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What is Financial Modeling?2023-05-30T11:35:26+00:00

What is Financial Modeling?

Financial Modelling has been gaining huge prominence recently, with more and more global companies hiring financial professionals to optimise their company’s growth. Having core and deep knowledge in finance allows professionals to evaluate the potential profitability of investments, manage cash flows more effectively, and plan for the future growth of large organisations. By making informed decisions, a financial expert provides a comprehensive view of a company’s financial health and further sets the company on a growth trajectory.

What is Financial Modeling?

Financial Modelling is an essential course in finance that empowers students with core financial skills and methods in business financing to analyse, assess, and strategise the operations of any organisation. 

It involves forecasting future financial performance based on historical data and other assumptions, such as revenue, expenses, and cash flows. Financial models evaluate investments, develop budgets, plan for future expenses, and measure the performance of a business. 

Financial Modeling can be availed of by undergraduate students, postgraduate students, and students who just passed their 12th examination. We will further discuss it comprehensively in the blog later.

Applications Financial Modelling

  • Investment Banking / Equity Research

Financial Modeling is the basic tool for fundamental analysis and valuations. Investment bankers use it to arrive at a valuation in M&A or fund raising transactions. Equity Analysts use it to value stocks and come up with buy/sell/hold recommendations.

  • Project Finance/Credit Rating

Financial models help bankers, credit analysts to project future revenues and costs and to make an informed judgment about a project’s viability. They are then able to decide if they should extend loans or what the credit rating of a project or company should be.

  • Corporate Finance

Financial Modeling is used by companies to assess their own finances and projects.  It is hence an input in creating funding plans for corporate projects.

  • Entrepreneurs/Private Equity

Entrepreneurs use Financial Models to present their plans to potential investors as much as to plan their strategies. Running different simulations can often be an important tool in avoiding potential risks.

What are the Types of Financial Models?

Every business leverages some type of financial model to run its business. A well-developed financial model allows businesses to optimise their financial performance, identify potential risks and opportunities, and nourish better organisational growth. 

There are various models when it comes to financial modelling, and each model has its attributes and characteristics to satisfy different business needs. Some of them are mentioned down below:

Types of Financial Models

Attributes
Valuation Modelling It involves forecasting a company’s future performance and estimating its value based on the projected results.
Strategic Modelling It is an impact-based business model where the impact of different strategic decisions and initiatives on a company’s performance is evaluated, and decisions are formulated.
Risk Modelling It involves modelling the financial risks associated with a particular investment or project.
Asset-Liability Modeling It is a form of modelling where the interactions between a company’s assets and liabilities are evaluated to measure their financial risk.
Capital Budgeting Modeling It includes modelling the expected return on a particular capital expenditure.
Merger and Acquisition Modeling This type of modelling calculates the impact of a merger or acquisition on a company’s financial performance.
Financial Planning Modeling This involves modelling the financial needs of a company in order to create a viable financial plan.

A Comprehensive Look at the Financial Modeling Course

Financial Modelling is a highly prominent course that equips students with the fundamental knowledge and practical skills needed in core financial subjects like

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

As mentioned above, the course can be availed of by different categories of students. Whether you are a postgraduate, undergraduate, or just passed your 12th examinations, you can pursue Financial Modelling. 

Here are a few details about the Financial Modelling certification for different categories of students:

Financial Modeling Course Duration 

The duration of the FM course depends upon the type of certification the candidates have enrolled for. Here is the course duration for different FM certifications:

  1. Financial Modelling : It covers core knowledge of FSA, Corporate Finance, etc., and is a fundamental course in finance of 3 months duration.
  2. Certificate in Equity Research: It is another vital financial course you can opt for. It is a 6 months course that helps master your skills in FM subjects, M&A, and sectoral models.
  3. Certificate in Investment Banking: It is another vital financial course you can opt for. It is a 6 months course that helps master your skills in FM subjects, Risk Management & Investment Baking Operations.

Eligibility for Financial Modelling

As the FM certification offers different courses for students with different educational qualifications, the eligibility criteria also differ from one another. The following criteria must be fulfilled by students enrolling for financial modelling course:

Syllabus for a Financial Modelling Course

The syllabus for Financial Modelling varies for different courses and certifications that the students opt for. Here is the syllabus for different courses offered in Financial Modelling:

Certification  Syllabus
Financial Modelling 
  1. Problem-Solving in Excel
  2. Financial Statement Analysis
  3. Corporate Finance
  4. Project Finance
  5. Equity Modeling
Certificate in Equity Research Everything from Financial Modeling Course plus,

  1. M&A and LBO
  2. Equity Research
Certificate in Investment Banking Everything from Financial Modeling Course plus,

  1. IB Operations
  2. Risk Management

Why is Financial Modelling Gaining Importance and Prominence in 2023?

Financial modelling is becoming increasingly important in the current business environment. As companies strive to understand their financial performance, the demand for financial professionals is tremendously growing. In 2023, financial modelling skills are even more in demand as companies turn to financial models to make better business decisions.

Here are some reasons why you must consider pursuing a course in Financial Modelling in 2023:

  • It is a Practical Course Offering Deep Knowledge of Finance & Business Economics

Financial Modelling is one of the most prevalent courses in finance. It helps students develop a deep understanding of financial concepts and provides a platform for learning about financial instruments and their valuations in businesses. It also provides a framework for understanding the different ways to structure and finance a business which is a key requirement for most companies today. 

  • Financial Modelling Facilitates Accurate Business Predictions

Companies are always eager to gain insights into their business analytics. Financial Modelling offers many such tools that are capable of examining vital company data and generating forecasts and predictions for the business. It helps businesses to stay in line or ahead of their competitors. Yet, the demand for more and more financial professionals with financial modelling skills is the need of the hour. 

  • It is a Significant Tool Used for Raising Capital or Equity

Financial Modelling is a course that encompasses all the financial aspects of a business. A great capability you gain with FM is providing accurate business valuations to companies and organisations. When you provide insights and precise business valuations based on real-time data to your clients, they will have no problem investing in your business.

  • FM Provides Valuable Insights on Business Performance

Financial Modelling helps organisations gain visibility into the financial health of their business. It includes tracking expenses, monitoring cash flow, analysing expenses, and understanding financial trends. 

Apart from that, Financial Modelling can also help businesses identify areas of potential cost savings, areas of risks, and growth opportunities. That is why a course in Financial Modelling makes you skilled to be a part of any organisation in the world. 

  • It Helps Minimise the Risk Factor for Businesses

FM is an exceptional tool that helps businesses minimise risk by ensuring they have sufficient working capital, efficient financial systems, and clear financial goals. These three elements together create the backbone of a robust financial system. 

Hence, by pursuing FM, you will learn the tools and techniques to master these three financial areas, which will further help predict and measure future business outcomes. With such skills in the real financial field, companies would be looking forward to taking your assistance.  

Learn More Benefits of Financial Modelling!

Discussing the Scope of Financial Modeling in India and Overseas

Financial Modelling is considered a core skill for all finance professionals. The expertise you gain on financial tools and methods in FM makes you competent to solve real-world financial challenges. 

Besides, the growing number of businesses worldwide has developed an underlying need for more financial employees. That is why most students today, even after pursuing courses like MBA, B-Tech, CFA, Investment banking, etc., are learning FM to earn good job positions.  

The scope for FM in future is extensively vast. There will be many jobs in Equity Research, Investment Banking, Financial Analytics, Business Risk Consulting, and various other financial fields. 

In India, Financial Modeling is a growing field with demand for professionals in the areas of:

  • Corporate Finance 
  • Investment Banking
  • Mergers and Acquisitions 
  • Risk Management 
  • Financial Planning 

Overseas, Financial Modelling is extensively used in investment banking, corporate finance, and financial services. Employers are increasingly looking for candidates with financial modelling experience. Financial Analysts, Portfolio Managers, Venture Capitalists, etc., are some common job positions you earn after FM. 

How Much Will Financial Modeling Get You Paid?

Financial Modelling salaries usually vary depending on experience, job title, and geographic location of a person. In India, the average salary of a Financial Modeling Associate is around Rs 5.3 LPA, while an experienced financer can earn even up to 20-25 LPA.  

However, the global salaries are much more lucrative, with the UK’s average Financial Modeling expert earning up to £34,131/yr, while in the USA, the average is around $64,233 annually. 

Entry-level financial modellers in the USA typically earn between $50,000 – $75,000 per year, and the numbers go higher as you gain experience in the field. 

How to Pursue a Career in Financial Modeling?

The financial sector is a goldmine right now, awaiting as many financial professionals as possible to evolve it into an even bigger market. To become a professional financial individual, the first step is to obtain relevant qualifications for the current financial industry. 

The best way is to pursue a course in Financial Modelling by a reputed and reliable institution like IMS Proschool. 

IMS Proschool offers one of the most exclusive certifications in the Financial Modelling field that will help you gain swift skills and gain better job positions at a higher level. IMS has trained over 15k+ students in FM who are working with some top institutions of the world. 

The Financial Modelling courses designed by IMS Proschool have a 60% practical course structure that is delivered using a case study-based methodology. You can get in touch with us to find detailed information about the course.

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

FAQ’s

Financial modeling is a process used to create a numerical representation of a financial situation or scenario. It is typically used to forecast the performance of a business, project, or investment, and can be used for a wide range of purposes, including:

  1. Planning and budgeting: Financial modeling can be used to create a detailed budget or financial plan for a business, project, or investment. This can help to identify potential risks and opportunities, and to set goals and targets for the future.
  2. Decision making: Financial modeling can be used to evaluate the potential financial impact of different decisions or scenarios. For example, a company might use financial modeling to compare the potential returns of different investment opportunities, or to assess the financial impact of expanding into a new market.
  3. Valuation: Financial modeling can be used to estimate the value of a business, project, or investment. This can be useful for a variety of purposes, including mergers and acquisitions, initial public offerings, and private equity investments.
  4. Risk assessment: Financial modeling can be used to assess the risks associated with a particular investment or business venture. This can help investors and decision makers to understand the potential downside of a particular opportunity, and to make informed decisions about whether or not to proceed.
  5. Communication: Financial modeling can be used to communicate financial information to stakeholders, such as investors, lenders, and employees. It can help to clearly and concisely present the financial implications of different decisions or scenarios.

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 National Skill Development Corporation (NSDC) and National Stock Exchange of India (NSE). 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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