Importance Of Financial Modeling In Excel | Example

Example of Financial modeling In Excel for dummies one of the most multipurpose and hot finance skills in today’s scenario. Financial models play a vital role in most major business decisions. Generally, the financial model is prepared whenever any company is planning to expand their business, evaluating particular project (also called project finance modeling), Merger or acquisition of particular (target) company and future forecasting of financials. For startup companies, the preparation of financial Model is important for further business planning and for big organizations Financial Modeling In Excel plays an important role in long-term planning, expansion, development, cost planning etc. Commonly financial models are prepared in excel spreadsheets.

Example Of Financial modeling In Excel – Learning

So, let’s understand what is meant by financial Modeling In Excel? In simple words, financial modeling is the process of systematic forecasting of company financials. A financial model is prepared by financial analysts, investment bankers, equity research analyst and other finance professionals.

There is some basic financial modeling In Excel term that you need to understand.

• Forecasting– Forecasting means Company’s expected financial position in the future.
• Assumptions – To build a financial model you need to make some Hypothetical assumptions. Now, what does it means? Assumptions are used to present a condition that is not necessarily expected to occur but is consistent with the purpose of the projection.
• Financial statement Analysis – Financial Analysis means analysis of financial statements like income statement, Balance sheet, Cash Flow Statement using various techniques.

Financial Modeling In Excel – if you are new to accounting, you may want to learn basics of accounting, without which you will not be able to progress in Financial Modeling In Excel

Example Of Financial modeling In Excel – Who does this?

Generally, financial modeling is required for the purposes of business decision. A financial model is prepared by Beginners:

• • Investment Banker
  • Financial Analyst
  • Equity Research Analyst
  • Credit Research analyst
  • Other Finance professional.

Steps to Building a Financial In Excel For Dummies

Generally, the financial modeling in excel process starts with a collection of basic information and put into excel spreadsheet. The first step towards building a financial model is a collection of data. A financial analyst would collect all historical data from company’s annual reports, management discussions, transcripts and various research reports.

Thereafter he will perform basic analysis of financial statement using different methods such as

• Horizontal and vertical Analysis
• Ratio Analysis

After doing basic analysis, he would prepare various schedules for the purpose of forecasting of future financials for example

• For forecasting of future sales —He/she prepare Revenue built up.
• For forecasting of future cost — He/she prepare cost schedule.
• For forecasting of future Depreciation/Amortization—He/she prepares Depreciation and amortization schedule like that he/she prepares Debt schedule, shareholders equity schedule, Working capital schedule and so on.

Financial Modeling In Excel – If you are new to Financial Modeling In Excel, you can learn more about Financial Modeling and also take our professional Financial Modeling In Excel Training

Excel Skills are must for Financial Modeling In Excel For Dummies

If you are the basic learner of the financial model and you don’t know about Microsoft excel then it’s very difficult to prepare the financial model. Its mandatory to have knowledge of excel.  If you know excel, then it would be very beneficial!

Also following are some Basic Excel Functions you must know.

• AVERAGE Function calculates the average of a set of numbers.
• COUNT Function counts the number of cells that contain numbers
• MIN and MAX Function calculate the minimum and maximum of a set of values.
• PRODUCT Function multiplies the numbers and returns the product.
• SUM Function adds up a set of numbers.
• IF Function – The IF function introduces decision making into a spreadsheet. Depending on whether or not certain criteria are met, you can have the function place different results in one or more cells in the worksheet.
• Excel Chart– A chart often makes it easier to understand the data in a worksheet because users can easily pick out patterns and trends

A Typical financial Model should be:

• Easy to understand;
• Trustworthy;
• Easy to Follow;
• Emphasis on important issues.

There are some basic important points which should be remembered while preparing the financial model. Like clear Understanding of aims and objectives of your model, build a simple structure, for example, your financial model can be divided into various schedules like depreciation schedule, amortization schedule, working capital schedule etc. also try to avoid hard coated figures.

Industry Usages of a Model

• Project Evaluation
• Valuation (DCF, Relative)
• Budgeting
• Startup Plans
• Strategy Decision
• Expansion
• Merger / Acquisition
• Project Evaluation
• Valuation (DCF, Relative)
• Budgeting
• Startup Plans
• Strategy Decision
• Expansion
• Merger and Acquisition

Example Of Financial Modeling In Excel – financial model can be used in majority of the areas in Finance like Equity Research, Investment Banking, Credit Research etc. One must try to learn this skills as all core jobs in Finance will require you to learn this core Financial Modeling skills

Example of Financial Modeling In Excel – Infographics

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Recommended Articles

Here are some articles that will help you to get more detail about the Financial Modeling In Excel so just go through the link.

1. Basic Excel Formulas
2. SUMIF Function 
3. Excel Charts Graphs
4. Excel Export to PDF