Every financial analysis tool, described plainly
The full list, with what each one is actually for and where each one breaks. A tool that will not tell you its limits is a tool you should not put a number from into a memo.
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What are financial analysis tools?
The models and calculations used to turn financial statements into a view: valuation methods, ratio analysis, screening, scenario testing and risk measures. They are all arithmetic. What distinguishes a professional application of them from a naive one is knowing which assumption each result actually depends on, and refusing to produce a number when the inputs cannot support one.
The specifics
Discounted cash flow
Values a business from projected free cash flow and a discount rate. Depends far more on the terminal assumption than on the forecast, so the share of value in the terminal period is stated rather than buried.
More on thisComparable companies
Values by reference to peers. Requires a real peer count: a median from two companies is a midpoint, and one from a single company is that company. Every median here carries its count.
Monte Carlo simulation
Runs the same valuation across a distribution of assumptions. Infeasible draws are discarded and reported, never clamped to a boundary, because clamping piles the probability mass on the edge and calls the result a distribution.
Leveraged buyout
Tests what a sponsor could pay: sources and uses, a debt schedule and returns, with the internal rate of return solved numerically rather than approximated.
More on thisMerger and accretion analysis
Tests what an acquirer can afford under cash, stock or mixed consideration, deriving share issuance from a real price rather than defaulting it.
Discount rate builder
Cost of equity from a live risk-free rate and a measured, mean-reversion-adjusted beta, weighted against an after-tax cost of debt, with the basis for the number written out.
Equity screening
Filters the universe on growth, margin, leverage, returns, valuation and modelled upside, all computed from filed fundamentals.
More on thisPortfolio analytics
Exposure, concentration, volatility and value at risk, with return series joined on trading session so a foreign or weekend-trading asset is not silently mispaired.
Scenario stress testing
What a defined market shock does to a book, position by position, with an observation floor below which it abstains rather than fitting a slope to a handful of days.
Correlation analysis
How positions move together, with missing sessions dropped rather than filled with a zero return, which would drag every correlation toward nothing.
Filing and transcript comparison
This period's document against last period's. Two different engines, because a filing is a revision and two earnings calls are independent utterances.
Investment memo and committee pack
The output stage. Content and layout generated separately, so every pack is consistent and no model chooses a slide layout.
The comparison in full
| Tool | The assumption it actually depends on |
|---|---|
| Discounted cash flow | Terminal growth and discount rate, which together usually carry 70 to 80 per cent of the value |
| Comparables | That the peer set is genuinely comparable, and that there are enough of them to have a median |
| Monte Carlo | The distribution you specified, which is a judgement dressed as a statistic |
| Leveraged buyout | The exit multiple, which is generally assumed equal to entry and rarely is |
| Accretion analysis | The acquirer's own share price, which is itself a market view of the acquirer |
| Beta | The measurement window, and whether the two return series were joined on the same trading sessions |
If you can name the assumption, the output is usable. If you cannot, it is a number with a decimal point.
When these tools refuse
A model that returns a confident number from a degenerate input is worse than one that will not run, because the failure is invisible afterwards. These abstain and say why: a share count of zero, a discount rate below terminal growth, a net debt figure where either side is unreported, fewer than three usable peers for a median, too few overlapping sessions for a beta, or a simulation where most draws were infeasible. In each case the reason is displayed rather than a dash.
Frequently asked questions
What financial analysis tools does Khan Terminal include?
Discounted cash flow, comparable companies, Monte Carlo simulation, leveraged buyout, merger and accretion analysis, a discount rate builder, equity screening, portfolio analytics, scenario stress testing, correlation analysis, filing and transcript comparison, and memo and committee pack output.
Are the models pre-populated with company data?
Yes. Valuation models open with revenue, margins, capital intensity, share count and net debt read from the company's filings, so the work starts at the assumptions rather than at data entry. Every input remains editable.
What happens if a model has a bad input?
It refuses and names the input. This matters more than it sounds. A cash flow set of all zeros returns a 450 per cent internal rate of return from a naive solver, and a stock deal with a zero acquirer price shows as strongly accretive because no shares were issued. Both look like results.
Can I export the models?
Yes, to portable document format, PowerPoint and Excel. The deck is composed by a deterministic layout engine from the same content, so slides are consistent across decks.
Open a model with real numbers in it
Pick a company and see how much of the valuation the terminal assumption is carrying.