Financial Modeling – A Stepping Stone towards CFA® Program

It is possible to fly without motors, but not without knowledge and skills.”-Wilbur Wright (One of the Wright brothers).

Financial Modeling is a sure stepping stone towards CFA.  This is true. Not mere qualifications but practical skills are the tools that sets you apart in this age of cut-throat competition. Anyone who desires to make it big in the world of finance aims at a CFA® charter . However, charter without the knowledge and skill of financial modeling is just like lighting a lamp without oil. The lamp won’t burn too long this way.

Projection of financial statements and valuation is one of the basic skills that one must possess today. A charter will prepare your base but without hands-on knowledge of projection and handling financial statements on excel, you will be a financial analyst only for namesake. Hence, before you embark on your journey of being a charter, it is worthwhile to brace yourself with financial modeling skills.

Here is why-

(1) Based on Syllabus of  Level-1

A sizeable syllabus of Financial Modeling is directly based on  Level I of the CFA® Program exam which is covered practically using excel. Financial Reporting and Analysis (FRA) is a slightly challenging module and comprises 20% of weight in exams. FRA pertains to understanding the nuances of the financial statement and valuation perspectives and financial modeling is sure to prepare you for this. Through financial modeling, you will gain expertise on analysing the statements, making assumptions, the entire process of valuation, etc. This will make FRA an easier topic for you to handle in exams as well.

(2) Thorough knowledge of financial concepts

This cannot be overemphasized. CFA means commanding proficiency over financial statements and various related concepts. Financial modeling not only prepares you for linkages between P&L, Balance Sheet and Cash Flow, but also educates you about integral concepts such as Intrinsic Value, Discounted Cash Flow Analysis, Cost of capital, Sensitivity Analysis, ratio analysis etc. This way you already gain practical knowledge about the key concepts that will be taught during the course of  CFA® Program curriculum.

(3) Better preparation for interview

These days’ employers include a lot of practical assessment during the interview process.  Most of these assessment involves making a presentation of a company along with its valuation. This is the best way to test the practical skills of a candidate and the knowledge of financial modeling comes in handy there. While charter adds an edge to your profile for sure, knowledge of financial modeling is useful to demonstrate your skills in projection and valuation. It is the best possible way to convince employers about your practical expertise.

(4) Helps in identifying niche

CFA is the gateway for diverse interesting roles in the world of finance. Many times you are unable to figure out which would be the industry they would like to work upon in future. If you are an expert in financial modeling you will already have an idea of various sectors and profiles. This will help you to identify your area of interest or the niche profile you would want to build your career in. Practical experience will give you an idea of how the credit industry works, how project finance is undertaken or how the merger & acquisition industry functions.

(5) Prerequisite for profiles after CFA

The objective of pursuing a CFA is to get into Investment Banking, Equity Research or Credit Analysis where the knowledge of financial model is of paramount importance. Financial model has multiple applications. There is a particular kind of model to address each business need. Hence, whichever is your desired area of specialization after CFA, you can gain proficiency in the focused financial model and strengthen your base during the initial period itself. Doing this will enhance your level of understanding for specialized arenas.

(6) Developing analytical and decision-making skills

Strong analytical skills and decision-making abilities are pre-requisites for a financial analyst. The very objective of doing a  CFA® Program is to be a confident and highly skilled analyst and this comes when you have handled a variety of real-life scenarios. Financial modeling exposes you to various kinds of business situations and encourages you to think on your feet. Understanding the business problem, deciding the assumptions, building the model and arriving at the solution, are some of the skills that go into developing an analytical mindset right from the beginning. These skills come in handy when you are tackling the CFA paper or performing critical roles in the professional sphere.


Theoretical knowledge is incomplete without practical knowledge. Learning financial modeling skills even before beginning the CFA® Program gives you a lot more time to strengthen your profile. Not only this, you also become focused as to how to approach the exams, manage time and hone your skills on various kinds of models. A proactive approach like this in your career is a definite way to a highly rewarding professional life.


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