Planning to plunge into the field of finance by learning one of the most in demand skill of financial modeling, or looking to revise and upskill your knowledge about financial modeling. Be it any case, financial modeling is becoming crucially important skill required in every corporation. To be successful in the field of finance you need to gain basic understanding of financial modeling. And if you wish to stay successful in your career, mastering this ability will enable you to make more informed and effective decisions.
Let us understand, Why is financial modeling important? What is it?
Understanding Financial Modeling
Financial modeling is the process of using a data organization software excel spreadsheet, to construct a risk management tool that assists in predicting an organization’s financial performance and facilitates informed & improved decision-making.
Since financial modeling typically takes into account diverse range of financial variables – cash flow predictions, loans, inflation, inventory, depreciation, and more, it aids in evaluating both a company’s current and prospective future financial problems.
Some Examples of Financial Modeling
Here are some instances of financial modeling:
Initial Public Offering (IPO) Model
Discounted Cash Flow (DCF) Model
3 Statement Model
Leveraged Buy-Out (LBO) Model
Budgeting and Forecasting Model (This Includes Linear Regression Model, Time-series Model, Straight Line, And Moving Average Model)
Model for Option Pricing
Sum of The Parts Model
Asset and Liability Management Model
How is Financial Modeling important?
Financial modeling, which involves mathematical representations of important financial and operational statistics, is used as a tool to assist you in analyzing how a business will react to particular economic events or activity. Professional possessing the financial modeling skill in the field of finance serves the following purposes:
Forecasting and Business planning
Value of a Corporation or business
Select funding methods.
Examine potential mergers, acquisitions, and other prospects for corporate growth.
Analyze financial instruments like bonds and stocks
Recognize business drivers
What is a Financial Model
We generally keep using financial models to make finance-related decisions. How? The below given example explains the financial model in a much simpler form for you to relate with.
Financial Model explained in simple terms
Consider a situation, where you were planning to purchase an old 4BHK Penthouse on trade with cash, and you get a call from an agent who suggests you to buy a brand new luxurious 3 BHK well-furnished house through financing/backed by finance. What would you do? Which one between the two would you decide, cash or financing? You would simply calculate the benefits and disadvantages of each by comparing them.
Your calculation may include routine maintenance expenditures for the old 4BHK, as well as the EMI for the new 3BHK, estimate an average monthly expenditure for both and whether those monthly payments are manageable with your existing income and cash flows.
When we talk about cash flows, it would also include your operating activities besides the investing and financing activities, which may be your debts, mortgages, etc. So, you may take into account all applicable factors before making the final decision, which proves best for your future financial stability and security.
This is a simpler form of the financial model, we often use it, and it may invariably change depending on the situational circumstances. Whereas, the typical financial models used in business finance and accounting include financial forecasting which aims to forecast the effects of any foreseeable event, which aids in the facilitation of better financial decisions.
The financial models serve a variety of functions; it not only provides you another chance to describe your company model and the reasoning behind how you run it, but is also helpful when reviewing a new business plan.
Each financial model is built to address a particular set of issues and has a number of underlying assumptions, including revenue growth, financing costs, and utility values for non-monetary options
The first thing you should consider while creating financial models is “what questions does the recipient of the model want answered?”
Five goals of Financial Models:
Financial models should achieve these five goals. It should enable
To clarify the business model,
To indicate the road to profitability,
To quantify the investment necessary,
To facilitate business valuation, and
To show the magnitude of the market potential
Purpose of Financial Models
The various types of financial models that are used corresponds to common objectives, which include the following:
Capital raising (debt or equity)
Capital planning (distributing resources efficiently)
Making purchases (purchasing or acquiring, businesses, or assets)
Expanding a company (new openings or entering new markets)
Predicting expansion (of sales, revenues, profits, etc.)
Forecasting and budgeting (planning in advance)
Calculating a company’s value (for mergers and acquisitions)
Financial Modeling course, what is it?
When asked what financial modeling is all about, the response is that it is the beginning of financial planning.
Studying financial modeling will give you knowledge and abilities needed for entry-level positions in financial planning analysis, equity research, investment banking, credit research, and many other fields. Basic financial concepts and abilities such as data organization software -Excel spreadsheets, financial mathematics, and financial statement analysis, project finance, equity modeling & corporate finance are covered in a typical financial modeling course.
Benefits of learning financial modeling course
Financial modeling is acquiring popularity. Here is a brief overview of the benefits of financial modeling course ,and why it is crucial for any organisation, in case you are unsure whether this field is worth your time and effort:
For intrinsic investment
If you simply reinvest the income, financial modeling might be utilised to determine how much more your business could grow over the course of a decade.
Acquisitions and mergers
When you choose to buy a new company, expand, or merge with another company, a significant amount of money is on the line. Analysts utilise financial modeling to determine the precise resource optimization.
Funding equity or debt
If you want to raise money from investors, it’s crucial to properly value your company. Then, you need to locate a reliable method. Financial modeling helps you predict accurately,how quickly you will need to pay off the debts in order to retain your financial stability
For careful budget planning and Forecasting
Risk management and risk assessment are essentials part of business management. By using risk forecasting, you can take precautionary measures and be ready for anything.
Financial Modeling Courses Available
Depending upon the course you select, financial modeling might be
Intensive learning course
Extensive learning course
Depending on your level of interest, you can attend financial modeling course as
Post Graduate Course.
Depending on financial modeling course you choose, the length of the course may also vary.
Depending on your preference of the financial modeling course you choose, the the learning mode may differ
Self – Study Learning
Online Live Classes
Best Online Financial Modeling Courses Available
The structure of the IIM Skills financial modeling and valuation course is created to provide students with the substantial practical training they need to put the theory into practise. With flexible batch scheduling options, this course specialisation programme offers online training classes that are accessible from anywhere and at any time, two months guaranteed internship, and placement assistance.
This Financial modeling course covers reading annual reports and learning the fundamentals of the management discussion and analysis section, performing various ratio and KPL analysis, creating the financial summary, understanding and using fundamentals and principles of financial modeling, learning and using basic and advanced Excel functions, keyboard shortcuts, and understanding the key fundamental concepts of accounting and financial statements. With this IIM skills also offers Business Accounting and Taxation Course with many other skill development courses.
Learning students and working professionals have the choice between a live classroom programme and an online financial modeling course training with IBN’s Financial Modeling course.
This course covers basic and advanced Excel, dashboards/pivot tables, (VBA) visual basic application macro, introduction to financial statement analysis, multi-tab financial modeling, project finance, trading combs valuation technique, transaction valuation technique, M&A analysis, pitchbook benchmarking, price rebasing company building, placement and interview preparation, business valuation, IPO valuation, equity research model, capstone project & assesment.
Imarticus offers training courses for both individuals and businesses. Individual learning programmes are more jfocussed towards training and skill development, whereas corporate learning more emphasis is laid on upskilling employees. It offers financial modeling training programs —in the areas of finance, analytics, technology, and marketing.
Career Scope after Financial Modeling
Investmant Banking Analyst
Equity Research Analyst
Investment Banking Associate
Jr. Manager Financial Planning & Analysis
With this financial modeling overview, we hope you have gained a thorough idea of what the field entails and what to anticipate. This article aims to provide you a comprehensive understanding of all the components of financial modeling. You gained knowledge about financial modeling, its use, importance, purpose, benefits, financial modeling course , and career scope.It should enable you to decide for yourself whether financial modeling is right for you and how to improve your skill sets through in-depth financial modeling knowledge.