What is Financial Modeling
Financial modeling is the practice by which an organization conceptualize a financial picture of some, or all, aspects of the firm or given securitythat can be used to forecast a model of a security or a financial mechanism or an organization future financial performance based on the historical performance of the company. The model is typically characterized by performance calculations and makes recommendations based on that evidence. It may also précis specific events for the end user such as asset management returns or the , or it could help precise market trend, such as the Fed model
Financial modeling is required for below circumstances
• Business is in need of extra funds (debt or equity) or not
• How an organization reacts with different financial situations or market conditions
• Which process organization should make the investment for better returns
• Identify and analyzing the risk level
• Identifying strategic and Detailed Business Plans to find strengths and weaknesses.
• Automate reoccurring tasks to reduce planning cycles and increase forecasting accuracy.
• Identify the key profitable products/services, customers and sales channels.
• Analyze business situations, and closely see the financial effect of alternative courses of action.
• React with agility to changing market conditions.
• Promote decision making and strategic planning throughout the organization.
Financial Modeling Breaking Down
The objective of the financial modeling is to accurately forecast the price or upcoming revenue performance of a company. A financial model attempts to identify and analyze all the variables in a specific event. Quantify the variables and automate these variables.
Benefits of Financial Models
• Financial models are used for many reasons. The best common of which is:
• Organization valuation,
• Prepare scenario for calculated planning,
• Cost of investment designs for corporate finance projects, investment planning and allocation of organization resources.
• Financial models are also used in the creation of predictions and trends compotators and create industry comparisons.