Financial modeling is the task of building an abstract representation (a model) of a real world financial situation. This is a mathematical model designed to represent (a simplified version of) the performance of a financial asset or portfolio of a business, project, or any other investment. Critical Thinking and Analytical Skills: Critical thinking and analytical skills are two of the most important skills required of any manager. These skills are a by-product of your financial modeling training. Preparation of a financial model requires analyzing different options critically. Every model that you create hones these skills further. Business Plan Preparation: Another necessary prerequisite for a manager is the preparation of diverse reports such as business plan reports, project reports and revenue/ cost projection reports. Financial Modeling provides you with relevant skills that are helpful to understand business plans for a range of sectors. Excel Proficiency: Excel is the staple tool for all quantitative analysis across industries and across departments. In Financial modeling, trains you in Excel right from the start of the course ensuring that you gain reasonable proficiency by the end of the course. Decision Making: The daily life of a manager is replete with situations that involve decision making. Financial Modeling helps you in quantifying the situations and hence aid you in decision making by comparing different scenarios. Theory to practical: In the past, you may have learnt various topics such as financial statements, accountancy, economics, budgeting and financial management, theoretically. Financial modeling elucidates the practical applications of these theories.

1. Financial Modeling
Srinivas Reddy .M

2. FM: Definition
• A financial model is the summary of a company’s
performance based on certain variables that
helps the business forecast future financial
performance

3. FM: Background
• Financial modeling is designed to represent the financial
portfolio of a firm, project, assignment or any other
investment or performance of the financial assets of a firm.
• The model consists of performing various calculations about
historic data and making recommendations for future
actions.
• It helps summarize specific events of the company for the
end user to take decisions regarding future plan of action
and deciding alternatives.
• It is the task of building a model or an abstract
representation of a real world financial situation.
• In simple terms, Financial Modeling is interpreting the
historical data to make future decisions.

4. FM: Uses
• Financial modeling helps us to analyze overall financial
health of a company.
• The measurements and skills used to construct the
model include:
• knowledge of the company’s operations, accounting, corporate
finance, and excel spreadsheets.

5. FM: Goals
• The aim of financial modeling is to evaluate risk
for various purposes. So it should be focused on
key cash-flow drivers.
• On the basis of this financial model, companies
and investors can evaluate the company.
• It conveys the assumptions and conclusions related
to the financial health of the firm.

6. Process of FM
• Financial information about the company is gathered
and its performance is analyzed using various financial
parameters.
• This analysis is useful in building financial model for
the company which is inevitable for projecting future
financial performance of the company.
• On the basis of this financial model, companies and
investors can evaluate the company.
• This financial analysis is very useful in various
investment areas such as equity research and banking
industry that assist equity research firms, project
finance, financial advisory firms and investment
bankers to make correct financial decisions.

7. FM: Basic Model
The basic financial model revolved
around the Income Statement, and
the Model Drivers (which we can
call Assumptions) that are used to
project future figures on the Income
Statement.
We start off with historical financials
(typically, around 3 years worth),
calculate key ratios based on those
financials, and use them as part of a
process to determine which drivers
(assumptions) to use in projecting
those financials going forward:

8. FM : Basic Model

9. Financial Modeling : Steps
• Input historical Financial Statements (Income Statement,
Balance Sheet).
• Calculate key ratios on historical financials (e.g., Gross Margin,
Net Income Margin, Accounts Receivable/Payable Days, etc.).
• Make forward-looking assumptions for projecting the Income
Statement and Balance Sheet based on these historical ratios
and any additional considerations.
• Build a Statement of Cash Flows (tying together Net Income
from the Income Statement and Cash from the Balance
Sheet).
• Tie Ending Cash Balance from the Statement of Cash Flows
into the Balance Sheet, and Balance the Balance Sheet.
• Calculate Interest Expense and tie this into the Income
Statement.

10. Thank You

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• 15 Hours of live training
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time scenarios
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• Free templates
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