Financial Modeling Techniques for Global FP&A Success

Written By Ankita Ghosh

Show Notes

Welcome to the Financial Modeler's Corner (FMC), where we discuss the art and science of financial modeling with your host Paul Barnhurst.

Financial Modeler's Corner is sponsored by the Financial Modeling Institute (FMI), the most respected accreditation in Financial Modeling globally.

In today’s episode, Paul engages in an interaction with Carolina Lago and discusses the essential tips for transforming data into actionable insights and the strategic approach to avoiding common modeling pitfalls. This discussion offers valuable wisdom that will enhance your analytical skills and financial acumen.

Carolina, a seasoned FP&A professional with over 15 years of international experience, shares profound insights from her extensive career, including her role in a significant IPO and leading software implementation across global departments.

Key takeaways from this week's episode include:

  • An early career encounter with a poorly designed financial model, filled with hard-coded numbers, underscores the necessity for creating flexible and dynamic financial models that can adapt to changing business needs.

  • The discussion highlights the critical need to avoid hardcoded data and external links in financial models, which can lead to rigidity and errors.

  • Insights from the financial modeling newsletter and courses show a wide range of professionals benefiting, from newcomers to seasoned directors. This variety demonstrates the widespread need for improved modeling skills.

  • The discussion focuses on the importance of transforming data into actionable insights. It's stressed that without the ability to analyze and interpret data effectively, its value is minimal.

  • The conversation sheds light on techniques for deriving actionable insights from complex data, crucial for any financial modeler. It also discusses the value of formal certifications like the Advanced Financial Modeler Certification as tools for professional development and skill validation.

Quotes:  

Here are a few relevant quotes from the episode on financial analysis and modeling:

“I inherited one, and I had to try to change it. I spent probably a couple of weeks trying to make it better, and I couldn't. It was just too full of hardcoded numbers and I had to find everything the way around and no design at all.”

“The first thing I learned about financial modeling was not to use hard codes and don't link outside of the spreadsheet.”

“Data is only useful if it can be transformed into actionable insights.”

“The TACTIC is targets, assets, calculations, tools, insights, and correlations. You start with the target which is the question that you need to answer with that financial model.”

 “That's why I like financial modeling so much because it can transform data into something. So you can make decisions on top of that data.”

Sign up for the Advanced Financial Modeler Accreditation or FMI Fundamentals Today and receive 15% off by using the special show code ‘Podcast’. 

Visit www.fminstitute.com/podcast and use code “Podcast” to save 15% when you register.  

Go to https://earmarkcpe.com, download the app, take the quiz and you can receive CPE credit. 

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In today’s episode:  

(00:04) Introduction

(00:50) Guest background

(01:00) Horrifying financial models

(02:00) Insights from guest’s early career challenges

(03:10) Guest’s career journey and global experience

(05:00) Turning data into actionable insights

(07:30) Introduction of the tactic framework

(09:50) Audience engagement and learning opportunities

(20:00) Certification and continuing learning

(22:40) Rapid-fire round

(24:50) Advice for aspiring financial modelers

(26:00) Contact information to learn more about various modeling techniques and tools.

Full Show Transcript

Host: Paul Barnhurst:: Welcome to Financial Modeler's Corner, where we discuss the art and science of financial modeling with your host, Paul Barnhurst. Financial Modeler's Corner is sponsored by the Financial Modeling Institute. Welcome to Financial Modeler's Corner. I am your host, Paul Barnhurst. This is a brand new podcast where we talk all about the art and science of financial modeling with distinguished financial modelers from around the globe. Financial Modeler's Corner Podcast is brought to you by the Financial Modeling Institute. FMI offers the most respected accreditations in financial modeling. I'm excited to welcome to the show, Carolina Lago. Welcome to the show.

 

Guest: Carolina Lago:: Hi, Paul. Thank you for having me.

 

Host: Paul Barnhurst:: Excited to have you. So one of the first questions we like to ask all of our guests, everybody gets the same question, tell me that horror story, what's the worst financial model you've ever seen?

 

Guest: Carolina Lago:: Well, I can say that the worst one was very early in my career. I inherited one, and I had to try to change it. I spent probably a couple of weeks trying to make it better, and I couldn't. It was just too full of hard-coded numbers and I had to find everything the way around and no design at all. But back then, the worst was that I was not experienced either. So it was pretty hard to rebuild it and get to the final outcome that I needed to keep working with it. It was horrible, it was a nightmare.

 

Host: Paul Barnhurst:: I could imagine. Any time you have a lot of hard codes, it's rough. What did you learn from that experience? What was your takeaway from that model?

 

Guest: Carolina Lago:: Well, I think the first thing I learned about financial modeling was not to use hard code and don't link outside of the spreadsheet. If you link, there's like a whole process that you need to go through. I used to have one job in which the models were all linked together. There were like 5 or 6 spreadsheets, but you need to open all of them at once and use them all of them at once and save them as workspaces. So there was all this process around just because they're linked out. So it was the first thing I decided in my career, no hard code, no external links. I've been doing that ever since. I think it was the first lesson ever.

 

Host: Paul Barnhurst:: Those are probably two good points. I've used external workbook links, but I try to use them sparingly and I agree, if you can avoid them, you should. As far as hard codes, just don't use them, pretty simple. The next question I have for you is why don't you tell us about yourself, your background, and what you're doing today?

 

Guest: Carolina Lago:: Well, I've been in FP&A for my whole entire career since the very beginning. I think maybe a couple of years, only a year and a half, only in commercial finance. But after that, FP&A, all the time. It's been more than 15 years, a little less than 20. I don't like to say 20. It's too much. But 15-plus years is a good number, and it's been in FP&A since then. Different companies, different countries all over the world. I started in Brazil with a company that is finance service, and credit card company. There was a huge, amazing experience because I got to see big transactions, big volume, and it's an important company. I participated in an IPO too which is great from the standard of FP&A that you can help the people that are putting together all the documentation for the IPO and seeing a company being listed for the first time. It's amazing and it was a great experience. Ever since then, software implementation planning, software implementation, and different departments all over the company, that I was supporting. So I've seen a little bit of everything which was amazing in terms of career.

 

Host: Paul Barnhurst:: That is pretty amazing to get to see all those different things. I've never been part of a company going public. Came close once with one of the companies I worked with, but we ended up not going public. I've seen some splitouts and M&A and stuff, and going public would be a fun one to see.

 

Guest: Carolina Lago:: It is very fun.

 

Host: Paul Barnhurst:: I bet. The first question I want to ask you is about your LinkedIn profile. So on your profile, you share a quote. The quote says data is only useful if it can be transformed into actionable insights. Why do you think that is and how do we make sure we're turning it into actionable insights? What does that mean for you? Elaborate on that quote.

 

Guest: Carolina Lago:: It does. But this phrase, this quote resonates so much with me because I've seen so many companies, especially, after I started to do more consulting work in smaller companies. That is collecting data everywhere, and they have a huge amount of data and they don't know how to transform that into decisions. They just get lost. So what I think is more important is the insights that the data can generate than the data itself. So it's useless if you just try to keep collecting data from your volume, from your products, about your opponents, or anything like that and then you bring it inside and you don't know what to do with it. That's why I like so much the financial modeling itself because it can transform data into something. So you can make decisions on top of that data. That's for everything, not only for data but for information, also. I see people collecting information, reading articles, and not doing anything about it. So if you don't take insights out of the data, the information and the articles, and everything that you learn, it's useless. You go nowhere.

 

Host: Paul Barnhurst:: How do you help? You said you worked with a lot of small companies that have collected a lot of data. How do you help them transform that into actionable insights?

 

Guest: Carolina Lago:: You have to take a step back. Sometimes you are collecting data, actually, even buying data, market research, and things like that. You don't apply inside. You don't have you don't have information about your own company, your own numbers. That's where the financial modeling comes so much in place. Because you can put all of that data in that information, that knowledge that you bring in from data to iterate with your own numbers. Then it's going to become something that will help you to make decisions. That's why I like financial modeling so much.

 

Host: Paul Barnhurst:: As you mentioned, your newsletter came from Tactic which is a framework you created as part of your business. What does that framework stand for?

 

Guest: Carolina Lago:: The Tactic is targets, assets, calculations, tools, insights, and correlations. You start with the target which is the question that you need to answer with that financial model. Then you go to the assets which is all the data that you have to answer the question, everything that is available to you right at that moment. Then you go to calculations which is all the schedules that you're going to need, or the different types of models you might need because it might not be just a schedule. You might need to go a little deeper on cost. For example, depending on the question that you need to answer. Then you go to the tools which are the analysis that you're going to do on top. After you build the actual model, you're going to go on the tools which is the analysis or scenarios or something like that. Then you get the insights which is the answer to the question and the correlation which is the next step, what are you going to do now? So now you answer that question, but what is the next step? Maybe you need another analysis or maybe you need to make a decision. That's the correlation to that. So it's basically a framework that you go on and you come back. For example, if you have a question which is the target, and then you go to the assets, you don't have enough data or probably you have that data, but it comes another question and you go back to the target. So you can go on and go back to each one of the steps. It's like a pyramid that you can go on and go back. So it's very territory.

 

Host: Paul Barnhurst:: Makes sense. It's iterative. You don't always just go one through six. You may go back and forth and let's see if I got it right. So Tactic is targets, assets, calculations, tools, insights, and correlation.

 

Guest: Carolina Lago:: Exactly. I've been doing it this way since probably ten years ago. It works great because you can go on and go back. It makes like a modular type of financial model which is easier to work with.

 

Host: Paul Barnhurst:: Got it. That makes sense. Thank you for sharing that. So who is your newsletter for? What's your primary audience?

 

Guest: Carolina Lago:: I think probably for anybody who would like to learn more about financial modeling. When I first began I targeted a little bit the new professionals and people that were new to FP&A and financial modeling, but I learned that there are a lot of people on different levels of the company and even different, areas of the company. They want to learn more about financial modeling, and they're reading my newsletter. So they're the most active learners from my newsletter. It was a kind of surprise for me. I think it's great. It's a very varied audience, I think.

 

Host: Paul Barnhurst:: It's interesting. It's surprising sometimes how you get different people from different areas of the business to want to understand it. We had our Best Practice FP&A Course we did, and we had an engineer who decided to attend the course. So it's just totally different than the normal audience we get. But it was good. It was good to have his thoughts. I think people want to understand other parts of the business, just like we in finance want to understand the rest of the business.

 

Guest: Carolina Lago:: Exactly.

 

Host: Paul Barnhurst:: In your newsletter, you share a process, kind of a roadmap to understanding a business through financial modeling. Can you talk a little bit about that process? How can someone better understand a business through financial modeling? How's that work in your opinion?

 

Guest: Carolina Lago:: I use financial modeling more as a tool for professionals than a tool for the company because you can argue that companies can just put planning software to work, and don't need financial modeling in Excel. But that's why I teach in Excel because I think you can learn so much from building a model, and you can go on and build a real-world company, a listed company, probably because it's easy to find the information. So I am sharing these few steps which are something that I'm going to use during my course. It's the capstone project for them. They're going to go and try to find something that they want to model, but it's going to be different for each person. Some people will want to try to understand a company better. Some other people will try to understand their own company. It's very flexible. You can be very flexible using that. So you can go on, pull the information that you have the historical information and that's the roadmap. That's what the roadmap is about. You can pull the historical information, and then you try to build the simplest model that you can with that information. It's not going to be exact. I always tell people not to go on and try to replicate actuals. You're not going to be able to because actuals have so many details in the middle of it. You're not going to be able to replicate it. Replicating actuals is a big mistake that people make. What is in the financial model is not real, it's a projection. So you need to take it as a projection. You have to come up with assumptions and try to project the next year and see if it makes sense with what the company has already reported as actuals.

 

Guest: Carolina Lago:: Then you're going to start to learn about the company. As you adjust those assumptions and you adjust those calculations, you're going to learn more and more about the company. That comes back to my framework because if you apply the framework, you're able to come back. If you put the simplest model that you can and then you learn that you need more data for some type of calculation, then you go back to the assets and try to find more data and try to probably replicate the real data. The goal here is not to make a model for investors. You don't want to be that precise. You want to learn about the business. So you go on and you try to iterate and you go back and you find more data, and then you go on again, and then you read an article that says something about their way, their handle, their working capital. Then you go back to your model. You try to put that on your model. As more you do it, the more you learn about the company. So I advise people if they want to break into a business, if they want to learn about their competitors, if they want to probably go there participating in a job interview, or if they just want to learn for fun because it's always fun to learn. If you go and do that, you're going to be able to learn about the company just by trying to model it, not trying to be precise about it, not trying to be perfectionist about it.

 

Host: Paul Barnhurst:: Sure. The reality is any model that is forward-looking is never going to be perfect. George Box has a famous quote. He said, All models are wrong, some are useful.

 

Guest: Carolina Lago:: That's exactly what it is.

 

Host: Paul Barnhurst:: When you talked about assumptions, I couldn't help but think, I remember my first finance teacher in my MBA finance specialization. He would always make us do a write-up before we did any of our actual modeling where he'd review the spreadsheet. One of the things we were always required to do was apply Porter's Five Forces, kind of a strategic framework to the company. So we were spending a lot of time understanding the company. Then he wasn't so much concerned about what the model said. He was more concerned with, "Hey, did we use reasonable assumptions?" I almost said the right assumptions, but there's no such thing. Did we use reasonable assumptions? Can we support what we've done? Because with most modeling exercises there are exceptions, but especially in the real world, rarely is there a right answer. There is a range of answers.

 

Guest: Carolina Lago:: Exactly. If you can go back and modulate your assumptions better as you learn better about the company, then you're going to have a rounded model. If you try to get it right the first time, then it's fine. You're going to do a model and that's it. It's just going to be so wrong that it cannot be useful.

 

Host: Paul Barnhurst:: Hopefully, the balance sheet balances, that's all you want at the first time. If you've done that you've done well.

 

Guest: Carolina Lago:: Exactly.

 

Host: Paul Barnhurst:: I know you recently launched your own financial modeling course. I would love to learn first, what did you learn from that experience? How did it help you become a better modeler preparing for that course?

 

Guest: Carolina Lago:: When you teach, you need to simplify the concepts so much because you need to pass and you need it to make sense to other people. I think you learn even more of what you didn't know you knew already. So you have to put on simple concepts and try to simplify and try to make it intelligible, let's say. So I'm loving it. I'm loving this new experience. I taught before on corporate training, but never to the public, open like this with different people in the class at the same time, different backgrounds, different levels of management too. It's awesome. I'm loving it, loving putting everything together.

 

Host: Paul Barnhurst:: Awesome. I'm glad you're enjoying it. I know I love teaching as well, and it forces you to understand a subject in simple terms. If you want to know whether you understand something, teach it to others. If they understand what you're teaching, then you probably have a pretty good grasp of the concepts. If they're lost, you don't know it as well as you think you do.

 

Guest: Carolina Lago:: Exactly. It's hard, it's harder than you think. Simplifying things, it's hard.

 

Host: Paul Barnhurst:: Well, that leads to and I've shared this on many episodes, probably one of my other favorite quotes that I share all the time is, simple is hard, complex is easy, and the example I give is writing a super long statement is usually easy, but it's not. It's rarely the best way to solve it. Usually, you should put in another table or a helper column or use some kind of lookup. That takes more time, but it's much more simple when you're all done and it's easier to follow, not necessarily easier to create which I think are two different things.

 

Guest: Carolina Lago:: That's something else that comes to my mind now, when you're putting together a model, you have to think about the next person that is going to use it. Because it's not only teaching, but trying to simplify in a way that it's not only the user, but the next person that's going to have to update the model, and it is hard to make it like a legacy and leave a legacy behind. That's not easy.

 

Host: Paul Barnhurst:: I agree. As the My Excel book says, there's a joke in there. It says what is a broken spreadsheet? The new person's problem.

 

Guest: Carolina Lago:: Exactly.

 

Host: Paul Barnhurst:: So you do need to think about how you build things. It's hard enough to understand how somebody thinks, let alone if they haven't followed any good design principles, then it becomes pretty much impossible. Tell me, who's the target audience for your course? I know you built this course with the audience in mind. So who's your target audience? In today's business world, financial modeling skills are more important than ever. With the Financial Modeling Institute's Advanced Financial Modeler Accreditation program, you can become recognized as an expert in the field by validating your financial modeling skills. Join the Financial Modeling Institute's community of top financial modelers, gain access to extensive learning resources, and attain the prestigious Advanced Financial Modeler Accreditation. Visit www.fminstitute.com/podcast and use Code Podcast to save 15% when you register.

 

Guest: Carolina Lago:: In the beginning, I was targeting people who are beginning financial modeling. Because, what I think, it would save a lot of people's time, is if you start with a three-statement model, and a lot of people want to start learning about valuation or M&A models because it's more fun and exciting and everything. They forget about the three-statement model. The three-statement model for me is the foundation for everything. So I thought of people first, that was beginning their careers. But that's not the target that I reached, actually. I have people who are directors and I see there is a pattern there because there are a lot of people with this huge gap in their career about the three-statement model because we, in FP&A, don't do that, especially, if we work on a big corporation, you don't do the Excel three-statement model unless you are probably leading implementation of a planning software. That's how I learned modeling, back then, 10, 15 years ago. But if you're not doing that, you don't need to do a full model yourself. You can just pull from the planning software. So there are a lot of people that fill this gap. They're leading, M&A transactions, they are leading big IPOs or things like that. They need to know how to put together, not because they're going to do it for the company, but because this brings a skill that you can think in terms of systems and the financial model is a system.

 

Guest: Carolina Lago:: If you get to learn it well, you get it in your head. Then it's easier to think in terms of systems and knowing when you change something, when you take one decision, how it's going to flow through the statements, how it's going to flow through your finances. You can do this pretty well if you learn how to do the financial model from scratch and you learn how to build it without templates. That's why I advocate so much against templates because I don't see any harm in them, they're just useless. You cannot make one template that goes for any business or any occasion. That's why I like to teach them. I like people to learn the three-statement models, like building from the ground up. I think this builds this skill in their heads. So answering to your question, all kinds of people, I would say. I have one, starting next week and it's a very varied audience. We have people from all over the place and different positions and even people who are not from finance.

 

Host: Paul Barnhurst:: I got it. Well, exciting. I hope that goes well for you. Good luck with that launch. You know, I know you spent a big part of your career in FP&A, so I'm going to ask an FP&A question here. Any tip for those who are working in FP&A that you found that helps you? Maybe you know 1 or 2 tips that help you the most in building robust budgeting and forecasting models. Because I know those are different than an M&A model or an investment model or an elbow or whatever. So maybe 1 or 2 tips you found that helped you with building budgeting and forecasting models.

 

Guest: Carolina Lago:: I think knowing the structure of the company, knowing the business well, and knowing the impact of any decision in the business. So if you're able to play with scenarios and even if you're in a company that has planning software, just go on your Excel. Try to replicate the three-statement model, and try to build scenarios on top of it just for your learning. So my greatest tip for any professional, in FP&A or other areas too, but especially, in FP&A, when you're partnering with the business, is learning the business well, learning from the other side, from the operations side. To do that, you need to experiment with the model which is kind of impossible to do on a planning software. On planning software, when you put it there, some of them have a sandbox, but it's not that easy. It's not that flexible. But create your sandbox in Excel because it's more flexibly created. Try to replicate as much as you can, the system and what's going on in the company, even if it's not your area. If I am a business partner for the IT department, for example. But sometimes the decisions that the IT department will take will influence everywhere else. So it's something that you need to be aware of what are the impacts on the finances, not only on your small area. That's why I like so much to have the three-statement know the impact of every operation of every finance decision on the three-statements.

 

Host: Paul Barnhurst:: If I'm hearing you right, the biggest advice is learning the business, learning how the statements interact, and learning how changes and decisions impact the numbers.

 

Guest: Carolina Lago:: Exactly. You can do that by learning financial modeling. I think it's the best skill that somebody can learn.

 

Host: Paul Barnhurst:: I know, recently, you decided to torture yourself. I shouldn't use that word. But you decided to take the Advanced Financial Modeler Certification. I took it on the same weekend. It was fun, I joke. But as someone who is an advanced or experienced modeler, you know you've had nearly two decades of experience in finance. Why did you decide to take the test now?

 

Guest: Carolina Lago:: First of all, I hadn't heard about the test while I was locked in the office. I was not out in the world, so I never needed it before because I was not applying for jobs or anything. Even now I'm not. But when I started to teach, I found that this would be good to know. If I am to teach something, I need to at least know if I can do it. Hopefully, I can, probably, by the time that we publish that I will know, but, hopefully, I can. It's a very fun test. I think it was a fun experience, but I wanted to know whether I could do it. I thought it was a very respectful accreditation. I like the way it's processed and how serious it is, and I like the way it's laid out, the FM. Even the models of the FM, I adopted after the test, it was a little different from what I did before, and I adopted a lot of the way the FM is done to my teaching and to my classes, and I'm trying to replicate the way it's taught on the FM. Maybe if people go through my courses and do all the practices, I'm putting like 4 or 5 case studies, and if they go through all five of them and then practice for a time, I think that was the biggest challenge is the time of the FM. But maybe they'll be able even to do the FM easily. That's why there was a little bit of my goal. It's also to be able to prepare people for the FM.

 

Host: Paul Barnhurst:: Got it. That makes a lot of sense. You wanted to kind of broaden your skills, prove yourself, and see different ways of doing it. You appreciated the organization and respected what they do. So it makes a lot of sense.

 

Guest: Carolina Lago:: It was fun. Did you like it?

 

Host: Paul Barnhurst:: It was good practice. My biggest challenge was just finding time to study. But I enjoyed the practice. I thought that it was very professional. It's well done. I think it's a good learning experience. Obviously, I'm a big fan. They sponsor this podcast and they're the company and who's the executive director there. Well, I encourage people to take it. I'm a big believer that it's worth the investment.

 

Guest: Carolina Lago:: They are so fun that you keep doing the cases and you want to do more and want more and more and more to beat your own time. So it becomes like a video game. But it was fun.

 

Host: Paul Barnhurst:: Kind of like the Financial Modeling World Cup. It's a video game everybody's trying to do it.

 

Guest: Carolina Lago:: One day I'll get to that.

 

Host: Paul Barnhurst:: I've done that a few times. It's fun. That's another one I enjoy. So we have a couple more questions. Then we're going to move to our rapid fire section. So before we get there, what's your favorite Excel shortcut?

 

Guest: Carolina Lago:: I would say, Ctrl+C, Alt+E+S because I'm not very big fan of shortcuts. I use the mouse a lot which was something that I had to change a little bit for the FM because of time, but that's the one that I use most.

 

Host: Paul Barnhurst:: Control C, I think, everybody uses, so that doesn't surprise me.

 

Guest: Carolina Lago:: Alt+E+S after.

 

Host: Paul Barnhurst:: Both those. I've become more and more of a shortcut person but I use the mouse still a fair amount, probably more.

 

Guest: Carolina Lago:: Me too.

 

Host: Paul Barnhurst:: I'm glad I'm not the only one. I'm usually the one on the other side going. Shortcuts are nice. So next question for you here is what is one thing you have learned about modeling over your career that has saved you the most time?

 

Guest: Carolina Lago:: I think simplification because if you try to make it simple, it's probably going to take a little more time at the beginning. But if you do over and over and you become accustomed to it, it's going to save you time. If you do every time, the same way, on the same process and you simplify this process well, that's what saves you more time. Then you leave the complexities that needed to be there for later. You will start doing the simplest that you can, and then you build the complexities on top of it if you have to.

 

Host: Paul Barnhurst:: One follow-up question, how do you go about making it simple? When you say simple, can you give an example?

 

Guest: Carolina Lago:: The simplest formulas that nested it's mostly 'NO'. The simplest formulas that you can and all the calculations in place, I always repeat the inputs of the assumptions that repeat on the top of each schedules. So it's right there and it's easy to link. I don't have to keep going back and forth, minimize mistakes and everything, but if you have the same way to work every time and you keep repeating that, and then when you open an older model or other client's model, it's easy to see what you did. It's easy to find out because it's simple.

 

Host: Paul Barnhurst:: The link and repeat is always a good one. Putting it at the top of your schedules, making sure your assumptions are very clear, keeping the formulas short and concise when possible. As I've heard, some people say, the owners, the people you're building the model for, they will complicate it more than you want. So start out as simple as possible.

 

Guest: Carolina Lago:: Yes. Then you build the complexity after. So as long as you have the inputs, the calculations, and the outputs, the outputs are going to be there. So if you need to complex a calculation later because somebody has to do something else or you need to probably get more detail, probably break up a number between regions or something like that. You're going to change the middle of it. But the outputs are already there. It's already linked to the right place. So it becomes sort of like a modular model if you do that way. If you always do the same way for your models, it's going to be easy for people who work for you, work with you, and who you work for. It's going to be easy for you too because then you open a model and you already know what's going on.

 

Host: Paul Barnhurst:: No doubt about it. If you're disciplined in your design and you're keeping it simple, it's going to be easy for everybody to follow your model or at least easier. Maybe not always easy, but definitely easier. We're going to move to the rapid fire section. I have roughly ten questions here. So here's the ground rules if you haven't done this before. So I ask the question, you can't say it depends because that's the easy answer for all of them. You have to pick a side on each question. Then at the end, you can take 1 or 2 that you want to elaborate on and tell me why you gave the answer you did. Because I realized there's nuance to every single one of these questions. So are you ready?

 

Guest: Carolina Lago:: Yes.

 

Host: Paul Barnhurst:: All right. Circular or no circular references in models?

 

Guest: Carolina Lago:: No, but.

 

Host: Paul Barnhurst:: All right, we'll let you add some of that "but" at the end, I'm not surprised. VBA or no VBA?

 

Guest: Carolina Lago:: No VBA.

 

Host: Paul Barnhurst:: Horizontal or vertical model?

 

Guest: Carolina Lago:: Vertical.

 

Host: Paul Barnhurst:: Excel dynamic arrays in your model? Yes or no?

 

Guest: Carolina Lago:: Not yet.

 

Host: Paul Barnhurst:: External workbook links. Yes or no?

 

Guest: Carolina Lago:: No.

 

Host: Paul Barnhurst:: I already knew the answer to that one. You made it clear earlier.

 

Guest: Carolina Lago:: Yes.

 

Host: Paul Barnhurst:: Named ranges or no named ranges in your model?

 

Guest: Carolina Lago:: Sometimes.

 

Host: Paul Barnhurst:: That works. Do you follow a formal standard board when you're building your models like Fast or Smart or some of the others that are out there?

 

Guest: Carolina Lago:: Not a formal, my own Tactic.

 

Host: Paul Barnhurst:: That works. I think that's a lot of people answer with that one. Will excel ever die?

 

Guest: Carolina Lago:: No.

 

Host: Paul Barnhurst:: Will AI build the models for us in the future?

 

Guest: Carolina Lago:: It'll will, but I'm not sure it'll work.

 

Host: Paul Barnhurst:: Here's one for you. Should you use sheet cell protection in your models? Yes or no?

 

Guest: Carolina Lago:: I don't like it.

 

Host: Paul Barnhurst:: Do you believe financial models are the number one corporate decision-making tool?

 

Guest: Carolina Lago:: Yes. Not exactly on Excel, but yes.

 

Host: Paul Barnhurst:: What is your lookup function of choice? VLOOKUP, INDEX/MATCH, XLOOKUP or CHOOSE?

 

Guest: Carolina Lago:: Index/Match

 

Host: Paul Barnhurst:: Got it. All right so I know you put a "but" on the circular reference one. Was that one you wanted to elaborate on?

 

Guest: Carolina Lago:: Yes. I don't like to use it and I mostly don't use it, but I think people should understand and know how to use and know how to break it because things can happen and you might need to have it, at some point. The fun fact is, I did it for my AFM and now I am terrified that this will make me not pass. Because it was a bit of a show-off, I think. I had time. So I was like, okay, let me do a switch here for the circular reference. Now I'm not sure if this was the thing that made me not pass, and I am terrified about it. But to be honest, I think people need to learn about it and know how to break it because you might need to use it at some point. It sort of works like a scenario, depending on how precise you did your calculation, sometimes you will need it. I know a lot of people have been using VBA to calculate better. I don't like VBA at all. That's a no.

 

Host: Paul Barnhurst:: Was that a no on VBA? I couldn't tell.

 

Guest: Carolina Lago:: No, it was a "no", actually.

 

Host: Paul Barnhurst:: I know, I'm kidding.

 

Guest: Carolina Lago:: I think VBA is being replaced, totally by other tools because VBA is not very user-friendly, especially, if you're a little hot or cold. I could do some VBA a long time ago. I had my time with VBA, but now I think it's going to be totally replaced by Python and other types of tools that are being integrated into Excel LAMBDA. I don't know if it totally replaces VBA, but it does a lot of the work. I cannot say yet because I'm not diving into the LAMBDA world, but that's what I think for now.

 

Host: Paul Barnhurst:: There's a lot of differing opinions on it, obviously. There are a number of people who think it will go away. There's some that they'll create an emulator and it'll work in the cloud. But the reality is Microsoft has built tools around it that you can do many of the things that could only be done with VBA, whether that be Power Query, Lambda, Office Script, and many others that they've added to it. Python coming and Power Automate that can link into Excel. They have done a lot of things to decrease the dependency on VBA.

 

Guest: Carolina Lago:: I just don't like that it becomes a black box and it's not so clear. So much for the user if you try to just put a script on it how they came up with that. As long as it's not for calculation, if you do it to make your life easier or to automate things, fine. But sometimes they do VBA for calculation that you press a button and it calculates all the model without formulas, without everything. I don't like that.

 

Host: Paul Barnhurst:: I hear you. I've had a few other people have said that. Hey, VBA for formatting, fine. Beyond that, you don't need it.

 

Guest: Carolina Lago:: Exactly.

 

Host: Paul Barnhurst:: There are a lot of differing opinions there. I'm not one to use VBA very often, so I can appreciate that, but I can understand those who use it. It's like any of this. There's a reason these are the questions, we can debate it back and forth forever.

 

Guest: Carolina Lago:: Yes, that's true.

 

Host: Paul Barnhurst:: All right. We have just two questions left for you. Then we'll let you go. I enjoyed the time here. So the first question is if I allow you to give one piece of advice to our audience to be a better financial modeler if there's one thing they could do today, what's that one thing you're going to recommend?

 

Guest: Carolina Lago:: I'll go with Simplicity. I think being simple, trying to understand what you need to do, and doing it the simplest way you can without showing off, without complications, that's the best advice that I can get.

 

Host: Paul Barnhurst:: I love it. The last question is if our audience wants to learn more about you or get in touch with you, what's the best way for them to do that?

 

Guest: Carolina Lago:: I'm very active on LinkedIn and also my website, and I think, I'm now trying to get into YouTube because I just posted the video and a lot of people are asking me for more, sending me messages and asking me for more, but I just don't find time to do that. But LinkedIn is the best way to find me. I'd love to connect with people and my newsletter too. The link is on my LinkedIn profile. Just answer, replying the email from my newsletter and I'll get it right away. I always reply to everybody that talks to me.

 

Host: Paul Barnhurst:: Great. We'll definitely put your LinkedIn in the show notes so everybody knows how to get ahold of you. Thank you for joining me today. I enjoyed the opportunity to chat. Best of luck with your course launch and all the different things you're doing.

 

Guest: Carolina Lago:: Thank you, Paul, and honored to be here.

 

Host: Paul Barnhurst:: I appreciate you joining me for the show.

 

Guest: Carolina Lago:: Thank you. Goodbye.

 

Host: Paul Barnhurst:: Financial Modeler's Corner was brought to you by the Financial Modeling Institute. Visit FMI at www.fminstitute.com/podcast and use Code ‘Podcast’ to save 15% when you enroll in one of their accreditations today.

Ankita Ghosh
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