Financial Modeling - 2nd Edition: Includes CD Review

Average Reviews:

(More customer reviews)I have used Simon Benninga's "Financial Modeling with Excel" for five years to teach undergraduate computational finance [...]. My thinking remains that my students have been well served by this textbook.
The inadequacies that limit my assessment to four stars and need to be addressed in the third edition are: 1) frustrating errors in the text and models, for which the errata sheet and corrected models (available at: [...] only improve, but do not heal. My students find new, undocumented, errors each semester. 2) the data sets and examples are getting, frankly, a little old. It is the year 2005 as I write this, but the data sets and examples end in 1999, a year in which my current students were in high school. 3) the models, while excellent as introductions to the field, are now at the point of being fundamental, rather than exemplary. This is not Prof. Benninga's fault, but as the other reviews from professionals here attest, Excel modeling has advanced in all fields (option pricing, financial statements, portfolio optimization, bond metrics, etc). When this volume was introduced, it was adequate for helping MBA and Master of Science in Finance students build essential modeling skills. Sadly, it now is only appropriate for raw beginners or undergraduates. A new text with a larger scope that addresses advances in the fields is called for. 4) While it is a subject in itself, the book is seriously hindered by not introducing basic Monte Carlo simulation in Excel. 5) No information on downloading data from BLOOMBERG, REUTERS, and other historical and market data providers. It would add to the scope of the text, but 6) fitting DCF models to yield curves also would be welcome.
Even with these criticisms, Benninga's Financial Modeling remains the best book in the field for what it seeks to accomplish. It covers the major topics of finance that are appropriately addressed with models: financial statement, firm valuation and credit metrics, portfolio construction, fixed income metrics, option pricing, etc. Benninga's FM also compares favorably with his two nearest competitors.
Powel and Baker's "The Art of Spreadsheet Modeling" is a two pronged monster: it seeks to be a meta-level theoretical work on spreadsheet modeling, and then introduces modeling Monte Carlo simulation as a fundamental component of Excel (a student edition of CrystalBall is included in the text, and is the only reason to buy this book). The gap between the two is a Grand Canyon's worth of knowledge space that this text does not fill in and nearly ignores. The student who uses only Powel and Baker is ill served; whereas if he uses Benninga, he knows how, why, when and what to model. Consider Powel & Baker as sketches of a concept car with simulated wind tunnel runs, whereas Benninga shows how to build your own kit car and drive it around. Powel and Baker's concept car is beautiful, advanced, gracious, but doesn't exist and doesn't run; Benninga's kit car is like a Lotus Super Seven: simple, runs, is a blast to drive, but is dangerous in heavy traffic and you would not want to go on a 1,000 mile journey with it (i.e. or build a DCF model for the Goldman Sachs LBO team with only Benninga).
Chandan Sengupta's "Financial Modeling Using Excel and VBA" is the only book that comes close to Benninga, and I recommend it as another perspective for my students who want to continue with financial modeling. However, Sengupta's work is flawed on two counts: 1) it is clear throughout that he had read Benninga, and 2) he dropped much of Benninga's content in favor of adding wordy explanatory paragraphs to soften the blow of the fact that modeling is mathematically and technically both boring and intense work. With those criticisms in mind, his work still has neater, leaner, more compressed models with updated contemporary detail.
There are three other books, Scott Proctor's "Building Financial Models with Microsoft Excel: A Guide for Business Professionals," which focuses on building vanilla financial statements, as does John Tjia "Building Financial Models." Mary Jackson & Mike Staunton's "Advanced Modeling in Finance using Excel and VBA" is also now dated and seriously flawed and limited in scope), however it is the next step following Benninga.
For those working in top-tier banks, the internal training and modeling documents, and examples built by colleagues, will likely surpass by light years what is offered in these books. And so for beginners, Benninga remains the the best choice and first step, until something better comes along, or Benninga himself produces a new edition.

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Too often, finance courses stop short of making a connection between textbook finance and the problems of real-world business. Financial Modeling bridges this gap between theory and practice by providing a nuts-and-bolts guide to solving common financial models with spreadsheets. Simon Benninga takes the reader step by step through each model, showing how it can be solved using Microsoft Excel®. In this sense, this is a finance "cookbook," providing recipes with lists of ingredients and instructions.Areas covered include computation of corporate finance problems, standard portfolio problems, option pricing and applications, and duration and immunization. The second edition contains six new chapters covering financial calculations, cost of capital, value at risk (VaR), real options, early exercise boundaries, and term structure modeling. A new technical chapter contains a potpourri of tips for using Excel®.Although the reader should know enough about Excel™ to set up a simple spreadsheet, the author explains advanced Excel® techniques used in the book. The book includes chapters dealing with random number generation, data tables, matrix manipulation, and VBA programming. It also comes with a CD-ROM containing Excel® worksheets and solutions to end-of-chapter exercises.

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