Upload
lakshman
View
213
Download
0
Embed Size (px)
DESCRIPTION
Financial Modelling
Citation preview
Copyright© - IMS Proschool Pvt. Ltd.
Financial Modeling
Introduction
Financial Modeling
Session - 1
This section briefly describes financial modeling and its application. The section will help you to get an overall perspective on how building this skill can help different finance professionals.
Copyright© - IMS Proschool Pvt. Ltd.
What is a Financial Model?
• It is a representation for numerical flow of any financial data.
• It is a decision making and planning tool for finance professionals.
• It is performed with the help of a spreadsheet or some dedicated financial software.
2
Who makes financial models and why?
It is widely used in financial decision making and planning processes to answer questions such as:
• Is the stock undervalued or overvalued?
• Whether to make investment in the project or not?
• Should loan be given for a project or not? What is the rating of the
project or company?
Various finance professionals who use financial modeling are:
• Bankers
• Investment Bankers
• Project Finance professionals
• Equity Researchers
• Financial Planning Advisors
• PE & VCs
• Hedge Funds
Copyright© - IMS Proschool Pvt. Ltd. 3
What does a model look like?
• A models can be very basic , perhaps a single excel sheet OR
• It can be 30-40 sheets or even multiple workbooks with several macros and can be fairly detailed and complex.
• It largely depends on the end use that you have in mind.
• If used for internal analysis it may remain a simple Excel worksheet or the final output may be a well done report.
Example…
Copyright© - IMS Proschool Pvt. Ltd. 4
Attributes of Good Models
• Realistic: Assumptions used in the model should be realistic to get realistic output else a common saying prevalent among
financial modeling professionals is “Garbage in, Garbage out”.
• Error-Free :Many financial decisions are based on models, hence it should be error free for non-erroneous decision.
• Flexible: Changes are inevitable, hence the model should be flexible enough to incorporate any level of changes.
• Easy to use: The model should make it easy for a user to understand the movement of figures.
• Easy to understand: Should not be a one man’s language.
Prerequisites for Learning Financial Modeling
• Knowledge of MS Excel
• Basics of Economics
• Accounting Fundamentals
• Financial Management
• Knowledge of Financial Market