Financial Modeling in 2019: The Definitive Guide

"What is financial modeling?"

“Do you teach financial modeling?”

“Can you give me a sample financial model that I can fill with numbers and present in the interview?”

"How to build a financial model?"

“Do you cover macros while building financial models?”

I’m constantly bombarded with such questions on financial modeling. And, the funny thing is—when I ask the person, "what is financial modeling?", that person doesn't have any clue.

So, I thought it’s apt to write on this subject today.

What Is Financial Modeling?

As per Investopedia,

The process by which a firm constructs a financial representation of some, or all, aspects of the firm or given security. The model is usually characterized by performing calculations, and makes recommendations based on that information. The model may also summarize particular events for the end user and provide direction regarding possible actions or alternatives.

As per my experience," financial modeling" involves building financial models, sometimes from scratch or sometimes maintaining and updating the existing financial models.

Financial modeling is a skill, and you can learn it through lessons and practice.

What Is a Financial Model?

According to Moneyterms,

A financial model is anything that is used to calculate, forecast or estimate financial numbers. Models can therefore range from simple formulae to complex computer programs that may take hours to run.

In short, financial models are mathematical models in which variables are linked together to represent a simplified version of the performance of a financial asset or portfolio of business, project, or any other investments.

For sophisticated models such as Discounted Cash Flow (DCF) model, you need to use a computer.

Microsoft Excel skills are must to build or update financial models.

There are computer programs built for high-end and complex financial models such as—Value-at-Risk(VAR) models used in risk management.

Financial modeling is the task of building a model of abstract representation of a real-world financial situation.

Financial modeling is a term defined and means different things to different people, and it usually relates to either corporate finance or accounting or quantitative applications.

The work of financial modeling has been gaining significance and acceptance all over the world over the past few years.

Commonly, financial modeling is understood to mean practice in either asset pricing or corporate finance, of a quantitative nature. In other words, financial modeling is about translating a set of hypotheses about the behavior of markets or investment decisions into numerical predictions.

A financial model helps in the future operating, investing and financial activities to determine future profitability, financial position, and possible risks that can be mitigated. Financial models should be exhaustive, internally dependable, and externally acceptable and analytical.

In Financial Modeling, it is desirable that the entire task should be free from error and should be easier to read and understand. By following these fundamental principles, the model will be easier to handle, direct, check and become more reliable.

Define the Need:

  • What is the desired goal of the financial model?
  • Launching a new product?
  • Integrating a potential acquisition?
  • Refinancing debt?
  • Who is the expected user? Management/ Investors/ Bankers?
  • What is the expected use? Internal or External?

Presentation or engagement of financial models will depend on purpose and target audience.

Financial Modeling may require preparation of complete financial statements over a defined period, or it may require limited information over a defined period.

Complete Financial Statements are challenging and time-consuming to prepare, but at the same time also most instructive to users. For example, Balance Sheet measures future liquidity and Leverage. Income Statement estimates future operating results. Statement of Cash Flows outlines future cash need for growth (investments and borrowings) and Return to Investors collectively completes financial statements and can help in measuring return on investments and potential risks related to it.

Most of us overlook Cash Flows in financial modeling, but it is a very significant element. Statement of Cash Flows shows the timing of capital expenditures for growth, additional borrowing needs, the ability to provide a return on investments.

Cash flows are available to investors (free cash flows) and are a core element in financial decision making, and are essential to arrive at net present value analysis or an internal rate of return analysis.

For the most accurate results we need to follow the Firms standard format:

  • Maintaining an appropriate number of spreadsheets.
  • Using page breaks wherever required.
  • Writing an executive summary on top if required.
  • Maintain proper versions of documents if future upgradations are expected.

Spreadsheet Design:

  • Using modular spreadsheet blocks will make changing each sheet easier without affecting others.
  • Proper protection should be made to the sheets and workbooks from unauthorized usage.
  • Labeling sheets, columns, and rows with their appropriate headings so that files become easily searchable and can be followed.

Document your assumption in an organized and better way:

  • Assumptions documentation helps in validating & avoids misinterpretation.
  • Listing assumptions will be helpful for easier and quicker understanding.
  • Adding source data as well as calculations will provide a sound projection of the map.
  • Linking wherever required will be a good practice such that when the inputs change, the outputs will be changed automatically.
  • It will save a lot of confusions and hassles at the final stage and even at working stage.

Facilitate Data entry at one place only:

  • Avoid retyping and repetition of data, entering it once as a source and referencing it will make it simpler.
  • Using Consistent Formulas is good practice.
  • Using formulas and functions will make data accurate and will save time.
  • You should not copy a formula from one sheet to another as it will create links to files.
  • Avoid unnecessary blank columns and rows as this can be tedious at the time of making tables or other charts.
  • Creating Templates will be beneficial.

Who Should be Studying Financial Modeling?

Financial Modeling could be beneficial and may be explored by a vast majority of people.

  • The Financial Modeling study can be done by anybody who wants to study the world of finance and who wishes to get involved in money related decision making. These people can be Executives, Business planners, Strategy Decision Makers, Managers working with Banks, Equity Researchers, Project Managers, Research Analysts, Investment Banking people, Portfolio Managers, Commercial Bankers, Risk Managers, Accountants, and all those who are part of the finance department in all types of the different firms.
  • It’s an added advantage for those people who are pursuing CA (Chartered Accountant), MBA (Masters of Business Administration), CFA (Chartered Financial Analyst), FRM (Financial Risk Manager) and Commerce Graduates.
  • Also, the candidates having Degree, Diploma, in technical fields like B.TECH or Engineering, who wants to make a career in finance.
  • Any individual who just wants to gain knowledge out of passion or curiosity.

Also Read: Financial Modeling Examples Using Excel

Where Can You Use Financial Models

Financial models are used in:

  • Historical analysis of a company
  • Projecting a company’s financial performance
  • Project finance
  • Real estate investments
  • Oil & Gas projects
  • Banks & Financial Institutions
  • Personal finances
  • Non-profit organizations
  • Government
  • Investment banking
  • Equity research

Users of Financial Models

There are four main groups of users that use financial models.

  1. Business owners and entrepreneurs
  2. Finance and Accounting professionals
  3. Financial Modelers and Consultants
  4. Individuals for personal finance

Let’s see the areas where you, as a financial analyst, can use financial modeling skills.

  • Forecasting future raw material needs
  • Valuation of a security
  • Benefits of a merger
  • Check the size of the market opportunity
  • See the roadmap to profitability
  • Check investment requirement
  • Quantify and predict risk
  • Portfolio performance
  • Identify undervalued securities

The question comes to mind that only one financial model is useful, or we need to use different types of financial models.

Types of Financial Models

There are different financial models that you can use as per the need.

  • Discounted Cash Flow model
  • Comparative Company Analysis model
  • Sum-of-the-parts model
  • Leveraged Buy Out (LBO) model
  • Merger & Acquisition (M&A) model
  • Industry-specific financial model
  • Option pricing model
  • Corporate finance models

These financial models are used to solve different problems.

As a financial analyst, you should know the time and type to use a  financial model.

To gain expertise in financial modeling, you should know the financial modeling basics.

Suggested: Read more about Financial Modeling Examples

Financial Modeling Basics

Learn Financial Modeling
Learn Financial Modeling

How to learn financial modeling? Are you preparing for financial modeling jobs? Then only downloading financial modeling templates won't help. This will help:

  1. You should be good in Accounting, Finance and Valuation and financial modeling Excel skills.
  2. Ask yourself, “What problem I’m going to solve by creating this financial model?”
  3. You should know the scope, benefits, and limitations of financial modeling.
  4. Remember: Garbage in garbage out principle. So, check your inputs.
  5. Your model should be simple, easy to understand and flexible enough to accommodate future revisions.
  6. Time management is an essential aspect of financial modeling. Don’t get overwhelmed by numbers and calculation part in spreadsheets.
  7. Lastly, you should be able to take a decision based on your financial model.

Download sample modeling videos

In short, financial modeling is a skill, and you can develop this skill by learning Excel Financial Modeling Training, (classroom or online) applying and practicing it well.

Have queries? Write them below.

Next Batch Starts on 29th April, 2019
- Classroom Course with Placement Assistance: Our Full-Time Financial Modeling Investment Banking Course (6 Weeks) starts on 29th April, 2019 and 2.5 Months Weekend Workshop starts on 6th April, 2019 in New Delhi, India and on 16th March, 2019 in Gurgaon, India.

- Online Course with Placement Assistance: Join our Online Financial Modeling Investment Banking course with Placement Assistance from anywhere in the world.

- CFA Level - I: 16th April, 2019

- Financial Modeling Investment Banking Weekend in Gurgaon: 6th April, 2019

- See Testimonials.

Only a few seats remain. Interested candidates can contact me.

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Financial Modeling in 2019:  The Definitive Guide 1

59 thoughts on “Financial Modeling in 2019: The Definitive Guide”

  1. sir…. plz plz plz tel me some point ……. computer application is financial modeling??? plz plz urgent

  2. hi
    I have completed my +2, and iam pursuing acca.I would like to take degree in financial modeling.which course will help me in doing this as from open university

  3. Hi,

    I have done MBA in finance in 2010 but due to some problems i have not done any job and when i got opportunity to work i started my career as client servicing executive but now i want to utilize my degree of finance and want to work in finance field but have very little knowledge. Please suggest me which course to persue.

    Thanks
    Mamta

  4. Hi,
    Sir i am in last year of my graduation and i am at the final level of my CFP even i am aware that it wont help me alone if i do this course would it be benificial ?
    Thank you

  5. Hi,

    I want to pursue this program. i’ve 2,5 yrs of work ex in research firm.
    Please let me know the fee structure and are there any classes scheduled in Delhi for this program in Feb?

    Regards,
    Shubham

  6. Dear Mr. Avadhut

    As of now,I having a experience of sales in banking for last 4 years. I have done B.com & MBA in finance. I want to change my field sales to finance. I’m looking for financial modelling course. Is there any chance that financial modelling will change my field sales to finance or any other course please recommend.

    Thanks & Regards,
    Abhishek

  7. Hi,

    plz tell me course and charges and time

    Thanks
    Sunita

  8. any classes scheduled in Bangalore?

  9. Hi sir,

    I have some query regarding finance course .i have done pgdm in finance .i have 6 years experience in health insurance field.
    But i just want to change my carry in finance feild .please suggest me. What is beneficial for me.

    Thanks
    Sunita

  10. I am a student of 1st year pursuing my BCOM. I am interested in doing
    Financial Modelling course which will help me in my future as I am not doing any professional course.
    So please can you let me know the duration of the course and is this the right time to pursue the course.
    I will be glad if you please let me know as soon as possible.

  11. Hello, I am into CS practice, and i have lot of clients who are at idea stage and young entrepreneurs. They often ask for preparing a financial business model for their business of project finance or valuation. Will this course help me in doing that? And i am from pune and cannot attend classroom programs.

  12. Hi,
    I have done MBA in finance and have experience of around 5 years as a GL accountant.Could you please let me know that by learning Financial Modelling do i have any growth in my career.

  13. hello Sir,
    I’m currently in my third year of graduation in economics. I don’t have any extra skills or degrees or experience in this field of financial modelling but I’ve a keen interest in. So, I’m planning to get certification in financial and valuation modelling after my graduation. I don’t have any plans to get an MBA degree neither am I so interested in.
    would you please tell me if this course could give me an average pay ? or a job ?
    And if this could be possible then I’ll make plans for CFA after getting experience.
    And tell me if I can design any other plans for a good and safe career, please.
    your guidance will be helpful. Thank you!!!

    • Dear Neha,

      Yes, that’s the right plan. Join our 6-Week Workshop in Delhi right after your graduation, get placed in core finance roles. You can start CFA studies once you settle down in your job.

      Please email me ([email protected]) your contact number. My associate will call you to discuss this in detail.

  14. Hi Avadhut,

    I am working in equity markets from last 3 years and I have developed an interest in Equity Research, thus wanted to know about Financial Modelling and its use towards Equity Research.

    Regards
    Chetan

  15. I am a CA-Final student.

    1.Can CA knowledge with financial modelling knowledge enable us to set up career on public finance research?

    2.If yes, what are the possible destination organisations?

    3.What is the scope in terms of pay?

    Thank you.

    • Hi Gowtham,

      1. Knowledge with skills, yes.

      2. All equity research firms, investment banks, mutual funds and financial KPOs.

      3. Depends. Use Glassdoor and PayScale site for that.

  16. Hi

    I am a healthcare consultant and have got knowledge of financial models during my MBA days and I want to learn project financing in details. Is this course helpful in that aspect??

  17. Hi Avadhut,

    Could you please exxagerate a bit more about career prospect post completing Financial modelling course?

  18. I am working in Software company in Bangalore. I’ve completed my BCOM in 2005 and have 9+ years of experience in core accounting, finance, billing, credit & Collection. But I would like to learn Financial Planning & Analysis as well as Financial Modeling. Can you advise me what would be the course fee? and what are the benefits out of it?

    • Hi Deepak,

      Financial Modeling is a skill which is in demand for core finance jobs. We run online and classroom programs in financial modeling. Please let me know your preference.

  19. Hi sir
    this is varsha stuying mba…. Noq only i can go for finance modeling course or now its not required? And what all opportunities.i can get frm this course.

  20. Hi,

    I am Devendra, I am very average in learning since school days ! but now want to enhance carrier as a financial analyst, even I am just graduate and working as an accountant, May this course good for me?

  21. Hi,

    I am currently working as IT professional in one of MNC. Previously I had an experience of 4 years with IT . after that I took a break for almost 3 years due to some personal priorities but in the mean time during this gap I completed my MBA in Finance.
    Although after a long break I again joined in IT company because of my past experience in the same field.
    I also looked for the job in finance sector, but since I don’t have any prior experience in Finance , and also have never worked on financial modelling or any other tools which is used for the company analysis, so not able to apply for the finance sector.

    I want to join the finance sector . I have some basic knowledge or u can say theoretical knowledge on financial statements ,valuation methods etc but no pratical experience. Please advise me on this where to start with to gain knowledge on Financial modelling to make myself suitable enough to apply for the finance jobs.

    Thanks
    Adi

    • Hi Aditi,

      If you want to get into core finance jobs or jobs in financial KPOs that demand financial modeling skills, I would suggest you to go for classroom program in Delhi.

      However, if you think you can’t devote 6-weeks for this long-term and rewarding career, I suggest you to look at our online programs.

      Please let me know if you need any more details.

  22. hi
    i am an accountant graduate,I have also done CPAs and currently pursuing MBA in Finance.
    I have tried to seek for employment but i have not been lucky because i have no experience in the
    working environment.
    I have now volunteered to work in a certain company which is very young. If i proof to them that i am
    an asset to them they are likely to hire me.
    the other day i saw my boss doing some costing for a given co. using financial models.
    i developed an interest of learning the financial models. when i informed him he sent me some templates but
    they are very difficult for me to learn.

    what are the basics for financial modelling i am interested in historical analysis of a company and predicting the future perfomance of a company for both new and existing companies.

    i will appreciate your help.

    thank you.

    • Hi Mish,

      Financial Modeling starts with basic accounting fundamentals, 3 financial statements, Excel. Once you master these things, next step is – 3 statements integration, forecasting, DCF Analysis and Valuation.

      Look at this online program.

  23. I’m responsible for the financial analysis and accounting for a startup. I have acquired accounting knowledge from education and work experience. But I have no experience in the financial analysis field. I have only basic excel skills and am new to financial modeling. I am currently using a school course book for excel to self educate.

    Are all your financial modeling posts/topics on the website sufficient for what I need for a startup or is there something else you would recommend in addition?

    Thank you.

    • Hi James,

      As far as accounting and financial analysis goes, the posts here are informative and should be enough. But for skills purpose, I would suggest you to join BIWS ‘Excel and Financial Modeling Fundamentals’ program. Check the course name and details on this page.

  24. I shall be going for interview as a financial controller on 30/9/14. Financial modelling and analysis are being stated as parts of my responsibilities. please, I don’t understand…..

  25. Hi

    I am a commerce graduate, keen to learn about financial modelling techniques,presently working in BPO sector..could you please advice?

  26. Already working as a derivative analyst is ur course available at weekends.

  27. Dear Concerned,

    Greetings
    Aimal with you an ACCA and working currently as Financial Accountant.
    What will be the advantage of learning Financila Modeling for jobs securing ,

    Thanks
    Aimal Khan

    • Hi Aimal,

      Financial Modeling is a required skill for investment banking / private equity / equity research / corporate development jobs.

  28. For sure this financial modeling is highly recommended

  29. Hi Avdhut

    i need ur advice..m a commerce graduate..done M.com and Diploma in financial management from wellingkars…i have also completed charted financial analyst from ICFAI and MS Finance from the same institute..currently persuing MA Economics..m interested in Equity research profile but clueless because have no experience in core area..currently m not working.. please help..

    Regards

    Pramod Parab

    • Hi Pramod,

      Do you have any work experience? Companies need either skills or experience or both to give you a job.

      I would suggest you to consider our 6-week program in Delhi that will give you hands-on SKILLS that companies need today.

  30. Hi Avadhut,

    This is a helpful article for me, I really appreciate you efforts 🙂

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