Financial modeling is vital for anyone working in finance, but especially Analysts. It’s used to determine whether raising capital, making acquisitions, business strategies, selling assets, and allocating capital in specific ways are viable options. It is also important to know in order to budget, value a business, and create financial statements. It’s used in public accounting firms, banks, investment institutions, and corporations.
In order to perform financial modelling, you’ll need to be proficient in Excel, know how to gather and format data, and understand the different types of financial modelling. These are all basic skills expected of anyone working in finance, especially Analysts.
A Financial Analyst uses financial modeling to explain or anticipate the impact of events on a company’s stock. This event could be strategy changes, business model, economic policy changes, or regulations.
An Investment Analyst uses financial modeling to educate their decision to recommend investing. They also look at stocks changes, strategies, business models, and policies. They look at the results from the perspective on investing in a company that is implementing those actions instead of the company that would be affected by those actions.
Investment Bankers and Private Equity Associates use financial modeling to inform their investment decisions. They usually rely on Analysts to do the heavy lifting of the actual modelling, but they must know how to do it themselves, too.
A Research Analyst should learn financial modeling, especially if they want to move out of the research analyst role. Understanding financial modelling can also help them do their job better and provide the proper information to Analysts so that their modeling tasks go more smoothly.