Description

There are many types of financial models with a wide range of uses. The output of a financial model is used for decision-making and performing financial analysis, whether inside or outside of the company. Financial models are also to make decisions about:
Raising capital (debt and/or equity)
Making acquisitions (businesses and/or assets)
Growing the business organically (e.g., opening new stores, entering new markets, etc.)
Selling or divesting assets and business units
Budgeting and forecasting (planning for the years ahead)
Capital allocation (priority of which projects to invest in)
Valuing a business
Financial statement analysis/ratio analysis
Management Accounting
What software is best for financial modeling?
Forecasting a company’s operations into the future can be very complex. Each business is also unique and requires a very specific set of assumptions and calculations. Excel because it is the most flexible and customizable spreadsheet tool available. Other software programs may be too rigid and specialized, whereas Excel knowledge is generally more universal.
Who builds financial models?
There are many different types of professionals who build financial models. The most common types of career tracks are investment banking, equity research, corporate development, FP&A, and also accounting (due diligence, transaction advisory, valuations, etc).
The best way to learn financial modeling is to practice it. It takes years of experience to become an expert at building financial models, and you really have to learn by doing. Reading equity research reports can be helpful, as they give you something to compare your results to. One of the best ways to practice is to take a mature company’s historical financials, build a model for the future, calculate the net present value per share, and compare your projections to current share also prices or the target prices in equity research reports.

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