s Goals Achievable?

Following the 2019 financial report, China Evergrande announced the new goals of slashing debt by CNY 150bn a year through 2022, increasing sales to CNY 800bn in 2020 and CNY 1tn by 2022, and at the same time shrinking the company’s land reserve. Can these goals be achievable? If so, under what conditions? Are they…
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China Evergrande 2019 Results – Reverse Analysis and Forecasts

Content: Financing and operating implications – Much higher debt borrowing and raw inventory buying than 2018 – Modest after-sale at zero margin – What has not changed Projections if the company would maintain the 2019 conditions – New conditions in 2019 – Main UNchanged conditions – Projection results summary

Why cannot financial analysts alone raise the power of their forecasting model to the next level, yet?

Making a financial model more predictive than extrapolative is conceptually simple – model more the causes than the results. However, it is much more difficult than to conceptualize, in fact far outside the trained skill set of most financial analysts without a powerful tool, to simulate the actions of a company that produce the financial…
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Challenges in financial forecasting for credit and equity analysts

What makes a financial model more predictive than descriptive? When a model’s inputs are related more to the causes than to the results of the process being modeled, the model is more predictive and less descriptive than otherwise. Challenges facing credit and equity analysts With the currently available financial modelling tools, analysts often have to…
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