Like many aspiring Investment Bankers, you might want to learn financial modeling but worry that it will take too much time. Financial modeling is considered a challenging skill to learn, even for those with a background in finance. It can take years of experience to create sound financial models. Of course, this timeframe depends on several factors. Keep reading to see how you can learn financial modeling and some resources to help speed the process along.
What is Financial Modeling?
Financial modeling is the process of evaluating a company’s past performance to predict the likelihood of various financial outcomes. Those who create financial models rely on financial forecasts to do so. The assumptions in a forecast are played out using the organization’s financial statements to predict how various statements may look in the future. Since these models are based on financial statements, they are typically generated monthly, quarterly, or yearly. It’s common for financial models to be constructed using manual data entry in an Excel spreadsheet.
Financial modeling is a valuable tool for estimating how a business or a specific project will perform based on relevant factors, as well as risk assumptions and growth, then evaluating their impact. This process helps to present a concise understanding of the variables used to make financial forecasts. Those who create financial models either build them from scratch or work with existing models, making changes based on newer data that’s become available since its creation. Because financial situations are complex and can change quickly and rapidly, financial modeling helps to create a detailed understanding of the different components.
Read more about what financial modeling is and why you should learn it.
What Can You Do with Financial Modeling?
Without well-executed financial modeling, any business operation would be analogous to a ship floating aimlessly in the sea with no navigation system. Although one could use gut instinct to steer the ship in the correct direction, there would be no guarantee that this course would be accurate. The more sound a financial model is, the less unnecessary risk a business will likely encounter. And the less likely it will be to drift aimlessly.
Financial modeling has numerous applications across industries. Strong financial models are the backbone of many businesses and are a critical component to help them continue to grow and mitigate risk. Financial models provide a way to perform a detailed analysis of all possible financial outcomes of a business decision. These models seek to avoid loss as well as increase profits.
Financial modeling is a powerful tool for a range of financial analysis tasks. It can help an organization budget for the future and analyze the company’s performance against goals and targets. It also can be used for business valuation. Financial models allow individuals to compare one company’s performance against its competitors. It is often used to analyze financial statements, ratios, and capital structure, as well as to estimate financial metrics for new projects. Not only are these models imperative for solving problems, but they are used to make decisions about future outcomes. Some of the many decisions financial models can help with are estimating a company’s projected growth, organizing its budget, choosing investments, deciding between acquisition or merger, and deciding which projects should be prioritized.
Average Time it Takes to Learn Financial Modeling
The finance field is complex, and financial modeling is viewed as one of the most challenging tasks in this field. It isn’t easy to specify an exact timeframe for how long it may take to create a specific model because the level of detail varies significantly from one model to the next. Generally speaking, the more time you spend on a model, the more successful the model will be.
Whereas some models may require several months of work, in other scenarios, it may be possible to create a high-level model in just a few days. However, the assumptions would likely be estimates because there was insufficient time to validate them with stakeholders. While the numbers would be accurate in a quickly constructed model, the calculations would likely be rough, and the presentation of the numbers would be straightforward, with no extravagant formatting or colors.
When looking more broadly at the process of financial modeling, it can take years to become familiar with how to spot hidden assumptions, as well as with the level of difficulty needed to create a successful financial model. Not only does it require training to learn how to craft a forward-looking and backward-looking model, but the process must then be captured using different forms of technology so that it’s reusable.
Several factors contribute to the speed at which you learn to create financial models. Knowledge of Excel and accounting are essential to creating financial models. So are soft skills such as problem-solving and attention to detail. The following is a breakdown of several factors that contribute to how quickly you will learn financial modeling:
Familiarity with Excel
Microsoft Excel is one of the most-used tools for creating financial models. Excel spreadsheets are popular for forecasting a company’s financial performance into the future. Because of how complex financial modeling is, each organization has a unique set of assumptions and calculations. Since Excel is considered the most customizable and flexible spreadsheet tool, it’s often used for financial modeling. Whereas other software tends to be rigid or too specialized for some companies’ financial modeling needs, Excel is largely considered a universal tool.
Prior knowledge of accounting can be a tremendous asset for those tasked with creating financial models. Some of the many accounting concepts needed to make financial models are revenue recognition, depreciation, accruals, and matching principles. Individuals with experience with financial statements may also find it easier to acquire modeling skills since they will need to know how to read, dissect, and recreate them.
Attention to Detail
Not only does financial modeling require hard skills like spreadsheets and accounting knowledge, but this process also involves several soft skills. One such skill is attention to detail. The act of creating a sound financial model requires an eye for detail. You will have to handle a large volume of data and may be asked to create a complex model with these numbers. Attention to detail ensures that important variables aren’t overlooked when creating models. It also ensures that underlying assumptions are accounted for; failing to do so can be detrimental to the model and lead to inaccurate forecasts.
Level of Difficulty, Prerequisites, & Cost
The field of finance can be complicated to understand, and financial modeling is considered one of the most challenging tasks in this field. Unlike other branches of finance that are specifically backward-looking or forward-looking, financial modeling has to look both ways simultaneously. In addition, there are many hidden assumptions the individual creating a model may not be aware of and, therefore, cannot be completely accurate.
Another contributing factor to how difficult it is to perform financial modeling is the level of detail that has to be built into the model. In an ideal scenario, a decision-maker would approach the information with as much granularity as possible, and the model would allow the user to drill down data from the aggregate level to the granular. It is up to the Financial Modeler to create this ability. This means they must fully understand how the numbers work on a micro and macro level. In addition, to be a successful Financial Modeler, it’s essential to be an expert working with technology to convey the process as a reusable model. For this reason, those who perform financial modeling must wear many hats and have expertise in various fields.
Financial modeling is a process that involves a variety of skills and tools. Those who create financial models must have an understanding of finance and accounting and a grasp of how the economy works. In addition, one of the most widely used programs for financial modeling is Microsoft Excel. This spreadsheet application is available as part of a subscription that includes other Microsoft 365 apps, such as Word, PowerPoint, Teams, and OneDrive. Microsoft 365 Business Basic is available for $6/user/month. If you want to explore Excel before committing to buying a subscription, Microsoft offers a free Excel trial.
Read more about how difficult it is to learn financial modeling.
Watch a Free Financial Modeling Online Course
Not ready to dive into an entire course? If you’re looking for an overview of financial modeling, the good news is you can get started learning for free online. Noble Desktop offers a range of short YouTube clips to help learners start working with financial modeling. These videos are each only several minutes long and offer insights into topics like Foreign Exchange,
Interest Rates and the Fed, and Understanding Terminal Value. Noble also provides over 100 free financial modeling tutorials on its Training Resources & Articles page. Learners can browse topics like stock options, the stock exchange, and a liquid market, among others.
In addition to the free resources provided by Noble, other top educators also offer free content devoted to financial modeling. Udemy’s Introduction to Financial Modeling is a free course that teaches participants how to build a simple integrated financial statement model. Coursera also has several free financial modeling classes and tutorials available. One option is their Business and Financial Modeling Specialization, a beginner-friendly course that takes approximately six months to complete. Those enrolled receive instruction on how to create quantitative models, how to use spreadsheets to map and predict data, and how to measure and manage risk.
Read more about free financial modeling videos and online tutorials.
Learn Financial Modeling with Hands-on Training at Noble Desktop
Noble Desktop offers several excellent learning options for those interested in studying financial modeling. Noble’s Financial Modeling Bootcamp covers the basics of accounting, finance, and corporate valuation. Those enrolled in this hands-on class work with Excel to create a discounted cash flow model. Students who don’t have a background in accounting or finance will be sent a short guide on terminology before class starts. All participants should have intermediate Excel proficiency as a prerequisite.
Noble’s Financial Analyst Training Program provides learners with instruction on pertinent corporate and financial concepts and how to create a full valuation model. This intensive program teaches core Excel skills, like how to work with PivotTables and shortcuts, as well as advanced Excel techniques, including cash flow projection tools and Goal Seek. All students will create an integrated, three-statement financial model based on current financial data.
Noble also offers financial modeling training courses in-person and live online. Those interested in learning more about how to use Excel for modeling can attend the Excel Bootcamp. In addition, FinTech courses such as Python for Data Science Bootcamp, Algorithmic Trading With Python, and FinTech Bootcamp are also available. Noble’s FinTech Bootcamp provides hands-on training from expert instructors in creating machine learning models, using programming languages like SQL and Python to analyze financial data, and working with various types of data, such as integers, strings, and floats. One-on-one mentoring and the option of a free course retake is included for all participants.
- The time it takes to learn to create financial models varies depending on the individual and their prior training. For most, it takes years to master this skill.
- The time involved with creating specific financial models also varies, depending on the project and complexity. Whereas some models are created in just a few days when estimates are used, it’s common for the process to take months to complete.
- The speed at which you learn to create financial models depends on several factors, such as your background working with Excel, your prior accounting experience, and soft skills, such as attention to detail.
- Comprehensive financial modeling training is offered from in-person and live online courses with Noble Desktop.