5 reasons why Chartered Accountants should learn Financial Modelling

Veena had recently passed her Chartered Accountancy exam. She was in seventh heaven and was eager to meet her colleagues in office. Happily radiating with the congratulatory wishes showered on her, she felt as if a big mountain was surmounted.Her senior colleague Anoop congratulated her and excitedly asked her about her future plans.

“Hmm, you see, I am not so keen on traditional field of audit and taxation. Instead, I would love to venture in the business of investment banking. I hear that it is a booming industry… Can you suggest me how I should enter this venture?” Veena asked naively

“Well, not sounding too preachy Veena, I would like to tell you that learning is a continuous process. Passing the Chartered Accountancy process is no mean task, however, it gives you experience in conventional fields, making your technical knowledge strong. Investment banking requires you a strong knowledge of spreadsheets, technique of preparing financial models and analysing financial information.”

“So what do you suggest Anoop?”

“As you know, I am currently working on a merger case for our clients, which involves preparation of financial models on Excel sheets, on the basis of financial data of the acquiring company. I suggest you undergo the financial modelling course, as it helped me in this assignment.”

Like Anoop’s statement above, it has become very important in this era, to continue learning, and adding more certifications that will help accelerate our career growth. As a newbie, there will be so many candidates passing out. Consider another candidate vying for the same job. Of course, the company will prefer the candidate who has some additional certifications, especially those which give you an additional edge over others.

Chartered Accountants need to financial modelling for reasons that can be listed as under:

Acquiring research oriented mind set

Chartered accountants are trained to be adept at accounting and taxation, but their approach tends to become a tad mechanical over the period. Strict adherence to accounting standards and taxation laws is the guiding principle for most of the CAs. However financial modelling trains them to read beyond the financial statements and in between lines. Right from drawing assumptions to forecasting things based on the historical or expected trend, financial modelling trains Chartered Accountants to develop an analytical mind set which is very important in the field of investment banking, equity research and financial analysis.

Edge over others professionals

Let’s face it. This is an age of cut-throat competition. While Chartered Accountants are heavily sought after professionals in the field of finance, certain areas like Equity Research, Investment Banking, Merger & Acquisition analysis, Corporate Finance require specialized skills other than good understanding of financial statements. Financial modelling helps Chartered Accountants to acquire these skills and gain an edge over others such as CFAs, MBAs and CIMA graduates who are strong contenders for research oriented roles.

Value addition to accounting knowledge

Financial modelling is not just about making assumptions and forecasting, it requires a plethora of skills like excel proficiency, VBA and basics of coding qualitative knowledge about the industry and the company, valuation methodologies and ratio analysis. Some of the other skills that financial modelling teaches are:

  • A logical framework for problem-solving
  • Ability to break large amounts of data into a simple format
  • Clear presentation skills
  • Drawing conclusions and formulation of corporate strategic planning

Chartered Accountants must be thorough with each of these skills before entering the world of financial research and analysis.

CAs are also exploring areas other than accounting/tax etc.

One of the biggest reason why Chartered Accountants should learn financial modelling is because they are not just restricted to Accounting, Auditing and Taxation anymore. They are exploring other arenas such as research, analysis, project finance manager, forex analyst etc. Lucrative compensation of these profiles as well as lower passing percentage of Chartered Accountancy exams have led most CAs to step out of the stereotypic roles to more challenging ones.

Acquiring required analytical skills in lesser time

While CFA is one of the most sought after qualification in the investment banking and equity research industry, many Chartered Accountants who wish to enter this field do not have much time at their disposal to pursue another rigorous training as a CFA. The preparation towards becoming a CA takes years and many professionals after completing their final exams do not wish to wait any further and want to start their career in analytics and research right away. While Financial Modelling is no substitute to the CFA charter, for professionals who want to acquire analytical and forecasting skills quickly, a short term certificate course in Financial modelling from a reputed industry body comes in handy. It gives them confidence and equips them with necessary skills to step into the research oriented roles.

Arenas it will open for CAs:

  • Investment Banking: Help in mastering excel skills which is essential for IB, forecasting revenues, taking appropriate investment decisions, etc.
  • Equity Research: FM will help you develop skills to research listed stocks and analyse investment options to give smart recommendations to clients whether to buy/sell the stocks.
  • Project Finance: Projecting financial viability of a project, analysing the cash flows, preparing requisite models for different models, etc. For a CA in practice, he can gain expertise in this field, through the FM course.
  • Corporate Finance: Preparing MIS reports that monitors and evaluates financial performance, decision-making considering viability of any investment/project, thereby aiding the management in making profitable decisions. For most of these processes, a standardized approach is maintained which also needs some amount of flexibility. A Financial model ensures that these processes are maintained with maximum precision.
  • Mergers & Acquisitions: Valuation of acquiring company, computing synergy benefits, forecasting revenue, competitor analysis.

The emerging KPO sector has increased the number of firms outsourcing their financial analysis functions to outside firms. There are many firms who are in constant need of expert analysts for their research activities. In short, if the above are your areas of interest, CAs should undertake the FM course to remain competitive in the market.

Persuaded with Anoop’s suggestion, Veena said. “Thanks Anoop, I will certainly undertake this course, and put this on top of my priority list.”

“Yes, but the top priority now is to celebrate your success! I expect a grand celebration of your achievement!” Anoop teased.