Top 4 Must Know Investment Banking Charts (Free Download Template included)

Investment Banking Charts refers to the different graphs, charts, financial models or the valuation model which helps the Investment banking firms in making the different analysis used for its functioning and the different types of investment banking charts include PE chart, PE band chart, Football field graph, and scenario graph, etc.

Investment Banking Charts – Football Field & PE Band Charts

I think the greatest gift of Dan Bricklin (“father” of the electronic spreadsheet) and Bill Gates to Investment Banking Mankind is the Excel spreadsheet software that allows the analyst to not only create rock star financial and valuation models but also help present their analysis in some awesome pictorial format (graphs).

With this, I thought, why not a tutorial on the most popular Investment Banking, Graphs vs. chartsGraphs Vs. ChartsGraphs are mostly a numerical representation of data which shows the relation of change in numbers to how one number is affecting or changing another. However, charts are the visual representation of categories that may or may not be related to each other.read more. In this article, I will discuss the following set of graphs –

  1. PE Chart
  2. PE Band Chart
  3. Football Field Graph
  4. Scenario Graph (my favorite)

Download the Spreadsheet templates for all the graphs here

Top 4 Must Know Investment Banking Charts

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Top 4 Must Know Investment Banking Charts (Free Download Template included) (wallstreetmojo.com)

# 1 – PE Chart

This PE ratioPE RatioThe price to earnings (PE) ratio measures the relative value of the corporate stocks, i.e., whether it is undervalued or overvalued. It is calculated as the proportion of the current price per share to the earnings per share. read more is, in essence, a payback calculation: it states how many years’ earnings it will take for the investor to recover the price paid for the shares. PE (price to earnings) charts help us to understand the valuation multiple over time. Other things being equal, when comparing the price of two stocks in the same sector, the investor should prefer the one with the lowest PE. If you are new to PE ratiosPE RatiosThe price to earnings (PE) ratio measures the relative value of the corporate stocks, i.e., whether it is undervalued or overvalued. It is calculated as the proportion of the current price per share to the earnings per share. read more, you may refer to this valuation primer article on Relative Valuations.

What is a PE Chart

PE chart helps the investors visualize the trading valuation multiple of Stock or Index over a period of time. For example, the below PE graph of a company named Foodland Farsi is depicted over a period of March’02 until March’07.

PE Chart
Interpretation of PE Charts
  • Historically Foodland Farsi has traded a an average PE multiple of 8.6x
  • The standard deviation of the PE multiple signifies the volatility of the PE multiple.
  • We note that Foodland Farsi has traded within the range formed by the Upper (defined as Average PE + 1 Std Dev = 12.2x) and the Lower (Average PE – 1 Std Dev  = 4.9x)
  • We note that the PE multiple for the period after June ’06 has crossed the upper standard deviation line signifying higher valuation multiple.
Why is it useful?
  • This chart is fairly useful because this provides the historical valuation details in a quick and easy format.
  • You may take not more than 30 seconds to interpret such a graph.
Dataset for PE Chart

Let us now prepare the PE chart as provided above. Please download the PE Chart dataset here. The dataset includes the following –

  • Date
  • Historical Stock Prices
  • EPS estimate (forward) – Please note that this data may not be available in the public forum. You may use Bloomberg, Factset, Factiva (all are paid versions) to get access to such data
PE Chart Dataset
Building a PE Chart
Step 1 – Calculate the PE Ratio

Since we already know the Price of the Stock and the Forward EPS, calculate the PE ratio of the stock for each date.

Calculate PE Ratio
Step 2 – Calculate the Standard Deviation of PE

Calculating Standard Deviation is fairly easy in Excel. You can use the formula STDDEV to calculate the standard deviation of the stock. Do not forget to use absolute referencesUse Absolute ReferencesAbsolute reference in excel is a type of cell reference in which the cells being referred to do not change, as they did in relative reference. By pressing f4, we can create a formula for absolute referencing.read more so as to display the same standard deviations across the dates.

PE Chart - Standard Deviation
Step 3 – Calculate the Average PE

Calculate the Average PE of the stock using the formula AVERAGE and also use absolute references as the average of the data should remain constant across all the dates.

PE Chart - Average
Step 4 – Calculate the UPPER and the LOWER range.

Calculate the UPPER and the LOWER range by using the following formula

  • UPPER = Average PE + Standard Deviation
  • LOWER = Average PE – Standard Deviation
PE Chart - Calculate the UPPER and LOWER
Step 5 – Plot the Graph using the following data –
  1. Forward PE
  2. Average PE
  3. UPPER
  4. LOWER
Plot PE Chart
Step 6 – Format the Graph

This is very important as formatting can really win if you can highlight the important areas and make it more intuitive to comprehend.

PE Chart

Like the PE charts, you can also make Price to Book Value Chart (P/BV), PEGPEGThe PEG ratio compares the P/E ratio of a company to its expected rate of growth. A PEG ratio of 1.0 or lower, on average, indicates that a stock is undervalued. A PEG ratio greater than 1.0 indicates that a stock is overvalued.read more Graph, Price to Sales, or Price to Cashflow Charts.

#2 – PE Band Chart

What is PE Band Chart?

Like the PE Ratio Graph, PE Band is also computed from the historical PE ratios for each individual stock/Index. The line plotted from the average highest PE will form the upper PE Band, whereas the average lowest PE will form the lower PE Band. The middle PE Band will be derived from the mean of the Upper and Lower Band.

PE Band Chart
Interpretation of PE Band Chart

The above chart can be interpreted as follows

  • Currently, the Price Line (colored in GREEN) is touching the Maximum PE Band Line of 20.2x. This implies that the stock is trading at its maximum PE and maybe overvalued!
  • The upper band reflects the Historical Maximum Price of the stock if the stock would have traded at its Maximum PE. For example, If we trace back the Maximum PE Band Line till March’02, we find that the stock would have traded at Rs600/- if the PE during that period would be 20.2x
  • Also, we note that the stock has touched the lowest PE Band of 5.0x many times in the last 5 years period. It denotes an ideal opportunity to buy the stock.
Why is PE Band Chart Useful?
  • The advantage of the PE Band is its consideration for both the fundamental factor (i.e., profitability) and the historical trading pattern of a stock.
  • The use of PE Band is especially meaningful for listed companies, which have profitable track records.
  • For a stock with stable earnings, its price tends to move within the PE Band. In other words, the stock price in one extreme tends to move to the other extreme within the Band.
  • Also, note that the PE Band Chart is different from the PE ratio graph as we note that the Y-axis represents the price of the stock rather than the PE multiple.
  • This PE Band Chart is effective because this graph is able to denote both the PE Bands (valuation) and the corresponding Prices. Along with the PE ratio graphs, this makes a case for taking a valuation call on stocks.
PE Band Chart Data set

The PE Band Chart Data Set is no different from the one that we used earlier. In fact, it is the same! We require the following –

  • Historical Stock Prices
  • Dates
  • Forward EPS
 Building a PE Band Chart
Step 1 – Calculate the Forward PEForward PEForward PE ratio uses the forecasted earnings per share of the company over the next 12 months for calculating the price-earnings ratio. Forward PE ratio formula = Price per share/Projected earnings per share read more for the Historical Dataset
Band Chart - Step 1 - Calculate the forward PE
Step 2 – Calculate the average, maximum, and the minimum of the PE ratios
Band Chart - Step 2 - Calculate the Max Min and Average PE
Step 3 – Find the Implied Prices using the following formula

Calculate the implied prices using the formula below

  • Price  (corresponding to Average) = Average PE x (Historical EPS)
  • Price  (corresponding to Maximum) = Maximum PE x (Historical EPS)
  • Price  (corresponding to Minimum) = Minimum PE x (Historical EPS)
Band Chart - Step 3 - Calculate the Corresponding Prices
Step 4 – Plot the graph using the following
  • Stock Price
  • Implied Average Price
  • Implied Maximum Price
  • Implied Minimum Price
Band Chart - Step 4 - Plot the line chart
Step 5 – Format the Graph :-)
PE Band Chart

You can make Band Charts for another set of valuation multiples like EV/EBITDA EV/EBITDAEV to EBITDA is the ratio between enterprise value and earnings before interest, taxes, depreciation, and amortization that helps the investor in the valuation of the company at a very subtle level by allowing the investor to compare a specific company to the peer company in the industry as a whole, or other comparative industries.read more (Enterprise Value to EBITDA), P/CF, etc

#3 – Football Field Graph

What is Football Field Chart?

Sometimes it is easier for us to represent the data in floating columns or bars in which columns (or bars) float spanning a region from minimum to the maximum values. Below is a sample Football Field column chart.

Floating Chart
Interpretation of the Football Field Chart (above)
Data for Football Field Chart

Let us assume that you have been provided with the following set of data. You want to represent the below data in the best possible graphical format.

Floating Charts Data

There can be different ways of making graphs on such data; however, they may not provide great insights when we make a regular line graph or the bar graphs. Below are the representation (poor) of these regular graphs –

Line Graph

The problem with this representation is that it is very difficult to interpret this data.

Poor Representation - 1
Column Graph

Again the same problem that it is very difficult to interpret such data.

Poor Represenation - 2

With this, it is now easy to understand that the solution lies in making the floating column or the bar chart in excel.

Building a Football Field Chart
Step 1 – Create the Two series with Minimum and Range.

The first series represents the minimum, and the second represents the range (maximum-minimum). Please see below the two series on which we create our graph.

Floating Charts - converted data
Step 2 – Choose Stacked Column Chart

The secret to making the floating chart is to use the column chart in excelColumn Chart In ExcelColumn chart is used to represent data in vertical columns. The height of the column represents the value for the specific data series in a chart, the column chart represents the comparison in the form of column from left to right.read more in an effective way by selecting the “stacked column chart in excelStacked Column Chart In ExcelA stacked column chart in Excel is a column chart in which multiple series of data representations of various categories are stacked over each other. The stacked series are vertical, and comparing multiple data series is easy, but as the number of data series increases, so does the complexity of representation.read more” using two series.

stacked column

You will get the below chart.

floating chart - step 2
Step 3 – Make the “minimum” columns Invisible!

Select the minimum column bars (blue color) and from the top menu, change the color to “No Fill.”

Floating Chart - No fill

With this, you will get the graph below.

Floating Chart - Step 3
Step 4 – Format the graph and make it awesome!
  • Change the x-axis to reflect the valuation methodology.
  • Remove the Legends on the right-hand side (Range and Minimum)
  • Change the color of the bars to suit your color taste (please don’t make the columns as pink; it’s Investment Banking, you know!)
Floating Chart

# 4 – Scenario Graphs

What are Scenario Graphs?

Sometimes It is important for us to accept the fact that understand that valuation is not a very scientific approach. It depends on assumptions and scenarios. While we value a stock, you may make a different set of assumptions while preparing a financial model – projecting income statement, balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read more, and cash flows. While it is important for us to take the most expected case while we do the valuation, it is equally important to show the impact of different cases like what if the tax rates go down or what if the production moves up more than expected, etc. These scenarios can be easily built using Financial Models.

You can use the following financial models for your reference –

Please see below a sample Scenario Graph –

Valuation Scenario Graph
Interpretation of Scenario Graph
  • We note from above that the base case valuation for the stock XYZ is $300
  • The scenario graphs provide us with additional inputs on downsides with respect to the following.
  • Likewise, you can find the additional inputs on the upsides – If we consider all the optimistic cases (Higher prices, higher taxes, and lower raw material costs), the fair price of the stock would move up to $410 per share.
Dataset for the Scenario Graphs

The dataset required for this graph is shown below. The table below is arrived at after inputting new assumptions in your Financial Model and recalculating the fair share price.

Scenario Graph Dataset
Building a Scenario Graph

We will assume that you already have the data like the one above. With this, let us look at the steps involved to build the Scenario Graphs –

Step 1 – Add two columns X and Y in the data-set (tricky and most important)
  • This graph builds on the Football Field Graph (#3) that we earlier made.
  • In this, we again use the Column Stacked Graph, where Y data gets stacked over the X data.
  • In addition to this, we make the X dataset as invisible so that we get the floating Y dataset.
  • For example, if you closely observe the scenario graph – downside scenario – Price decrease shows a floating visible data of $17 (Y data), and immediately below this dataset is the invisible $283 (X Data).
Step 2 – The completed X and Y dataset should look something like below.Scenario Graph Dataset - build 1
Step 3 – Prepare the Column Stacked Graph on the two dataset X and Y

Please note that we are not preparing the chart on the original set of data. We are preparing the chart on the converted dataset (X and Y)

Scenario Graph - Step 3
 Step 4 – Make the X dataset hidden.

Hide the X dataset by selecting the columns and choosing “No Fill” from the Formatting options in the menu

Scenario Graph - Step 4
Step 5 – Format the Graph, and be awesome!
Valuation Scenario Graph

Conclusions

As we note above that there can be a different graphical representation of stock valuation. The primary reason we use such graphs is to comply with save time for the clients and make the research report or pitch book a time saving and effective document. You will find the four types of valuation graphs in a majority of the tier-1 brokerage firm research reports. I had worked earlier at JPMorgan as an equity research analyst and found the Football field graph and Scenario graph to be the most useful representation for clients. You can use these in Ratio analysisRatio AnalysisRatio analysis is the quantitative interpretation of the company's financial performance. It provides valuable information about the organization's profitability, solvency, operational efficiency and liquidity positions as represented by the financial statements.read more Graphs too.

Recommended Articles

What’s Next?

If you learned something new or enjoyed the post, please leave a comment below. Let me know what you think. Many thanks, and take care.

Reader Interactions

Comments

  1. Musa Alister Lamin says

    Thanks for sharing this wonderful piece

  2. Dan says

    Thanks for your resourceful financial insights. Keep on sharing your knowledge

    • Dheeraj Vaidya says

      Thanks for your kind words!

  3. Eddie says

    Indeed, the site is very resourceful. Easy to follow and go by. Thanks so much for sharing knowledge in such an amazing way for us to benefit.

  4. Manisha says

    Your tutorials are amazing. It’s so well articulated and easy to understand. I am regularly watching your blogs and posts. Thanks for sharing your knowledge and experiences.

    • Dheeraj Vaidya says

      Thanks for your kind words!

  5. Ravi Kumar Gupta says

    I am a regular visitor. Thank you for explaining the concepts so well.

    • Dheeraj Vaidya says

      thanks Ravi!

  6. Mohammad Salman Ghani says

    Thanks for the all graphs. Really helpful.

    • Dheeraj Vaidya says

      thanks Mohammad!

  7. Jadranka says

    Thanks for sharing this. I am happy that your blog reached me.
    You have the gift to share your knowledge on very simple ,concise and understandable way.

    • Dheeraj Vaidya says

      Thanks Jadranka :-) Glad you know that you find these resources useful.
      Best,
      Dheeraj

      • EDMUND STRAMISS says

        I like what you are offering serious interested in Financial Analyst work will have to pursue this career as well.

        • Dheeraj Vaidya says

          thanks Edmund. Glad you found these useful.

      • Steve says

        Thank you, your articles have been most helpful. You’re doing an excellent job. I really appreciate it.

        • Dheeraj Vaidya says

          Thanks for your kind words!

  8. Abhinav Kaul says

    Hi Dheeraj,

    Can you mail me the video of this tutorial

    • Dheeraj Vaidya says

      Hi Abhinav, I don’t have the video tutorials of these charts as of now.

  9. Aditya says

    i stumbled upon this blog when i look for PE Band formula, thanks for the awesome tutorial sir! it helps me a lot in building a similar template for myself.
    but i have a question. why do you “limit” the max PER to 50 and the min PER to 0.001?
    =(MIN(50;MAX($G$6:$G$267)))
    =MAX(0.001;MIN($G$6:$G$267))

    your explanation would be much appreciated

    • Dheeraj says

      Hi Aditya,

      not much logic here. You can change the limits so to accommodate your stock PER fluctuations.

      Thanks,
      Dheeraj

  10. Oketak says

    I know that you get the estimated eps from bloomberg or similiar services, but can you explain how is it that the eps data is not quarterly in your example but weekly? Thanks

    • Dheeraj says

      Hi Oketak,

      Each week, Bloomberg and many other service providers release the annual/quarterly EPS estimated for companies. This EPS which is released each week is an average of the estimates provided by different equity research analyst (jpmorgan, nomura, merrill etc). If even one of the analyst changes their EPS estimate, then then the average estimate would change.

      Thanks,
      Dheeraj

  11. Alex Lee says

    Hi,
    I see that in the excel file you provide you have fwd EPS filled in for every weekly entry. But is that practical when applying this? I see companies only have the Est EPS per quarter, and this will greatly affect the standard deviation afterwards.
    Thanks.

    • Dheeraj says

      HI Alex, you can get the data of fwd EPS every week from databases like bloomberg etc. it is not readily available publicly.
      Thanks,
      Dheeraj

  12. Chern yi says

    THIS IS A GEM! So glad I found this :) Thank you so much for sharing!

    • Dheeraj says

      Thank you Chern!

  13. adeel says

    Well explained! Btw how are you coming up with weekly epsforecasts?

  14. Piyush Arora says

    Hi Dheeraj,
    Informative and insightful piece.
    Quick question, where are we supposed to download Indian-based historical P/E and per share prices?
    You wrote, “Please download the PE Chart dataset here. ”
    But the hyperlink (if it was intended to be there) doesn’t seem to work.
    Really want this data, paid or not.
    Looking forward to hearing from you soon.
    Regards,
    Piyush
    Fellow U.S based analyst !

  15. mahendra edunoori says

    what a great things that i am learning from your articles….

  16. Rohitesh says

    Extremely well explained sir. I have been a fan of your teaching…since my IICM days, when you had taught us Financial Modelling..way back in 2008-09.

    Refreshing to read your articles Sir.
    Regards,

    • Wall Street Mojo says

      Thank you Rohitesh for your kind words.

  17. Madhu says

    thank you. it is really a useful stuff. thanks once again.

    • Wall Street Mojo says

      Hi Madhu,

      I am glad you found this article on Investment Banking Charts to be useful.

      Best,
      Dheeraj

  18. Joseph says

    Great stuff especially twisting Excel around for optimal results. Keep the good work and I impatiently await your next issue.

  19. Amrit V says

    Amazing and all free. Thanks very much for sharing

  20. MUHAMMAD NAWAZ says

    sir i am glad to see your publication sir i want your help in making my project proposal for COL (MBA) in H.R.M.
    will you please help me in this matter i shall be very greateful to you in this matter if you help me

  21. Pravin says

    Its really really great Sir..

    Kindly keep posting to me for all such post.

    Thank you.

  22. henning says

    Nicely done – thank you

  23. Mona says

    Awesome.. Thanks for sharing this..

  24. Kinshook Chaturvedi says

    One of the best practical article on stock valuation. But where is the Excel sheet model which is downloadable ?

    • Wall Street Mojo says

      Hi Kinshook,

      Please look at the first set of paragraphs for “Download the Spreadsheet templates for all the graphs here”. You should be able to download the associated template.

      Thanks, Dheeraj

  25. Vishey says

    Hello Sir,

    I have one question? Do we need to know VBA for building financial models?

    • Wall Street Mojo says

      Hi Vishwantha, You will not require VBA for building financial models for Investment Banks. However, if you are doing lot of scenario analysis and data download and anlaysis, one can make efficient use of VBA for automating mundane tasks

  26. James says

    Can you give all this stuff in pdf form so that we can download .

  27. Mahesh says

    What an exciting and intelligent way of explaining. Language is very simple and easy to understand. Please continue to do so.

    Thanks,
    Mahesh

    • Wall Street Mojo says

      Thank you Mahesh for your kind words!

  28. Arinjay says

    Great Knowledge sharing process Sir !

  29. Neeraj says

    Awesome financial stuff. Amazing Work. Waiting for new IPO valuations.

  30. Raushan says

    Thanks …..

  31. Rajan says

    Thank you sir for sharing this knowledge. When are you going to write on DCF?

    • Wall Street Mojo says

      I am glad you liked the tutorials. A lot of subscribers want me to write on DCF. Will write about it soon.

      Thanks, Dheeraj

Leave a Reply

Your email address will not be published. Required fields are marked *