What is Financial Modeling?

Financial Modelling is like a financial storyteller for businesses. It’s a way of using numbers to create a kind of roadmap that helps companies make smart decisions.

In today’s fast-paced business world, Financial Modelling is super important. It helps companies figure out the best moves to make with their money, like where to invest and how to manage risks.

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Understanding Financial Modelling

The Financial Modelling is a toolkit teaching essential money skills for running a business. It helps students understand and plan a company’s finances, predicting future outcomes based on past performance. Financial models assist in decision-making, cash flow management, and assessing business performance.

Open to college students and recent graduates, Financial Modelling is crucial as companies worldwide seek financial experts for better growth. Understanding finance enables students to make smart investment decisions, manage cash flow effectively, and contribute to the company’s future expansion.

Applications of Financial Modelling

Financial Modelling is utilized in various sectors, including;

Investment Banking / Equity Research

Financial Modelling serves as the fundamental tool for analyzing and evaluating the worth of businesses. Investment bankers apply it to determine the value in mergers, acquisitions, or fundraising deals. Equity analysts utilize it to figure out the value of stocks and provide recommendations on whether to buy, sell, or hold them.

In the world of finance, Financial Modelling is like a powerful tool that helps experts understand how much a business is worth and decide what to do in different money situations.

Project Finance/Credit Rating

Financial models help bankers and credit analysts make predictions about future income and costs. This information is crucial for making smart decisions about whether a project is a good idea. It helps them decide if they should give out loans or determine the credit rating of a project or company.

For bankers and analysts, Financial Modelling is like a crystal ball that helps them see into the future of a project and decide if it’s a good plan or not.

Corporate Finance

Companies use Financial Modelling to check out their money situations and projects. It’s like a tool that helps them figure out how to get money for their big plans.

In the business world, Financial Modelling is like a compass that helps companies navigate their way through financial decisions and plans.

Entrepreneurs/Private Equity

Entrepreneurs use Financial Models to show their plans to possible investors and to plan their strategies. Doing different tests can be an important tool to avoid potential problems.

For entrepreneurs, Financial Modelling is like a roadmap that helps them explain their big ideas to others and avoid any bumps in the road.

Types of Financial Models

Model Type Description
Valuation Modelling Involves forecasting a company’s future performance and estimating its value, crucial for strategic decisions like mergers and acquisitions. Provides insights into potential profitability, guiding key financial transactions.
Strategic Modelling Focuses on assessing the effects of strategic decisions, helping businesses evaluate consequences and formulate effective strategies. Simulates various scenarios to identify impactful strategic approaches, steering the organization toward optimal growth.
Risk Modelling Involves assessing and modeling financial risks associated with an investment or project. Enables informed decisions to mitigate or manage risks effectively, providing a comprehensive view of potential challenges and allowing strategic adjustments for success.
Asset-Liability Modeling Evaluates interactions between a company’s assets and liabilities, measuring financial risk. Helps optimize the financial structure and manage risks by identifying potential imbalances, allowing strategic adjustments for enhanced stability.
Capital Budgeting Modeling Focuses on forecasting the expected return on capital expenditure, assisting in evaluating the financial viability of investments. Analyzes potential returns and risks, enabling companies to make informed decisions for efficient resource allocation.
Merger and Acquisition Modeling Calculates the impact of a merger or acquisition, assisting in assessing potential benefits and risks. Simulates financial outcomes to make informed decisions, enhancing overall financial health through strategic considerations of such transactions.
Financial Planning Modeling Involves modeling a company’s financial needs, guiding businesses in assessing requirements, and developing plans to achieve financial goals. Considers factors like expenses, revenues, and growth projections, aiding in making sound financial decisions aligned with long-term objectives.

 

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Checkout Financial Modelling Course

Who should learn Financial Modelling & Why?

Financial Modelling is a core skill in the field of finance, offering practical applications that bridge the gap between theoretical knowledge gained during graduation and real-world scenarios.

  • Recent Graduates: Essential for fresh grads, Financial Modelling provides hands-on skills, bridging theory to practice for a seamless entry into the workforce.
  • Finance Professionals: Enhance analytical abilities for finance professionals of all levels, enabling informed decisions and strategic financial planning contributions.
  • MBA Students: A vital addition to MBA education, Financial Modelling adds practicality, empowering students to construct robust financial models.
  • Startup Founders: Crucial for startup founders, Financial Modelling offers insights into business viability, aiding informed decisions and attracting investors.
  • Investment Professionals: Critical for analysts, portfolio managers, and investment bankers, Financial Modelling aids data-driven decisions in investment roles.

Also Read – Why Financial Modelling is the ultimate skill you need to kickstart your career in 2024

Financial Modelling, Simplified

Financial Modelling is a widely recognized course that provides students with essential knowledge and practical skills in key financial areas such as:

  • Investment Banking
  • Equity Research
  • Portfolio Management
  • Project Finance
  • Credit Research
  • Financial Planning & Analysis

As highlighted earlier, this course is accessible to various student groups. Whether you are a postgraduate, undergraduate, or recently completed your 12th examinations, you have the opportunity to engage in Financial Modelling.

The relevance for students at different educational levels (postgraduate, undergraduate, and 12th passed)

The importance of Financial Modelling extends across various educational levels, catering to the diverse needs of postgraduate students, undergraduates, and those who have recently completed their 12th examinations. Let’s explore how Financial Modelling holds significance for students at each educational stage:

  • Postgraduate Students:

For postgraduate students, Financial Modelling serves as a practical application of advanced financial concepts learned during their academic journey. It enhances their analytical skills, preparing them for roles in finance, investment, and strategic decision-making.

  • Undergraduates:

Undergraduate students benefit by gaining hands-on experience in Financial Modelling, bridging the gap between theoretical knowledge and real-world applications. It provides a valuable skill set, giving undergraduates a competitive edge as they enter the professional realm.

  • 12th Passed Students:

Even for those who have recently completed their 12th examinations, engaging in Financial Modelling opens up opportunities to understand and apply financial principles early on. It acts as a foundational step, empowering students to explore the intricacies of finance and make informed decisions in their academic and professional pursuits.

Also Read – How financial modeling can help MBA freshers

 

Eligibility for Financial Modelling Course

The eligibility requirements for Financial Modelling certification vary based on the diverse courses offered to students with different educational qualifications. Students enrolling in the Financial Modelling course must meet the following criteria:

  • Undergraduate Course: Must have completed 10+2 from a recognized and accredited university.
  • Postgraduate Course: Must have a Bachelor’s Degree from a recognized and accredited university.
  • Certificate Course: Must have completed 10+2 from a recognized and accredited university.
  • Diploma Course: Must have completed 10+2 from a recognized and accredited university.

Learn Financial Modelling from the pioneers – 60% Practical Course, Get Trained & Placed In 4 Months, NSE Academy Certification

Syllabus for a Financial Modelling Course

Certification Syllabus
Financial Modelling – Problem-Solving in Excel
– Financial Statement Analysis
– Corporate Finance
– Project Finance
– Equity Modeling
Certificate in Equity Research – Everything from Financial Modelling Course plus,
– M&A and LBO
– Equity Research
Certificate in Investment Banking – Everything from Financial Modelling Course plus,
– IB Operations
– Risk Management

Note: The syllabus content may vary depending on the specific courses and certifications in Financial Modelling.

Get through this Financial Modeling quiz and wreck your brain for free

Financial Modelling Examples

Financial Model Key Characteristics Applications
3 Statement Model – Analyzes income, balance sheet, and cash flow projections. – Used in equity research, investment banking, and corporate finance. – Evaluates financial health and aids in business planning. – Equity research – Investment banking – Corporate finance
Budget Model – Plans and controls financial resources. – Line-by-line projections of revenues and expenses. – Crucial in FP&A for resource management. – Financial Planning & Analysis (FP&A) – Corporate finance
Forecasting Model – Predicts future financial performance based on historical data. – Aids in resource allocation and risk management. – Often combined with budget models for performance management. – Financial planning and analysis (FP&A) – Risk management
Option Pricing Model – Determines fair value of options contracts. – Utilizes mathematical formulas with factors like stock prices and volatility. – Used to evaluate option prices and inform trading strategies. – Investors – Traders – Financial analysts
M&A Model – Evaluates pro forma financial impact of mergers or acquisitions. – Considers purchase price, financing costs, and tax implications. – Used by equity research, investment banks, and private equity. – Equity research – Investment banking – Private equity
IPO Model – Assesses financial impact of initial public offerings. – Involves comparables analysis for valuation. – Used by investment bankers for IPO decisions. – Investment banking – Equity capital markets
LBO Model – Assesses financial feasibility of acquiring a company with significant debt financing. – Analyzes target company financials. – Used by private equity firms and investment banks. – Private equity – Investment banking
SOTP Model – Evaluate company valuation by separately valuing business segments. – Analyzes financial statements for diverse business operations. – Critical in equity research and investment banking. – Equity research – Investment banking
Consolidation Model – Combines financial statements of multiple companies. – Analyzes individual profitability and group financial performance. – Used in corporate finance for subsidiaries and joint ventures. – Corporate finance – Subsidiary and joint venture analysis

Also Read – Top 7 Skills That Make You An Expert In Finance

Why is Financial Modelling Gaining Importance in 2024?

  • Learn Practical Finance Skills: Financial Modelling is a useful course that teaches you real-world finance. You’ll understand financial concepts, valuations, and how businesses structure their finances.
  • Predict Business Trends: In today’s data-driven world, Financial Modelling gives you tools to analyze company data and make predictions. Companies value professionals who can do this well.
  • The key for Raising Equity: Financial Modelling covers all financial aspects. You’ll learn to give accurate valuations, making it easier for companies to attract investments.
  • Insights into Business Health: The course helps companies understand their finances better. From tracking expenses to spotting growth opportunities, you’ll be a valuable asset to any organization.
  • Reduce Business Risks: Financial Modelling is a powerful tool to help businesses manage risks. You’ll learn to ensure enough money is available, create efficient financial systems, and set clear financial goals.

In a nutshell, this course opens doors to practical skills that companies need.

Want to start a career in core Finance? Then learning Financial Modelling is your first step. Want to know why?

How to Learn Financial Modelling?

Strategies for effectively learning Financial Modelling:

Online Mode:

  • Opt for recognized platforms like Udemy or LinkedIn Learning for comprehensive online Financial Modelling courses.
  • Participate in live sessions by experts on platforms like Wall Street Prep for practical insights.
  • Explore free resources on sites like Investopedia and Corporate Finance Institute for additional learning.
  • Select courses with hands-on exercises for a practical learning experience.

Offline Mode:

  • Check local universities or institutions for in-person Financial Modelling courses.
  • Attend financial modelling bootcamps in your city for immersive learning.
  • Attend finance meetups and events to learn from professionals and expand your network.
  • Hire a personal tutor for tailored guidance and support.

Self-Study:

  • Invest in reputable books and online courses on Financial Modelling.
  • Dedicate consistent time to practicing Financial Modelling independently.
  • Utilize online modeling platforms like Wall Street Prep for self-paced learning.
  • Join forums for community support and shared experiences.

Explore more about How to Learn Financial Modelling here

Recommended Courses To Learn Financial Modelling

If you’re eager to delve into Financial Modelling, a multitude of certifications are available, but deciding where to begin can be challenging.

IMS Proschool:

IMS Proschool’s Financial Modelling Course is positioned as the most comprehensive course. It ensures you acquire fundamental knowledge and practical skills essential for roles in Investment Banking, Equity Research, Portfolio Management, Project Finance, Credit Research, and Financial Planning & Analysis, among others. Offering NSE Certification, the program stands out for its active learning approach. Financial Modelling Course Duration is 3 to 4 months. The fee (20% waiver for all IMS students) is Rs. 40,000/- (Classroom) and Rs. 32,000/- (Live Online).

Kaplan Schweser:

For an accessible and introductory option, Kaplan Schweser provides a Financial Modelling course at $199. Developed in collaboration with The Marquee Group, a prominent player in Financial Modelling and training, this course serves as a great starting point.

Training the Street (TTS):

With roots dating back to 1999, TTS extends its extensive experience in training financial services professionals to an online audience. The Essentials 10 Course Bundle for Valuation, Modeling, and Origination, priced at $500 (discounted from $1,175), offers comprehensive training.

 

Scope of Financial Modelling in India and Abroad

Financial Modelling is a vital skill for finance professionals, addressing real-world challenges. As global demand for financial expertise rises, students from diverse backgrounds, including MBA, B-Tech, CFA, and Investment Banking, recognize its value for lucrative job opportunities.

The future holds vast opportunities for Financial Modelling practitioners across various domains. In the UK, there’s a growing demand for skilled professionals in areas like Corporate Finance, Investment Banking, Mergers and Acquisitions, Risk Management, and Financial Planning.

Internationally, Financial Modelling is crucial in sectors like investment banking, corporate finance, and financial services, with employers actively seeking proficient candidates. Roles such as Financial Analysts, Portfolio Managers, and Venture Capitalists offer promising career paths for those adept in Financial Modelling.

 

Financial Modelling Salary

The salaries in Financial Modelling can vary based on factors such as experience, job role, and geographic location. To pursue a career in Financial Modelling and tap into the goldmine of opportunities in the financial sector, obtaining relevant qualifications for the current financial industry is the crucial first step.

Comparative analysis of salaries in India, the UK, and the USA

Position Level Financial Modelling Salary in India (INR/per-annum) Financial Modelling Salary in UK (INR/per-annum) Financial Modelling Salary in the US (USD/per-annum) Financial Modelling Salary in the UK (GBP/per-annum)
Entry Level ~ 5,00,000 to 7,00,000 ~ 30,00,000 to 45,00,000 ~ $50,000 – $75,000 ~ £52,849 (+ £7,063 cash compensation)
Mid-Level ~ 9,00,000 to 12,50,000 ~ 55,00,000 to 75,00,000 ~ $75,000 – $100,000
Senior Level ~ 10,00,000+ ~ 90,00,000 to 1,50,00,000 ~ $100,000+

Source: CFA UK Career Opportunities, Glassdoor, Salary data for Financial Modelling in the US as of Jan 10, 2024.

Also Read – Top 6 Financial Modeling Jobs For Freshers

FAQ’s

Financial Modelling is widely used for various purposes, including business valuation, investment analysis, budgeting, forecasting, and decision-making. It helps in analyzing financial data to make informed strategic and operational decisions.

Financial modeling is used by a wide range of businesses and organizations in a variety of industries. Some examples of businesses that might use financial modeling include:

  1. Corporations: Large corporations, especially publicly traded ones, often use financial modeling to forecast their financial performance, make strategic decisions, and communicate with investors and other stakeholders.
  2. Startups and small businesses: Financial modeling can be useful for startups and small businesses as a way to create a detailed financial plan, evaluate the feasibility of a new product or service, or raise capital from investors.
  3. Investment banks: Investment banks use financial modeling extensively in their work, including to value companies and securities, assess the risk of investments, and advise clients on financial matters.
  4. Private equity firms: Private equity firms use financial modeling to evaluate the potential returns of different investment opportunities, such as buying and restructuring a company or investing in a new venture.
  5. Hedge funds: Hedge funds use financial modeling to evaluate the potential returns and risks of different investments, and to develop trading strategies.
  6. Management consulting firms: Management consulting firms often use financial modeling to help their clients make strategic decisions, such as whether to enter a new market or invest in a new product or service.
  7. Nonprofit organizations: Nonprofit organizations may use financial modeling to create budgets and financial plans, evaluate the feasibility of new programs or initiatives, and communicate with donors and other stakeholders.

There are several ways you can learn financial modeling:

  1. Online courses: There are many online courses that can teach you the basics of financial modeling. These can range from short, self-paced courses to more comprehensive, structured online programs.
  2. Books: There are also many books available that cover the basics of financial modeling, as well as more advanced concepts. Reading these can be a good way to learn at your own pace.
  3. Classroom-based programs: Many colleges and training institutes offer classroom-based courses in financial modeling, which can be a more structured way to learn the subject.
  4. Professional certification: There are also some professional certifications available in financial modeling, such as the Certified Financial Modeler (CFM) designation. These programs often require you to pass an exam and may also involve coursework or other requirements.

Regardless of which method you choose, it’s important to be dedicated and consistent in your learning, and to practice regularly in order to become proficient in financial modeling.

Financial modeling typically requires a strong foundation in accounting principles and financial statements. This is because financial modeling involves building a numerical representation of a company’s financial situation, which requires an understanding of how to read and interpret financial statements, such as the balance sheet, income statement, and cash flow statement.

In addition, financial modeling often involves forecasting a company’s future financial performance, which requires an understanding of how different financial and operating metrics are interrelated. This can require an in-depth understanding of topics such as revenue and expense recognition, working capital management, and capital budgeting.

That being said, the specific level of accounting knowledge required for financial modeling will depend on the complexity of the model and the specific goals of the analysis. Some financial models may be relatively simple and require only a basic understanding of accounting principles, while others may be more complex and require a more in-depth understanding of financial statements and financial ratios.

The duration of a financial modeling and valuation course can vary significantly depending on the specific course and the level of detail covered. Ultimately, which duration to select will depend on the specific goals and needs of the learner.

In general, financial modeling and valuation courses can be grouped into three broad categories based on their duration:

  1. Short courses: These courses may be as short as a few hours, and are typically designed to cover the basics of financial modeling and valuation. They may be suitable for individuals who only need a brief overview.
  2. Intermediate courses: Intermediate courses may last a few days to a week. They usually cover more topics in financial modeling and valuation, and may include hands-on exercises.
  3. Comprehensive courses: Comprehensive courses may last several weeks or even months, and are typically more in-depth and comprehensive than intermediate courses. They usually cover a wide range of topics in financial modeling and valuation in great detail, and include hands-on exercises, case studies, and other learning materials.

Building a financial model of a company typically involves the following steps:

  1. Identify the purpose of the financial model: The first step in building a financial model is to clearly define the purpose of the model. This might include forecasting the company’s financial performance, evaluating the feasibility of a new product or service, or assessing the financial impact of a strategic decision.
  2. Gather data: The next step is to gather all of the relevant data that will be used in the financial model. This might include financial statements, industry benchmarks, market data, and other sources of information.
  3. Build the structure of the model: Once the data has been gathered, the next step is to build the structure of the financial model. This typically involves creating a spreadsheet or other digital tool that will be used to input and organize the data. The structure of the financial model will depend on the specific purpose and goals of the model, as well as the complexity of the analysis.
  4. Input the data: After the structure of the financial model has been created, the next step is to input the data that has been gathered. This might include financial statements, market data, and other relevant information.
  5. Develop the assumptions and calculations: Once the data has been inputted, the next step is to develop the assumptions and calculations that will be used to forecast the company’s financial performance. This might involve making assumptions about future sales, expenses, and other financial metrics.
  6. Test and refine the model: After the financial model has been built, it is important to test and refine the model to ensure that it is accurate and reliable. This might involve reviewing the model for errors, adjusting the assumptions and calculations as needed, and running sensitivity analyses to test the model under different scenarios.
  7. Use the model: Once the financial model has been built and tested, it can be used for a variety of purposes, such as forecasting the company’s financial performance, making strategic decisions, and communicating with stakeholders.

IMS (Institute of Management Studies) offers a financial modeling certification in association with NSE Academy. This certification is equivalent to a professional certification in Financial Modelling that is accepted by hiring companies.

It is important for individuals considering a financial modeling course to thoroughly research and compare different programs to determine which one is the best fit for their needs and goals.

Proschool focuses on the following aspects

  • Knowledge : Financial Statement analysis, Corporate Finance, Financial mathematics and more
  • Skills: Problem solving, Advanced Excel, Data gathering
  • Modeling techniques: Project finance techniques, Equity valuation techniques
  • Expert faculty: Hand-picked instructors with professional qualifications and experience
  • Course format: 40% theoretical and 60% application of theory (via active learning)
  • Active Learning: Focus on learning by doing. Each concept or theory is applied by students in a hands-on practical manner via case work using Excel and similar tools.
  • Delivery mode: Hybrid learning where students study concepts and theory online on Saturday and apply the same via Active learning on Sunday in classroom mode.

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