What is Financial Modelling?

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What is Financial Modelling

Creating a summary of the expenses and revenues incurred in the functioning of a business enterprise, Financial Modelling as a process aims to assess the company’s present financial expenses and profits to predict the impact of any future event and thus helps in facilitating better finance-related decisions. To ensure proper financial management in any business firm, financial modelling plays a crucial role as it gives an overview of what the future expenses and revenues will be like. As it is increasingly applied across various industries and businesses, there are numerous Financial modelling courses available for those interested in learning the intricacies of this process. This blog elaborates more upon what is Financial Modelling, its types, applications, courses available as well as career scope!

What is Financial Modelling?

In simple terms, Financial Modelling can be explained as the process of creating a detailed summary of a business firm’s expenses as well as revenues in a spreadsheet format help the financial managers make better decisions for the future. It gives a comprehensive overview of the expenditure and revenues earned by the company along with providing the sources where most resources are spent as well as where the profits came from. The final observations and report of the analysis are then utilised by Financial Analysts for different purposes, be it assessing the firm’s stock performance and its impact on the future or for making decisions regarding financial management.

Types of Financial Models

Now that you are aware of the salient features of what is Financial Modelling, you must also know that there are different types of financial models used for this process. Financial Models can shift in form and intricacy depending on the reason for which they are built. It tends to be a one-sheet model for short-term analysis, else it may be a multi-sheet, multi exercise workbook model with a few cross-connections for an organization or an industry. Here are the major types of Financial Models:

Valuation-utilizing DCF 

Discounted Cash Flow (DCF) is one of the most widely recognized strategies for business valuation. DCF analysis gives the aftereffect of an organization’s present worth, known as “net present worth,” by anticipating its future free incomes. Its capacities on the rule that the estimation of a business is the aggregate of its anticipated future free incomes, limited at an appropriate rate. When it comes to Financial Modelling, this type of model is widely used in equity research and capital markets.

Leveraged Buyout Model (LBO) 

In a leveraged buyout, a firm is acquired on the sole basis of debt and for this financial model, complex debt schedules are created. It is majorly used in private equity and investment banking and is amongst the most layered Financial Models as there are many circular references as well as cash flow materials are needed.

Merger or M&A model 

As the name suggests, this Financial Model is utilised for mergers and acquisitions. The whole goal of merger model is to comprehend the effect of securing to the acquirer’s EPS and how the new EPS contrasts and the current one. If the new EPS being higher, the exchange is classified “accretive” while the contrary situation would be named as “dilutive”. 

Apart from these, here are the other types of Financial Models:

  • 3 Statement Model
  • Forecasting Model
  • Option Pricing Model
  • Sum of the Parts Model
  • IPO Model
  • Budget Model
  • Consolidation Model

Applications of Financial Modelling

The process of Financial Modelling has an immense scope across different types of businesses and is vastly used. Some of the prominent areas where Financial Modelling is applied are explained below:

Venture Banking/Equity Research

Financial Modeling proves to be incredibly useful for business valuation. Investment brokers use it for M&A and fundraising exchanges. Value Analysts use it to estimate stocks and provide purchase/sell/hold suggestions. 

Task Finance/Credit Rating 

Financial modelling assists bankers and credit experts to calculate future incomes and costs to assess an undertaking’s practicality. This way, they are able to choose if they ought to expand loan or what the credit assessment of a venture or organization ought to be. 

Corporate Finance 

The financial models are also incorporated by organizations to evaluate their funds and undertakings. It is henceforth a contribution to making subsidizing plans for corporate undertakings. 

Entrepreneurs and Small Businesses

Small businesses and start ups also utilize Financial Modelling to assess their timely expenses and revenues and thus strategize for the long run accordingly. It actually works as a significant tool for maintaining a strategic distance from possible dangers. 

Financial Modeling Courses

If you want to pursue your career in financial Modelling, then there are various options. The course duration may vary according to the university. For that do check the official websites of the universities you want to apply.

LevelFinancial Modelling Courses
DiplomaDiploma in Financial Modelling
PG Diploma in Financial Modelling
Diploma in Applied Finance
Diploma in Statistics and Finance
Diploma in Quantitative Finance and Econometrics
Diploma in International finance 
Diploma in Financial Analysis 
Diploma in Finance and Investment Analysis
Bachelor’s LevelBCom Finance
BSc in Financial Mathematics
Bachelor’s in Financial Economics with Econometrics
B Com Accounting and Finance
BA in Finance and Investment
BSc in Finance
BCom in Accounting
BSc Business with Finance
Master’s LevelMBA in Finance
Master’s in Actuarial and Financial Science
Masters in Financial Engineering
Master of Commerce (MCom)
MSc/ Master of Finance
MSc in Accounts, Finance and Regulations
MSc in Financial Mathematics
MSc Corporate Finance
Masters in Advanced Finance
MCom in Statistics Studies
Masters in Venture Capital and Private Equity

Here is a list of Short Term Courses in Finance available online for those interested in learning Financial Modelling:

  • Business and Financial Modeling Specialization by Wharton School (Coursera)
  • Excel Skills for Business Specialization by Macquarie University (Coursera)
  • Business Statistics and Analysis Specialization by Rice University (Coursera)
  • Financial Modeling for Startups & Small Businesses (Udemy)
  • The Real Estate Financial Modeling Bootcamp (Udemy)

Top Universities 

There are numerous universities across the world which offer a wide range of courses in Financial Modelling and Financial Management. Check out the top universities you must consider for pursuing a program in this field:

Career Scope

Financial modelling is a growing field of commerce with various job opportunities along with promising salary packages. Some of the major career prospects in this field are:

  • Financial Analyst
  • Business Analyst
  • Junior Research Analyst
  • Merger and Acquisition Associate
  • Investment Banking Associate
  • Financial Planning & Analysis – Junior Manager
  • Equity Research Associate
  • Debt Syndication-Junior Executive

Hence, we hope that this blog has provided you with all the details regarding Financial Modelling! Planning to pursue a degree in Finance? Our Leverage Edu experts are here to help you explore best courses and universities as per your interests and preferences! Sign up for a free session with us today!

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