Data Sources in Financial Modeling

Collecting and using the right data sources in financial modeling is crucial to the success of a business. Financial modeling requires gathering and analyzing lots of information; the collection of data is a crucial step in creating a financial model. There is a wide range of data that must be used in a financial model. A company’s historical results are the key input to prepare a three-statement model3 Statement ModelA 3 statement model links the income statement, balance sheet, and cash flow statement into one dynamically connected financial model. 3 statement models are the foundation for advanced financial models such as DCF models, merger models, LBO models, and others. This three statement model guide has examples, images, which is a setup for your financial model.

Management discussion and analysis from corporate filings, industry reports, and research reports of professional analysts are some of the resources that may improve the accuracy of your forecasting assumptionsProjecting Income Statement Line ItemsWe discuss the different methods of projecting income statement line items. Projecting income statement line items begins with sales revenue, then cost of goods sold, gross profit, selling general and admin (SG&A), depreciation, amortization, taxes, EBITDA, and net income. This guide has examples. Finally, you need to find the appropriate inputs for your valuation. Knowledge of relevant data sources is critical for an analyst to develop a precise and up-to-date model.

Data Sources

Data sources: Company reports and regulatory filings

Governments place special attention on public companies. There are mandatory reporting standards for public companies that are regulated by government entities.

Due to its nature, public companies bear the responsibility to its shareholders. Governments regulate the actions of public companies through mandatory reporting standards. According to the legislation, public companies must disclose all information about their operations and performance to the public.

The companies must prepare the annual report to the shareholders in which corporate information is disclosed. These types of reports include financial data, results of operations, market segment information, new product plans, subsidiary activities, and research and development activities on future programs. The annual reports to the shareholders are usually posted on company’s website.

In the United States, the regulatory entity called the Securities and Exchange Commission (SEC). Public companies must submit their filings to the SEC on a regular basis. SEC filings are comprehensive documents that include a fundamental information about the company and its operations. For the purpose of financial modeling, the most relevant filings for an analyst are:

Filing	Description
Registration Statements	A description of the company’s properties and business; a description of the security to be offered for sale; information about the management of the company; financial statements certified by independent accountants
10-K	Annual report outlining a comprehensive overview of the company’s business and financial condition. 10-K includes audited financial statements.
10-Q	Quarterly report with a continuing view of the company’s financial position during the year. 10-Q includes unaudited financial statements.
8-K	Report of current events to announce major events that shareholders should know about.
Schedule 13-D	Reports acquisition of beneficial ownership of more than 5% of a voting class of a company’s equity securities by a person or a group of persons.
Proxy Statements	Statements filed by companies prior to shareholders meetings to provide shareholders with information necessary to make informed decisions.
Form 3	Filed by the corporate insiders (company’s officers and directors) who are registering equity securities for the first time.
Form 4	Filed after a material change in the holdings of company insiders.
Form 5	Filed by an insider who conducted insider transactions during the year that were not previously reported in a Form 4.

All the submitted filings may be retrieved from the EDGAR database maintained by the SEC.

In Canada, public companies follow the similar process as US-based public companies. Even though the Canadian system of securities regulation is not unified and each province runs its own regulatory entity, there is a single database (SEDAR) that contains all the forms filled by the publicly traded companies across the country. The U.S. and Canadian filings comparison is listed in the table below:

U.S. Filings	Canadian Filings
10-K	Annual Report, Annual Information Form, Management Proxy Circular
10-Q	Interim Financial Statement
8-K	Material Change Report

In the U.K., all publicly traded companies (Public Limited Companies or PLC’s) must submit required filings to Companies House, which is a registrar of the companies. On the Companies House website, you may find the database of the filings submitted by companies registered in the U.K. The companies submit the annual reports, statements of annual return, and announcements of major events.

In Japan, one of the largest financial markets in Asia, regulation of public companies is very strict. Every public company must comply with the Financial Instruments and Exchange Act and submit their financial statements, internal control reports, and quarterly reports audited by CPA’s to Financial Services Agency (FSA). FSA is a Japanese government agency and regulator of the country’s financial system. Companies provide the necessary filings to FSA online through the EDINET system. This system is available online to the public.

Data sources: Financial databases

Companies such as Bloomberg, Capital IQCapIQCapIQ (short for Capital IQ) is a market intelligence platform designed by Standard & Poor’s (S&P). The platform is widely used in many areas of corporate finance, including investment banking, equity research, asset management and more. The Capital IQ platform provides research, data, and analysis on private, public, and Thompson Reuters provide powerful databases of financial data. These databases provide access to various types of financial information, including historical financials from financial statements. Financial databases allow you to analyze the historical data and easily export the data into Excel. However, financial statements retrieved from these databases tend to be in a standardized format. Thus, if the company uses an accounting value unique to its business operations, you will not grasp it from data retrieved and it will affect your analysis.

Nevertheless, financial databases are great sources of other types of data that may be helpful in financial modeling. Key economic factors, M&A transactionsPrecedent Transaction AnalysisPrecedent transaction analysis is a method of company valuation where past M&A transactions are used to value a comparable business today. Commonly referred to as “precedents”, this method of valuation is used to value an entire business as part of a merger/acquisition commonly prepared by analysts, comparables analysisComparable Company AnalysisHow to perform Comparable Company Analysis. This guide shows you step-by-step how to build comparable company analysis ("Comps"), includes a free template and many examples. Comps is a relative valuation methodology that looks at ratios of similar public companies and uses them to derive the value of another business, analysis of securities including equities, bonds, and derivatives, reports of analysts are part of the useful tool may be used in financial modeling.

Related information:

Types of SEC FilingsTypes of SEC FilingsThe US SEC makes it mandatory for publicly traded companies to submit different types of SEC filings, forms include 10-K, 10-Q, S-1, S-4, see examples. If you are a serious investor or finance professional, knowing and being able to interpret the various types of SEC filings will help you in making informed investment decisions.
Canada – SEDARCanada - SEDARSEDAR is a searchable database for public company financial statements, annual reports, and other documents in Canada. SEDAR stands for: System for Electronic Document Analysis and Retrieval. It is a required filing system for all publicly listed Canadian companies.
Business Valuation InfographicValuation InfographicOver the years we've spent a lot of time thinking about and working on business valuation across a broad range of transactions. This valuation infographic
Source DocumentsSource DocumentsEvery time a business is involved in a financial transaction, a paper trail is generated. This paper trail is referred to in accounting as source documents. Whether checks are written to be paid out, sales are made to generate receipts, billing invoices are sent by suppliers, work hours are recorded on an employee’s time sheet – all the respective documents are source documents.

Data Sources in Financial Modeling