I have been juggling a few different projects at the moment that do not fall under the typical project finance umbrella and I find that it has not been that difficult to work on a non-project finance related assignment. It has simply been because the knowledge gained by working on a diverse range of project finance models can be applied to projects outside this scope.
What makes project finance modelling skills so transferable is the scope that is covered in a project. Let’s take a look at what might be involved in a vanilla greenfield project compared to other sector model requirements.
Project Finance Model Scope
- Construction: capital costs and funding required from debt and equity
- Operations – operational volumes, revenues and operating costs
- Debt – repayment of debt and reporting debt ratios
- Equity – net cashflow and returns such as IRR and NPV
- Integrated Financial Statements – cashflow waterfall, Profit and Loss statement, balance Sheet
Other Sector Model Scope
Most projects outside the project finance field will probably have a similar scope, but vary on the details. These variations may come from
- The project phases involved i.e. only having an operations phase (which is the same as a brownfield project)
- The types of debt ratios that are reported on i.e. instead of a Debt Service Coverage Ratio (DSCR) you may want to calculate an Interest Coverage Ratio (ICR)
- The focus on equity rather than debt
That being said, it is easy to take the concepts from a mining model and apply them to a valuations model. The outcome would be a valuations model that is probably a lot smaller in size and may have no debt at all.
On the flipside, if I had come from only working with valuations models would I still be able to apply that knowledge as easily to a project finance model?