What is Financial Modeling ?
Financial modeling is the process of creating a mathematical representation of a company’s financial performance and future projections. It typically involves building models in tools like Excel to simulate how changes in variables (such as revenue, costs, interest rates, or market conditions) affect a business’s financial outcomes. Key Characteristics: Purpose : To analyze, forecast, and support decision-making for investments, budgeting, valuation, and strategic planning. Components : Income statement, balance sheet, cash flow statement, and sometimes additional schedules (e.g., debt, depreciation). Applications : Company valuation (e.g., DCF analysis) Scenario and sensitivity analysis Mergers and acquisitions Capital budgeting Methods of Financial Modeling: There are several methods of financial modeling, each serving different purposes and providing unique insights. Here are some of the most common types: Three-Statement Model : This is the most basic financial model, linking the i...