Financial Modelling

Financial Modelling refers to the process of preparing a summary of a company's expenses and incomes that helps to evaluate the impact of a future event or decision of the company or an individual. A financial model is a tool that is created in a spreadsheet to predict the future financial performance of a business or a financial instrument. Financial modelling means an exercise required for asset pricing or corporate finance. It helps in converting the behaviour of financial markets or agents into numerical predictions. Typically, the prediction is made based on the historical performance of a company, and future assumptions.

Financial analysis or financial modelling is more often considered a skill set required by an individual who wants to predict the direction of his/her finances. Financial modelling courses are imparted via the platforms such as udemy, Coursera, IMS Proschool, CFI, EduPristine, etc. One with financial modelling certifications or financial modelling skills can become a financial analyst.

Key Highlights of Financial Modelling

A key component of financial and business analysis is financial modeling, which aids experts in decision-making, strategy development, and evaluation of a company's financial performance.

• Forecasting and Projections: Creating estimates and projections of a company's financial performance is a key component of financial modeling.
• Valuation: The process of calculating a company's intrinsic value frequently involves the use of financial models.
• Scenario Analysis:Financial models allow for scenario analysis, which enables analysts to investigate how various hypotheses and factors affect a company's financials.
• Capital Budgeting and Investment Decisions:  Financial models are used by businesses to assess potential investments and capital projects.
• Business Planning and Strategy: The creation of thorough company plans and strategies is aided by financial models. 

What is Financial Modelling?

The process of developing mathematical representations or models of a company's financial status and performance is known as financial modeling. It entails utilizing a variety of tools and methods to estimate future financial results, evaluate risks, and come to wise business decisions. In order to produce estimates and scenarios, financial models often take into account past financial data, current market conditions, and management assumptions.

Spreadsheet software is often used for financial modeling, with Microsoft Excel being the most popular option. It demands competence in quantitative analysis, a solid grasp of accounting principles, and a comprehension of financial concepts. Furthermore, the quality of the data inputs, the suitability of the assumptions, and the modeling expertise all affect how accurate and reliable financial models are.

A company/individual shall use financial modelling for any (all) of the following reasons

1. Projecting raw material needs
2. Valuation of security such as futures and options
3. To know the benefits of a merger
4. Discovering market opportunities
5. Designing a roadmap to profitability
6. Forecast and quantify risk
7. To evaluate portfolio performance
8. Identify undervalued securities

Also Read: Popular Colleges for Financial Modelling

Branches of Financial Modelling

Each branch or specialized field of financial modeling caters to particular company demands and industries. The following are the braches of Financial Modelling:

• Corporate Finance Modeling: This area of study is concerned with developing financial models for use in decision-making and analysis by businesses.

• Project Finance Modeling: Models for project financing are created to evaluate the financial viability of significant infrastructure or capital-intensive projects.

• Merger and Acquisition (M&A) Modeling: The financial effects of mergers, acquisitions, and other company combinations are examined using M&A models.

• Valuation Modeling: Models of Value determine the inherent worth of businesses, possessions, or securities.
• M&A: models are used to analyze the financial impact of mergers, acquisitions, and other business combinations.

Basic Concepts of Financial Modelling

A collection of fundamental ideas are involved in financial modeling; these ideas act as the foundation for developing precise and trustworthy financial models. The following concepts are in Financial Modelling such as:

• Time Value of Money (TVM): A fundamental idea in finance is the temporal value of money (TVM), which states that the value of money fluctuates over time as a result of factors like inflation and opportunity cost.
• Forecasting: Financial modeling entails making projections about how much money will be made in the future based on past performance, market trends, and management assumptions.
• Sensitivity Analysis: Sensitivity analysis entails examining how changes in important variables may affect the results of the financial model.

• Data Cleaning and Validation: Before creating a financial model, it is crucial to clean and validate the data that will be used. 
• Assumptions: Financial models are constructed using a variety of future assumptions, including those related to capital expenditures, cost structures, tax rates, and revenue growth rates.
• Net Present Value (NPV): Net Present Value (NPV) is a method for estimating a project's or investment's profitability.
• Model Documentation: The financial model must be properly documented in order to maintain transparency, promote collaboration, and help with upcoming modifications or adjustments.

How has Financial Modelling evolved over time?

Financial modeling has changed greatly throughout time as a result of technological improvements, alterations in company procedures, and the complexity of the financial markets.

• Improvements in Computing Technology:Technological developments in computing: The widespread use of robust computers and spreadsheet programs like Microsoft Excel has transformed financial modeling.
• Increased Data Availability: Financial modelers now have access to a wealth of financial and economic data thanks to the digital age's increase in data availability.
• Sophistication of Financial Instruments: Financial instrument sophistication has increased with the emergence of sophisticated financial products like derivatives and structured products.
• Integration of Macro-Financial Factors: In contemporary financial models, macroeconomic issues and their effects on a company's financial performance are frequently taken into account.
• Regulatory Requirements: More reliable and transparent financial models are now necessary due to increased regulatory scrutiny and reporting criteria. 

How is Financial Modelling being used in different industries?

A flexible tool, financial modeling is used in many different industries to enhance risk assessment, strategic planning, and decision-making. Here are some examples of how various industries use financial modeling:

Industry	Application
Banking	Financial analysts work in banks, insurance companies, and other businesses. Financial analysts at banks guide businesses/individuals in decision making about expending money to attain maximum profit.
Equity Research Firms	Financial modelling experts at equity research firms assess the performance of securities. Equity research firms provide specified services using financial modelling and suggest a profitable plan to the customer for an excellent ROI.
Credit Rating Agency	Financial models by credit rating agencies are used for the valuation of a business. Financial modelling helps in strategic planning to calculate the cost of new projects, decide on budgets, and allocate required resources. These agencies analyse the risk of the borrower based on their business, financial, industrial and management risks.
Consultancy Firms	Several businesses require financial modelling services to get help with budgeting. Business requires services from consultancy firms for strategic planning, forecasting future expenses and revenue, mergers and acquisitions.
Real Estate Companies	In real estate financial modelling, a professional is responsible for the analysis of a property from the perspective of an owner or lender. The analysis will be then used to determine whether or not the owner or lender should invest, on the basis of risks and potential returns
Project Finance Companies	Project Managers are able to build and analyze project finance models using financial modelling skills. Finance modelling shall provide the tools required to build and analyze transparent cash flow to upscale the project.

An individual can use financial modelling to make his/her personal financing decisions and reduce risks related to finances.

Also Read: Risk Management course

Key terminologies and jargons in Financial Modelling

The key terminologies and jargons used in Financial Modelling are given as below:

• Assumptions: The inputs or variables used in a financial model to forecast future performance are known as assumptions. Growth rates, inflation, interest rates, and other factors are examples of these.
• Gross Margin: The amount, stated as a percentage of revenue, that separates sales from costs of items sold. It reveals a company's capacity to keep production costs under control.
• EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization, or EBITDA, is a metric used to assess a company's operational performance and reveals its profitability before taking into account non-cash expenses like interest and taxes.
• WACC (Weighted Average Cost of Capital):The average cost of financing a company's assets, as determined by the costs of debt and equity, is known as WACC (Weighted Average Cost of Capital).
• Expenses: A company's operational expenditures include things like salaries, rent, utilities, and more.
• CAGR (Compound Annual Growth Rate): Sensitivity analysis involves evaluating how changing specific assumptions or variables in a financial model may affect the results.

Career in Financial Modelling

After completing a financial modelling degree/diploma/certification, one can advance his/her career as a financial analyst, investment banking associate, equity researcher, etc. An intellectually challenging and financially lucrative career in financial modeling is possible. Candidates can give insights through data analysis, predictions, and valuation, financial modeling professionals are in high demand across a variety of businesses.

Is Financial Modelling the right domain for you?

To decide whether one possess the right skills for pursuing Financial Modelling and if it is the right career choice for the candidate, they must meet the following requirements:

• Problem Solving Skills and able to think critically
• Detail-oriented and analytical in solving financial issues
• A strong interest in data analysis and finance
• Interest in Programming language
• Communication Skills
• Interest in learning financial regulations
• Able to adapt to difficult circumstances and solve complex problems.
• An understanding of accounting
• Knowledge about Finance and Valuation
• Proficiency on Excel
• Knowledge of financial statements
• Having a logical framework for problem-solving
• Attention to detail
• Ability to extract a large piece of data into a simpler format
• Excellent presentation skills

Required Skills and Education for Finacial Modelling Jobs

There is no specific eligibility condition to pursue financial modelling courses. Some institutes/platforms offer financial modelling certifications after a candidate has completed class 10th, while some offer certifications in financial modelling after a candidate has completed class 12th.

In order to pursue a financial modelling course, aspirants must have an idea about the required skill set along with a basic knowledge of finance. Candidates with a CA or MBA degree will most likely get along with the financial modelling curriculum and syllabus. Besides, CFA candidates also have an adequate understanding of finance to pursue financial modelling diploma/certification.

1. Financial Modeling & Valuation in Excel - Complete Course

Course Suitability: For those who wish to make a transition in Financial Modelling

Course Provider: Udemy

Fees: INR 649

Explore: Financial Modelling & Valuation in Excel- Complete Course

     2. Advanced Financial Modeling and Valuation

Course Suitability: For finance students, keen to build a career in Corporate Finance, M&A, Investment Banking, Equity Research

Course Duration: 6 hours

Fees: INR 1,280

Also Read: Advanced Financial Modelling and Valuation

     3. Build Financial Models & Value Companies The Easy Way

Course Suitability:

Course Duration: 44 hours

Fees: INR 2,499

Also Read: Build Financial Models & Value Companies The Easy Way

     4. Financial Modelling with MS Excel Advanced

Course Suitability: MBA students, Commerce graduates, Investment Bankers, Business Analysts and Professionals into Corporate Finance

Course Duration: 15 hours

Fees: INR 8,672

Also Read: Financial Modelling with MS Excel Advanced

Most of the institutes offer certification courses majoring in financial modelling. Besides the institutes, some MOOC platforms also offer financial modelling courses virtually. The table below mentions the courses along with the fee for the courses.

Name of Institute/ Course Provider	Name of Course	Financial Modelling Course Fee (in INR)
National Stock Exchange Academy	Certification in Online Financial Modelling	10,620
Udemy	Beginner to Pro in Excel: Financial Modeling and Valuation	8,640
IMS ProSchool (NSE Certified)	Financial Modelling certification	20,000 - 40,000
EduPristine (BSE Certified)	Financial Modelling and Project Finance with Excel School	23,100
Coursera (with Wharton University of Pennsylvania)	Business and Financial Modeling	Free with Coursera Plus Subscription

Also Read: Office Suite Courses

Potential Career Paths in Financial Modelling

As per candidate's interests, skills and aspirations, they can choose various career paths after completing a course in Financial Modelling. Here are some potential job pathways after completing Financial Modelling:

Financial Modelling Career Path
Portfolio Manager	Management Consultant
Risk Analyst	Private Equity Analyst
Financial Analyst	Investment Banking Analyst
Investment Banking Analyst	Corporate Financial Planning and Analysis (FP&A) Manager
Quantitative Analyst (Quant)	Real Estate Financial Analyst

Jobs in Financial Modelling

Candidates can focus in various domains such as climbing the corporate ladder, or even switching to similar sectors like data analysis, strategy, or investment management depending on your abilities, interests, and the businesses they're drawn to. Candidates will be able to navigate and succeed in their chosen professional path by constantly improving their abilities, networking, and keeping up with industry trends.

Job Opportunities in related to Financial Modelling

These are a few typical positions in Financial Modelling which candidates can consider while deciding a career path in this field.

Job Position	Job Description
Investment Banker	Financial models are used by investment bankers for a variety of transactions, such as mergers and acquisitions, initial public offerings (IPOs), and capital raising
Financial Analyst	Modeling is a tool used by financial analysts to evaluate the financial performance of a business, sector, or investment.
Corporate Finance Manager	In this position, experts create financial models to aid in a company's strategic planning, budgeting, and forecasting.
Private Equity Analyst	Models are developed by private equity analysts to assess possible returns on investments, conduct due diligence, and assess investment opportunities.
Risk Analyst	Risk analysts use models to evaluate monetary hazards and create risk management techniques including stress testing and scenario analysis.

Job Market Trends and Growth Potential

A growing number of businesses are turning to Financial Modelling because of its scalability, flexibility, and affordability.

• There is an increase in demand for decision making which is driven and backed by data.
• Fianncial Modelling also integrates Automation and Technology in order to build models and enhance accuracy of the system.
• Financial Modellers must also adopt cross-disciplinary skills and create comprehensive models for increasing efficiency of companies.
• Ensure Risk Management due to volatility of financial markets and ensure compliance with the regulatory changes. 
• Financial Modelling also ensures continued skill development of the financial modellers who provide curated solutons to various industries.

Salaries of Financial Modelling Professional

The salary of Financial Modelling professional may be significantly influenced by a variety of factors, including the success and profitability of their businesses, the industry they operate in, the stage of their company, as well as unique characteristics like experience, aptitude, and market demand. The following is a list of the salaries as per their level of job position:

The table below provides salaries as per job description, the data is taken from Ambitionbox.com

Job Role	Starting Salary (Annual)*
Financial Analyst	5.07 LPA
Associate: Investment Banking	10.09 LPA
Equity Research Associate	6.78 LPA
Equity Analyst	6.50 LPA
Research Associate	5.50 LPA
Finance Associate	7.35 LPA
Investment Analyst	9.84 LPA
Risk Analyst	8.50 LPA
Credit Analyst	INR 7.00 Lakh
Junior Financial Analyst	INR 3.60 Lakh

Also Read:

• Career as a Stock Broker
• Career as a Credit Analyst
• Career as a Financial Analyst

Top Companies hiring Financial Modelling professionals

Financial modelling experts are required in almost all industries from real estate to consultancy to banking. Here are some of the top recruiters offering jobs based on financial modelling skills.

Top Recruiters
Bank of America	Morgan Stanley
CRISIL	Genpact
S&P Global	IDBI Life Insurance
Cognizant Technologies Solution	Accenture
JP Morgan Chase	Ernst & Young

Also Read: 

• Chartered Wealth Management
• MBA in Finance
• Chartered Accounting
• Certified Financial Planner

Financial Modelling Syllabus

Typically, the financial modelling syllabus varies across different certification providers. A basic financial modelling course shall have the following elements.

Syllabus
Understanding the Basic Features of Excel	Mathematical functions: SUM, MAX, AVERAGE, MEDIAN, MIN Logic Functions: IF, nested IF, CHOOSE, AND, OR Formatting: fills, copy formulas, paste special Sorting Data (By Values, By Cell Color, By Font Color, By Cell Icons)
Understanding Advanced Features of Excel	Database Functions in Excel Creating Charts Multiple and Indirect Functions (VLOOKUP+If, VLOOKUP+Match Index+Match Scenario Manager Goal Seek, Data Table Sensivity analysi
Advanced Features of Excel for use in practical real life situations in finance and data  analysis	Using Solver for decision making Using solver for complex planning scenarios Using solver for resolving capital allocation under constraints in a capital budgeting scenario Pivot table Sales Analysis Profit and loss reporting and budgeting Slicer Summarizing Data with Pivot Tables by changing value field settings,  using pivot option and pivot chart
Time value of Money	Financial functions: PV, FV, RATE, NPV, IRR Amortization schedule DCF and Capital Budgetin
Core Financial statements	Working capital schedule Depreciation schedule Other long-term items schedule Equity schedule

A financial modelling course might have other subjects/ topics covered under the curriculum. However, the above-mentioned topics are generally included in all courses and certifications for financial modelling.

What will you learn in Financial Modelling?

After pursuing this course, You will learn how to develop mathematical representations of a company's financial performance and future expectations through financial modeling. This involves analyzing past data using a variety of methods and tools, developing reasonable hypotheses, and predicting future financial results. The following things one can learn in Financial Modelling:

• Forecasting: Making predictions about a company's potential financial performance is known as financial modeling. 
• Excel Proficiency:The main tool for financial modeling is frequently Microsoft Excel.
• Assumptions:Assumptions about variables like revenue growth, spending trends, inflation rates, and more are the foundation of financial models. 
• Financial Statement:You will be capable of producing accurate income statements, balance sheets, and cash flow statements.
• Sensitivity Analysis: Uncertainties must be taken into consideration in financial models. To determine the most important factors, you'll learn how to perform sensitivity analysis to evaluate how changes in assumptions affect the results.

Important Financial Modelling Frameworks

There are a number of well-known Financial Modelling frameworks that are frequently employed by several organizations to satisfy their unique business needs. The following is a list of these frameworks:

Framework	Details
LBO Model (Leveraged Buyout)	The analysis of the financial viability of purchasing a business with a sizable amount of debt is done using this methodology.
DCF Model (Discounted Cash Flow)	A company's value is determined using DCF by calculating the present value of its expected future cash flows. Forecasting free cash flows, choosing an appropriate discount rate (often the cost of capital), and calculating present value are all steps in the framework.
Three-Statement Model	Building an integrated model comprising the income statement, balance sheet, and cash flow statement is a vital component of this conceptual framework.
Merger Model	This methodology is employed to assess the financial effects of a merger between two businesses. It takes into account things like the purchase price, the financing arrangement, synergies, and the combined entity's financial results.
Comparable Company Analysis	Using this paradigm, a company's value is determined by comparing it to other comparable publicly traded businesses.

Challenges and Opportunities

Due to its complexity and vital significance in financial industry decision-making, financial modeling brings both opportunities and challenges. Here is a summary of some of the main opportunities and obstacles related to financial modeling:

Challenges in Financial Modelling Industry

The challenges in the Financial Modelling industry are given as belows:

• Time Consuming: Financial modelling is a time consuming process; thus, organisations at their early stages tend to skip the use of financial models
• Inadequate: In many cases, financial models have proven to be inadequate in the future. Thus, many organisations do not prefer to use financial modelling for evaluation
• Limited to present data: Financial modelling does not take into consideration soft factors including socio-economic factors. A financial model will only use the historical aspects of finances of an organisation.
• Data Quality and Availability: The accuracy and dependability of the data are critical to financial models. It can be difficult to ensure data availability and quality, particularly when working with historical data, industry-specific indicators, and macroeconomic variables.
• Model Complexity: Managing and updating financial models can be difficult and error-prone as they get more complicated to account for different business scenarios and factors.

Growth Opportunities in Financial Modelling Industry

There are immense growth opportunities in the field of Financial Industry:

• Helps in Informed Decision Making
• Scope of financial modelling is increasing overtime; therefore, more job opportunities in future
• Financial modelling is an important tool enabling businesses to manage their future risks.
• Financial modelling helps in better representation of a company's financial statements
• Using financial models, stakeholders of a company can evaluate a future funding strategy

Read More: Have a look at some courses related to financial modelling

Investment Banking	Financial Risk Manager
Chartered Financial Analyst	Cost and Management Accountant

Following are the most popular Financial Modelling Colleges in India. Learn more about these Financial Modelling colleges (Courses, Reviews, Answers & more) by downloading the Brochure.

Following are the most popular Financial Modelling courses, based on alumni reviews. Explore these reviews to choose the best course in Financial Modelling.

Following are the most popular Financial Modelling UG Courses . You can explore the top Colleges offering these UG Courses by clicking the links below.

Following are the most popular Financial Modelling PG Courses . You can explore the top Colleges offering these PG Courses by clicking the links below.

Following are the top exams for Financial Modelling. Students interested in pursuing a career on Financial Modelling, generally take these important exams.You can also download the exam guide to get more insights.