Financial modeling is the process of summarizing an organization’s earnings and expenses using a spreadsheet. This information is then used to understand the impact of a future decision or event. A robust financial model offers a numeric snapshot of an organization’s past and current operations so that it can make forecasts for the future. Have you ever explored all of the things financial modeling can do?Financial models have a range of applications in industries such as finance, where they are used for tasks such as measuring stock performance, allocating capital, budgeting, business valuation, and forecasting.
Here, you’ll learn more about the careers that benefit from financial modeling and how it can enhance your professional life. Regardless of your overall goals, learning financial modeling is a valuable and impressive skill to add to your resume.
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.
Common Professional Uses for Financial Modeling
Financial modeling has always played an essential role in the field of finance. Now, more jobs outside of finance require financial modeling skills. Many finance professionals, such as Investment Bankers, Private Equity Professionals, and Research Analysts, use financial modeling. The following are some of the professions in which financial modeling skills are a must:
- Investment Bankers create financial models for various tasks, such as evaluating mergers and acquisitions and the long-term impact of compounding debt.
- Careers in private equity involve creating financial models for a leveraged buyout (LBO).
- Individuals who work in real estate development must account for a range of variables, like financing, cash flow, and leverage. Financial modeling can help manage these variables.
- Those who work in commercial banking use financial modeling when handling deposits or loans.
- Equity Research Analysts create reports for bank clients pertaining to equity investing. Before creating a report, an Equity Research Analyst has to analyze publicly traded companies. Financial modeling plays a vital role in this analysis.
- Venture capital companies provide companies at an early stage of development with the necessary capital for growth. When deciding which companies deserve funds, Venture Capitalists rely on tools like financial modeling to inform their decision-making process.
- Another career in which financial modeling skills can play an important role is for those who work in a startup. One of the main issues facing startups is relying on an operating model with insufficient cash flow to make it from one round of funding to the next. Startup employees with a financial modeling background can ensure their organization doesn’t encounter this common obstacle.
Why Learn Financial Modeling?
Financial modeling is a useful skill for businesses across industries. Those with the training to create better financial models are critical to helping their business grow and mitigate risk.
In particular, these models have a range of applications for those working in finance. The following are just a few reasons why learning to create sound financial models can help you professionally:
Financial Modeling Can Create a Blueprint for an Organization
A strong financial model can serve as a blueprint of sorts for a business. It provides an outlet for entrepreneurs where they can record their ideas for the future of the business and flesh out a variety of considerations, such as how quickly the business may grow, how it will make money, and what expenses need to be budgeted for. A sound financial model can help provide answers to these questions. In addition, since creating a financial model can be a work in progress, it can be tweaked as those within an organization plan, prototype, and test a service or product.
Financial Models Help with Team Growth
One of the benefits of working with financial models is that they are both forward-looking and backward-looking. For a company to reach its goals, it must have sufficient people power to perform successful marketing and sales and produce a valued product or service. In addition, those within an organization must know when it’s best to execute a business plan and evaluate whether the business is growing at the rate of the plan. With the help of financial modeling, a company can avoid situations in which they suddenly realize they need to hire six new sales representatives this month. They can instead devise a more effective hiring strategy that takes place over months.
Communicating with Stakeholders
Not only are financial models used by CFOs, but they’re also an excellent tool for all organizational stakeholders to stay aware of plans. Investors, in particular, appreciate seeing a company’s vision clearly articulated and expressed. In addition, financial models with the most up-to-date numbers can deliver essential insights to other stakeholders, such as startup advisors, who can customize advice about the direction in which a business is going. Even internally, employees benefit from financial models because they are helpful for understanding where a business is headed and when to start networking for new hires.
Financial Modeling Helps Time Fundraising Initiatives
Any organization that has to raise capital knows that timing is everything. Waiting too long to fundraise can be dangerous because there’s no guarantee the initiative will be successful, whereas raising too much money can present the risk of unnecessarily diluting company shares. A financial model is vital for startups and other businesses to help them pick the right time to start raising capital. These models can identify the best time to secure an investment partner and when it’s time to stay the course and continue to grow.
How to Start Learning Financial Modeling
If you’re interested in learning more about financial modeling, a variety of in-person and live online study options are available from top educational providers. In-person financial modeling classes are an excellent option for extroverted learners who thrive in traditional classrooms. These hands-on classes provide a computer lab with the most up-to-date software. They are also a great way to network with other learners who are studying financial modeling. Courses are taught by expert instructors, who are available to answer questions as they arise and provide guidance on complex financial theories.
For those interested in studying financial modeling in a live environment but who don’t want to waste time or money commuting to and from campus, live online financial modeling courses are also offered. These classes provide the same quality of education as in-person study and access to an instructor in real-time but can be completed remotely from the comfort of your home or office. Participants in live online financial modeling classes complete real-world assignments and receive hands-on training from instructors with industry experience, just as they would in the classroom setting.
For individuals who need to balance their study of financial modeling with other commitments, such as full-time work or travel, self-paced coursework is for you. Unlike in-person and live online study, on-demand financial modeling classes are pre-recorded. Students can access the content at any time and from any location. Students can pause and rewind videos, which can help facilitate note-taking. Although it may be tricky to master complex financial modeling concepts like nested functions or VLOOKUP, self-paced courses are a good option for beginners looking to get started with financial modeling. In addition, self-paced material is a more affordable option. Some are even available for free from top providers.
For those who want to learn more about the stock market, Noble Desktop’s Stock Market Investing Fundamentals is a great place to start. This hour-long video is a great resource for investing fundamentals, such as what stocks and bonds are, how they are priced, and the basics of valuation. Noble also has more than 100 resources devoted exclusively to financial modeling. Noble’s Financial Modeling Training Resources & Tutorials provide a wealth of knowledge about stock options, capital markets, and foreign exchange. Noble’s Finance & FinTech YouTube playlist can also help you master specific financial modeling concepts and skills. You can also search for Financial Modeling classes close to home.
Read the full guide on how to learn financial marketing.
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.
- Financial modeling offers stakeholders a snapshot of how an organization has performed in the past and how it’s doing now. This information can then forecast what is likely to come in the future.
- There are many internal and external benefits to creating sound financial models. They provide a blueprint for an organization and help teams grow. They also can help with the timing of fundraising initiatives.
- Financial models can also clearly articulate a company’s vision, which is vital to investors.
- You can receive comprehensive financial modeling training through an in-person or live online course with Noble Desktop.