10 career-rich benefits of learning financial modelling
In today’s corporate climate, financial jobs are getting increasingly competitive. There is no shortage of candidates applying for the same job as you. Recruiters have their pick of prospective employees to fill the position. So what are they looking for? Companies need knowledgeable, capable professionals who come with a specific set of skills. Financial modelling is one desired skill that gets your resume on the shortlist. Or even a call for an interview by the HR manager. It is a valuable, reliable method that helps many businesses grow. It is also why financial modelling analysts are in high demand. Many established professionals such as investment advisors, tax specialists and accountants got a head start in their careers by learning this essential skill.
It is not uncommon to see financial modelling used extensively in sectors like investment banks, credit rating agencies, financial KPOs and equity research.
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Why financial modelling is relevant in 2022
Financial modelling uses spreadsheet software, such as MS Excel, to create a statement that showcases the company’s past, present and possible future in numerical values. It helps companies collate their financial data, analyse the findings and make significant business decisions. It is a cost-effective method that evaluates potential ideas and estimates risks.
It can also help create sustainable solutions to different monetary problems within the company. Most importantly, it drafts efficient financial statements that present the company’s fiscal health to the outside world. A vital skill when the business is looking at mergers and acquisitions, trying to raise capital or attracting new investors.
Professionals who use financial models:
- Equity research analysts need to create effective statements that help them decide on a valuation
- Financial planners create models to help them make predictions about potential investments
- Investment bankers and advisors who are working on projects related to mergers and acquisitions or raising capital need investment modelling
- Credit analysts need financial modelling methods to figure out potential loans
How to create financial models
- Start by collecting the company’s financial information between two specific dates.
- Record the date in a spreadsheet format
- Make the required calculations as per the demands. You can work on the growth rate, margins, expenses, etc.
- Analyse the findings to see what changes or modifications are needed going ahead
- You can make predictions based on the data above
10 benefits of financial modelling
1. Helps to make accurate business predictions
A company’s history can help to forecast the future. A financial statement or report is a concise documentation of the past and present profits, losses, expenses, assets and liabilities. It tells a story about how a company operates. It can highlight which decisions worked well for the business and which didn’t. It enables business heads to critically examine the data, analyse the details and come to a logical conclusion. An effective financial model can shine a light on problems, highlight important areas and suggest the way forward.
2. A practical tool to understand and evaluate a business
Numbers never lie. If you want to comprehend how a company operates, take a sneak peek at its financial statement. A well-designed model can offer beneficial insights into the functioning of a company. It helps financial analysts take a 360-degree look at the different aspects of a business. You begin to unravel trends and patterns. You understand how specific actions can increase productivity, while others may need tweaks or changes. Corporations that work with financial models have more awareness about their business than those that don’t.
3. Needed to raise capital or equity
You need a detailed and accurate financial statement that proves you are worthy of additional investment. You need to provide real-time information to show your current financial situation. Financial modelling can provide an accurate business valuation to appeal to investors and banks for loans or funds.
4. Periodically reviews the performance of the company
Most companies release financial statements every quarter to showcase their performance and profits during that time. You collect the raw data and organise it effectively to make it legible to others. You also have to do it within the fixed deadline. It can be quite a tedious procedure, taking up a lot of time and effort. A financial model helps to ease some of the pressure. You can create a specific format that is used when needed. It also becomes easy to structure the financial information, taking less time and work.
5. Helps to minimise risk
Companies are wary of making uninformed decisions which can lead to a financial crisis. A model can help identify and isolate risk factors that threaten the company’s performance. It carries out due diligence in investigating potential harmful impacts. You can use different tools and techniques to predict and measure future outcomes for the business.
6. Offers values and outputs
Over a period of time, a business generates a lot of financial data. The information must be structured and maintained internally across departments or externally through sales or vendor payments. Once you enter the inputs into the Excel format, you can use the functions and formulae in the spreadsheet to make calculations and estimations required by the business. Financial models also help reach solutions quicker, especially in cases where the analysis may be complex and time-consuming.
7. Provides clear communication to shareholders
Financial models can be an efficient instrument for department heads and upper management to monitor the organisation. They also inform and update all shareholders and investors on the company’s progress. They communicate the highs and lows of the company in black and white. In the case of new businesses, a startup financial model can help convey essential information to investors.
8. Financial modelling and valuation
When companies require an accurate account of their total worth, a financial model can help create statements that reflect the entire monetary value of the business. You can arrive at the exact amount of free cash flow generated over a period of time. It can assess the debts, assets, liabilities, etc. and present them on paper clearly and coherently.
9. Financial modelling is used by many certified professionals
Those with an academic background in accounting and finance can benefit from using this software. As a CFA holder, you can use the financial modelling method to arrive at company valuations. Chartered accountants working in non-traditional departments can use the spreadsheet system for project finance modelling. Bankers can also make models to determine which businesses to fund. Equity research analysts can examine a company’s financial condition and present a report using the method. It is quite a versatile tool that offers value across many financial departments.
10. Helps businesses grow
A financial model presents clarity when analysing the inner workings of a company. It can reveal areas of high profit, highlight unnecessary expenses and suggest insights on where to direct further funding. It can also offer a cost-benefit analysis when pursuing new ventures.
IMS Proschool’s financial modelling course
One of the premier coaching institutes, Proschool was the first to list financial modelling as a course in India. Today, the learning centre offers an excellent program that thoroughly trains students in the functions of the spreadsheet system software. The focus is on core concepts such as financial statement analysis, financial math, corporate finance and equity modelling. Here are some course highlights:
- Prepares you for a wide range of entry-level jobs across the financial world
- The syllabus teaches students to find solutions to real-world problems
- You learn how to build models from day 1
- The experienced faculty members are industry experts
- The program lasts for three months
- On completion, you receive the NSDC + Proschool certification
- You can choose to study in a live classroom or opt for the online learning format
A financial model is a highly competitive corporate tool used extensively in the financial industry. A certified financial modelling course can help you get a leg up in your chosen profession. Once you know how to operate the software and the various functions, you’ll find the software will become an integral part of your job. You’ll use it to make decisions, forecast numbers, analyse company operations and monitor the cash flow. Whether you have just started working or are already a seasoned financial professional, this is the perfect skill to advance your career.
Find out more about one of the best financial modelling courses here