What is Financial Modeling in Excel and Who Should Study It?
Who Should Study Financial Modeling? Generally, the purpose of financial modeling is to actualize business decisions by creating a financial roadmap. The following people need to study and prepare financial models: • • • • •
Credit Research Analyst Equity Research Analyst Financial Analyst Investment Banker Other finance professionals.
Financial modeling Excel When it comes to major business decisions or evaluations, financial modeling Excel is a multipurpose One of the most sought-after finance skills in the current corporate scenario. In simple words, financial modeling is the process of doing systematic forecasting of an organization’s financials.
Usually, organizations initiate developing a financial model when they plan to expand their business, evaluate project finances, merger & acquisition, and to forecast future investments.
Types of Financial Models There are various types of financial models available. The most popular and effective models that finance professionals use in corporate scenario are below:
Budget Model Consolidation Model Discounted Cash Flow (DCF) Model Forecasting Model Initial Public Offering (IPO) Model Leveraged Buyout (LBO) Model Merger Model (M&A) Option Pricing Model The Parts Model Three Statement Model.
Financial Modeling in Excel Here are some of the basic financial modeling in Excel terminologies that you need to understand: • Forecasting: It refers to estimating a company’s expected financial position in the future. • Assumptions: To develop a financial model, analysts need to make a few hypothetical assumptions. These assumptions will be applied to present a scenario that may or may not occur but are consistent with the objective of the projection. • Financial Statement Analysis: Financial statement analysis means analyzing financial statements such as Balance Sheet, Cash Flow Statement, and Income Statement using various techniques.
Industry Usages of a Financial Model Allocation of Capital Forecasting and Budgeting Expansion Merger/Acquisition Project Evaluation Raising Debt and Equity Capital Startup Plans Strategy Decision Selling and buying assets Valuation (DCF, Relative).
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