What Can You Do with Financial Modeling Skills?

Explore the wide array of uses for financial modeling skills, from career opportunities such as Investment Banking, Venture Capital, and Real Estate Development, to personal finance management. Familiarize yourself with how financial models drive informed decisions in business growth, mergers and acquisitions, investment strategies and more.

Key Insights

  • Financial modeling is a critical tool utilized to forecast business performance and draw future financial statements based on past performance and growth assumptions.
  • Professions that heavily rely on financial modeling include Investment Bankers, Venture Capitalists, Commercial Bankers, and Real Estate Developers.
  • Financial models facilitate various business strategies such as projecting sales growth, decision-making, anticipating mergers and acquisitions, executing internal investments, and evaluating credit risks.
  • Beyond professional scenarios, financial modeling also serves personal usage by aiding in managing personal finance and making smarter investments.
  • Real Estate Developers can leverage financial models to anticipate market fluctuations affecting home buying, while companies can use these models to evaluate credit risks.
  • Noble Desktop provides several courses in financial modeling, including Financial Modeling Bootcamp and Financial Analyst Training Program, which can be taken in-person or live online.

Financial modeling involves creating a spreadsheet that forecasts how a business will perform in the future. This prediction is made based on how the company has performed in the past, as well as any assumptions the organization has pertaining to its expected performance. The process of creating a successful financial model requires accounting for relevant variables like growth and risk assumptions so their impact can be interpreted. If you are unsure whether learning financial modeling is right for you, consider reading on to find out more about the myriad uses of financial modeling tools and techniques. Not only will learning financial modeling open up a number of new career opportunities, but it also has many potential personal uses.

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. 

Read more about what financial modeling is and why you should learn it

Professional Uses for Financial Modeling 

Financial modeling has always played an integral role in the field of finance. Now, financial modeling skills also help in a range of other careers. It’s used by Investment Bankers, Venture Capitalists, Commercial Bankers, and Real Estate Developers to provide financial forecasts, insights, and recommendations. The following sections will provide a brief overview of how these professionals work with financial modeling to perform everyday work tasks.

Projecting Sales Growth

One of the most common financial models professionals create is those that predict sales growth. Sales growth pertains to any fluctuations (increases or decreases) in the previous quarter’s gross sales when compared to the quarter that preceded it. Stock Analysts also use financial modeling to explore potential growth; they create models based on any potential factor that has the potential to affect growth. 

Making Decisions

The main reason individuals create financial models is to help them make more informed decisions. Firms create financial models to help find ways for their business to grow, raise or allocate capital, budget, value a business, or divest business units. These models typically include elements such as income statements, assumptions and drivers, a cash flow statement, a balance sheet, schedules, sensitivity analysis, valuations, and various visual elements like charts and graphs. These models are used to drive important business decisions and help an organization decide which choices to execute to reach the best solution. Financial models can account for the grade of risk if a certain decision were implemented, as well as to build a financial statement that accurately depicts how the organization performs financially.

Anticipating Mergers & Acquisitions

When faced with a huge professional decision, such as whether to acquire a separate business, expand the one you have, or merge with another organization, a substantial amount of money is involved. This is where financial models come in. A strong financial model allows Analysts to anticipate future outcomes to ensure the plan they select will yield the most money during the mergers and acquisitions process.

Executing Internal Investments

Another way financial modeling helps professionals is by providing insights into how to grow their business while still making a profit. A strong financial model can provide insights to help you determine the amount of profit from your business you can feel comfortable paying yourself each year versus how much you may wish to reinvest to ensure steady growth. Financial models can shed insights into the appropriate pay rate to give yourself based on how much growth you’d like the business to see over the course of the next decade. This can help you decide whether to pay yourself more or reinvest profits for a more successful business venture in the years ahead.

Providing Real Estate Insights

Although financial models are most commonly used in the finance sector, they have applications for a range of other professionals as well. Real Estate Developers deal with many financial variables, like financing, cash flow, and leverage, each of which can be facilitated by creating financial models. These models can also anticipate market fluctuations that may lead to an increase or decrease in home purchasing. 

Evaluating Credit Risk

A significant risk is involved when a company decides whether to offer credit to an existing company or a startup. To avoid problems, the risks must be thoroughly addressed. Performing a detailed analysis using financial models helps an investor decide whether a third party should be lent credit or if this may be a risky investment.

Other Uses for Financial Modeling

In addition to its myriad uses in the financial sector, as well as its applications in real estate and other professions, financial modeling can also be used outside of a work context. Those who know how to create financial models can apply them to their own projects for greater insights into their current financial standing, as well as to prepare for future bills or investment opportunities. 

Managing Personal Finance

Personal financial modeling involves handling your own money, such as any income you generate and expenses you accrue, as well as your savings and investments. Creating a personal financial model can provide valuable information to evaluate your current financial situation. The insights it provides are presented on a spreadsheet so they can be easily accessed and used. You can even create a data visualization in Excel, such as a chart or graph, to visually depict how your investments have performed over time, how your student loan debt has decreased, or how much money you should be setting aside to retire comfortably in fifteen years. By providing a financial model with details like how much money you have coming in and going out, as well as what you currently own and owe, you can gain useful information about how better to invest your assets and where you may be spending too much money.

Investing Smarter

Many individuals invest some of their income in the stock market. However, not everyone is a skilled Investment Analyst, making it challenging to track how your investments have performed over time. Learning to create a financial model can help you see how each of your investments has fared in the past, as well as how they are currently doing. This knowledge can be useful in helping you decide whether to continue forward with the same investment plan you currently have or to make changes and explore new options.

Learn Financial Modeling Skills with Noble Desktop

Noble Desktop offers several excellent learning options for those interested in financial modeling. Noble’s Financial Modeling Bootcamp covers the basics of accounting, finance, and corporate valuation. Noble also offers a Financial Analyst Training Program that provides instruction on how to create a full valuation model. Noble has financial modeling training courses in-person and live online. Those interested in working with Excel for data modeling can attend the hands-on Excel Bootcamp. Noble’s FinTech Bootcamp is also available, which teaches learners how to create machine learning models and work with programming languages SQL and Python for financial data analysis.

Key Takeaways

  • Financial modeling is used to help professionals evaluate the value of their business and how it compares to competing businesses. Financial models have applications for weighing risks and possible outcomes of economic activities so businesses can create more effective plans.
  • Many professionals create financial models. Those who work in the finance sector, such as Investment Bankers, Venture Capitalists, and Commercial Bankers, all work with financial models. Real Estate Developers also create financial models to make more informed business decisions.
  • Those who create financial models are able to make smarter investment decisions, evaluate credit risk, anticipate mergers and acquisitions, and project sales growth. Financial models can also be used for personal projects like budgeting.
  • If you’re interested in learning how to create financial models for professional reasons or your personal use, Noble Desktop offers comprehensive financial modeling training in the in-person and live online format.

How to Learn Financial Modeling

Master financial modeling with hands-on training. Financial modeling is a technique for predicting the financial performance of a business or other type of institution over time using real-world data.

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