Financial Modeling for Investment Banking

We’ve all seen big corporations announce major mergers or drop out of a race to buy out companies. Of course, it is always exciting to watch the major players make winning decisions. But we rarely know what happens behind the scenes.

These decisions are based on financial models prepared by experts in the field.

Regardless of their size and success, organisations depend on the right financial information to make business-building decisions. However, basic information about the business is not helpful if it is not translated into a financial model that provides in-depth insight into the business.

Investment bankers predominantly use financial modelling to project the company’s financial performance, including mergers and acquisitions, debt, equity and other transactions. So with this blog, let’s throw some light on the most important weapon in their arsenal – financial modelling. The scope, the benefits and where to learn this career-building course? 

What is Financial Modelling?

Financial modelling is developing an accurate outline of a company’s financial position by considering its earnings and expenses. As a result, it aids in decision-making and calculating the impact of future financial decisions.

Without an accurate and data-backed financial model, investment bankers will not be able to provide business valuation and determine whether the company can diversify, raise capital or acquire investments. But what exactly is a financial model?

A financial model is a spreadsheet to forecast a business’s future financial performance. The forecast considers the business’s historical data, its income statement, cash flow statement, balance sheets, and future financial assumptions. Using this data, advanced and more specific models can also be built to shed light on particular areas under scrutiny.

Financial Models are used for several purposes by investment bankers and others. Some of the use decisions taken based on the financial models are:

• Mergers
• Acquisitions
• Raising Capital
• Selling Assets
• Diversifying Business
• Entering New Markets
• Capital Allocation
• Budgeting
• Forecasting
• Business Valuation
• Financial Statement

Also Read – All about Financial Modelling

What Financial Models do Investment Bankers use?

Several types of financial models are used by investment bankers, public accountants, researchers and portfolio management professionals. As mentioned, there are different financial models, and each model is evaluated based on two primary factors – flexibility and granularity.

• One Page DCF: Mainly used to offer a valuation range for a particular acquisition target. The granularity of data is low, and it is not reusable.
• Comps Model Template: Generally used as a standard in banks, this model is used by many stakeholders for delivering many pitches and deals.
• Restructuring Model: It is delivered as a part of the restructuring advisory to evaluate them and ascertain the stress impact of selling one or more businesses.
• Leveraged Finance Model: It analyses the loan process and performance under different credit scenarios.

Also Read – Types Of Financial Models

Since investment bankers add to a business, they are highly sought-after professionals in the industry. They bring astute subject knowledge, good experience, negotiation skills, and many other skills.

Although there is a gap between the demand and supply of qualified investment bankers with financial modelling knowledge and experience, we need qualified professionals with focused training in financial modelling to overcome this challenge.

Scope of Financial Modelling Course

The scope of the financial modelling course is huge as accurate financial models are used by businesses to plan their financial growth and take important decisions regarding mergers, acquisitions, capital building, budgeting and investments.

That’s not all. Experts and professionals also use financial models to analyse sensitivity, and capital projects, explore the return on investments, assess and limit risk, and perform scenario analysis. In addition, experts in banks, financial institutions and corporations use these financial models for equity research, financial planning and analysis.

Financial modelling is certainly different from the usual Auditing and Accounting jobs. So, if you are interested in branching out to a new and exciting profession, financial modelling could be the right one for you. And financial modelling could also jumpstart your career if you find yourself in a stagnant position.

Take your first step towards investment banking. Learn Financial Modelling from the pioneers

How can Financial Modelling help your career in Investment Banking?

• It helps you build a perfect forecast.

Forecasting the financial future of a company is not an easy task. It is complex and unique to each organisation. Precise and data-backed assumptions have to be made to develop a forecast. Based on these assumptions,

Financial models help businesses build a credible forecast and design budgets based on historical data and trends. By aligning their budgets with the forecast, businesses can continue their activities in a structured manner.

• Enhances your understanding of the business

A financial model is used to develop a forecast and provide a deeper insight into the financial position of a business. A financial model shows how a business is operating, where its focus should be, and what factors are affecting the business.

Factors affecting a business do not always stem from external factors such as competition, market and products. So, it is critical to consider internal elements as well.

• Strategies and plan fund requirements

A financial model provides information on cash inflow and outflow. Before making any financial investment decisions, a business should understand its income sources and the net cash flows needed to keep its affairs running. To ensure smooth operations, it must arrange to fund either debt or equity. A financial model will give a clearer picture of cash flow after setting off loan repayment and interest.

• Help in minimising risk

A business has to undertake due diligence before proceeding with a particular investment or activity. The financial impact of any activity is scrutinised in the financial model, which helps the business reduce the risk for the business. For instance, if the business plans to invest in another business or enter a new market, the financial model can guide the risk, costs, market trends, and more.

• Help achieve business growth.

A financial model can point the business in the direction of growth. It can be used to proceed with a financial decision or deter from taking a risk. In addition, an accurate financial model can help the business incur greater profitability through a cost-benefit analysis of projects.

How can you learn Financial Modelling?

Regardless of your career aspirations, financial modelling is a highly on-demand course. It is not only recommended for students but also experienced professionals and entrepreneurs. Financial modelling relies largely on technology but also requires strong subject knowledge.

Experienced professionals such as data scientists, financial analysts or accountants willing or looking to change careers or make a career in the top echelons of business can enrol in financial modelling.

Becoming an expert in financial modelling takes practice, much like any other subject. Besides learning the subject, you can also research equity, understand any established organisation’s historical statements, calculate their current share value, and look into their investments, assets and practise.

However, it is best to learn financial modelling from experienced professionals in the industry. It will give you a strong base on the subject and a complete understanding of the concepts and practical hands-on experience. To pursue a course in financial modelling, you need not have a foundation in accountancy.

One of the finest places to learn financial modelling is IMS Proschool. The institute teaches basic and advanced modules, including Excel functions, financial statement analysis, financial models, IPO valuation techniques, equity research and ratio analysis. In addition, the course includes financial statement projection models, sensitivity analysis, and an understanding of capital structures.

The primary reason for the popularity of IMS Proschool is it trains students to be experts in financial modelling by giving them both theoretical and practical learning experiences. The trainers are handpicked from the industry. And the course is structured to bridge the gap between market requirements and academics.

Learn Financial Modeling in 4 months

Are you ready to transform your career?

It is time to make the right career move.

Enroll in a financial modelling course from IMS Proschool and be placed in top business and financial institutions.

FAQs

Q: How does financial modelling help in business decision-making?

A: An accurate and data-backed financial model provides insights into a business’s financial health and predicts future financial performance. It helps decision-makers understand the potential outcomes of different financial strategies and scenarios, thereby helping them make informed decisions. It also plays a key role in risk management, enabling companies to identify potential risks and mitigate them effectively.

Q: What types of financial models do investment bankers use?

A: Investment bankers use several types of financial models, including the One Page DCF model, Comps Model Template, Restructuring Model, and Leveraged Finance Model. Each model is evaluated based on its flexibility and granularity, and is used for different purposes like valuation, restructuring advisory, loan analysis, etc.

Q: What is the scope of a financial modelling course?

A: The scope of a financial modelling course is vast as financial models are used extensively across industries. Apart from aiding in important decision-making processes, these models are also used to analyze sensitivity, explore returns on investments, assess and limit risk, and perform scenario analysis. Professionals in banks, financial institutions, and corporations use these models for equity research, financial planning, and analysis.

Q: How can financial modelling help my career in investment banking?

A: Learning financial modelling can give you a significant advantage in investment banking. It helps in building accurate forecasts, understanding businesses deeply, strategizing and planning fund requirements, minimizing risk, and driving business growth. Financial modelling skills can make you a highly sought-after professional in the industry.

Q: Can I learn financial modelling even if I’m not from a financial background?

A: Yes, you can learn financial modelling even if you don’t have a financial background. While it does require strong subject knowledge, it also relies heavily on technology. Experienced professionals, students, and entrepreneurs from diverse fields can benefit from learning financial modelling.

Q: Where can I learn financial modelling?

A: You can learn financial modelling from institutions like IMS Proschool, which provides a comprehensive program on financial modelling, including basic and advanced modules. Their course includes practical hands-on experience along with a strong theoretical base, making it an excellent choice for those looking to upskill or switch careers.