Financial professional in Toronto office analyzing company valuation models and financial data

Building Your First Valuation Model for Canadian Companies

Step-by-step walkthrough of creating a working valuation model. We cover the structure, key assumptions, and how to stress-test your conclusions with real examples.

July 2026 16 min read Advanced

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Valence Analytics Editorial Team

Editorial Team

Written by the Valence Analytics Editorial Team, focused on clear, honest explanations of valuation methods and fundamental analysis.

Why Build Your Own Valuation Model?

You've probably seen valuation models before — maybe in a financial report or an analyst presentation. They look complicated, filled with spreadsheets and jargon. But here's the thing: building your first valuation model isn't nearly as intimidating as it seems. It's actually a really practical skill, especially if you're analyzing Canadian companies.

A valuation model is just a tool to figure out what a company is worth. It takes financial data you can find publicly and projects it forward based on reasonable assumptions. The model forces you to think clearly about how a business actually works — which is the whole point.

Start With the Three-Statement Model

Most people start with the three-statement model. It's called that because you're linking three financial statements together: the income statement, balance sheet, and cash flow statement.

The income statement shows revenue, expenses, and profit. The balance sheet shows what a company owns and owes. The cash flow statement shows actual cash moving in and out. When you link these three together, you've got the foundation of your model.

For a Canadian company, you'll want to gather at least five years of historical financial data. This gives you a sense of trends. Is revenue growing consistently? Are margins expanding or shrinking? What's the pattern with capital expenditures? These aren't questions you can answer with just one year of data.

Spreadsheet showing income statement with revenue, operating expenses, and net income line items for financial analysis

Financial analyst reviewing historical company data and financial statements on printed reports with notes

Building Your Assumptions

This is where your model actually becomes yours. Assumptions are educated guesses about the future based on what you've seen in the past and what makes sense for the company.

You might assume revenue grows at 6% per year based on historical growth rates and industry trends. You might assume the company maintains its current operating margin of 15%. You might forecast that they'll spend 3% of revenue on capital expenditures each year. These aren't pulled from thin air — they're grounded in the company's history and the market it operates in.

The critical part: write down WHY you're making each assumption. Don't just put a number in a cell. Document your thinking. This makes it much easier to adjust later and explain your model to someone else.

Educational Note: This article is informational and intended to help you understand valuation modeling concepts. It's not financial advice or a recommendation to buy or sell any security. Valuation involves judgment calls and estimates. Different analysts will make different assumptions and reach different conclusions. Always do your own research and consider consulting a financial professional before making investment decisions.

Projecting Forward 5-10 Years

Once you've got your assumptions locked in, you'll project the three financial statements forward. Most models run out 5-10 years, depending on the company and what you're trying to figure out.

You'll take your revenue assumption and multiply it by your assumed growth rate for each year. From revenue, you'll calculate operating expenses using your margin assumption. Then you'll work through depreciation, interest, taxes — all the things that affect net income. It's systematic, and once you've set it up, it's mostly just following the logic.

Here's what makes this practical: you'll discover things as you build. Maybe your assumptions don't make sense together. Maybe you realize the company can't sustain the growth rate you projected because of capital constraints. That's actually valuable — your model is already teaching you about the business.

Computer screen showing multi-year financial projection model with revenue forecasts and calculations

Financial professional adjusting model assumptions and stress-testing different scenarios for company valuation

The Critical Step: Stress Testing

Here's where amateur models and professional models start to differ. You don't just build one scenario and call it done. You build multiple scenarios.

Build a base case (your best guess), a bull case (where things go really well), and a bear case (where things are tougher). In the bear case, maybe revenue grows at only 2% instead of 6%. Maybe margins compress. See what the valuation looks like under each scenario.

This isn't pessimism — it's realism. You're acknowledging that your assumptions might be off. And they will be. The question is: how much does your valuation change if you're wrong? If your valuation swings wildly based on small assumption changes, that's telling you something important about the risk in the business.

Calculating the Terminal Value

After your 10-year projection period, you need to estimate what the company will be worth at that point. That's your terminal value. It's usually the biggest component of your final valuation.

The simplest approach is the perpetuity method: assume the company will grow at a stable rate forever (usually 2-3%, roughly GDP growth), and calculate its value based on that. Another approach is a multiple: assume the company will be valued at some multiple of earnings in year 10, similar to comparable companies today.

Both methods have merit. The key is being conservative with your terminal value assumption. You're talking about the far future, and you know less about it. Don't overestimate what the company will be worth in year 10.

Once you've got your projected cash flows and your terminal value, you discount everything back to today using a discount rate — usually 8-10% for Canadian companies, depending on risk. This gives you the enterprise value of the company.

Key Takeaway: It's About the Process

Your first valuation model won't be perfect. You'll miss things. Your assumptions will be off. That's fine. The real value is in the thinking you do while building it. You'll understand the company better. You'll see which variables matter most. You'll ask better questions. That's what separates people who can analyze companies from people who just read headlines.

Practical Tips for Getting Started

Start simple. Pick a Canadian company you understand — maybe a retailer or a bank you interact with. Grab their financial statements from SEDAR+ or their investor relations website. Build your three-statement model with 5 years of history and 5 years of projections. Don't try to be clever with your assumptions. Use what you see in the historical data.

Keep it organized. Label your assumptions clearly. Separate the historical data section from your assumptions section from your projections. When you (or someone else) looks at your model in three months, it should be immediately clear how you built it.

Iterate. Build your first version, then stress test it. Adjust your assumptions based on what you learn. Build your bull and bear cases. The model improves with each iteration, and you'll spot errors or unrealistic assumptions as you work through it.

Model Checklist

5 years historical data
Documented assumptions
3 scenario projections
Terminal value calculated
Sensitivity analysis completed
Valuation per share derived

Common Mistakes

Don't assume too much growth. Don't ignore working capital changes. Don't forget about taxes. Don't use only optimistic scenarios. Don't neglect the terminal value.

Where to Find Data

SEDAR+, company investor relations sites, financial databases like Yahoo Finance or Google Finance. Canadian companies typically file annual and quarterly reports with audited financial statements.

Your First Model Is Just the Beginning

Building a valuation model for the first time feels like a lot. But you're really just systematizing what smart investors do in their heads — thinking about revenue, profitability, cash flow, and growth. Your spreadsheet just makes it visible and testable.

The best way to learn is to build one. Pick a company. Spend a few hours with the financial statements. Create your three-statement model. See where it leads you. You'll learn more from doing this once than from reading about it ten times.

And remember: the goal isn't to predict the future perfectly. It's to understand the business well enough to make an informed judgment about whether it's a good investment at the current price.