Why I (Usually) Build Models - by The Science of Hitting

Why modeling can be a valuable exercise

As you saw in the April 2021 Portfolio Review, I construct five-year financial models for many of the companies that I’m invested in. In terms of the output, the objective of that exercise is to generate a reasonable estimate - albeit a very rough estimate - of per share profitability in the medium term. The value of this exercise for the long-term investor is two-fold: first, when done properly, it gives us a way to think about today’s valuation relative to the future earnings power of the business; and second, constructing a model draws attention to the important variables in that…

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