Are financial modelling skills indispensable to investment banking professionals?
To work in investment banking, you need to demonstrate that you have a range of skills and knowledge that are differentiated or in demanding careers, such as financial modelling skills. Moreover, the investment banking sector deals with the financing of companies through equity or debt. This includes work such as buying and selling companies in whole or in part, IPOs, joint ventures, or risk hedging.
To achieve this, investment banks must work directly with the management of the companies involved, as well as with investment funds or public financing facilities. This requires people who want to work in investment banking to have a multidisciplinary profile with extensive financial knowledge, agility in financial modeling, and good interpersonal and communication skills. Here we tell you 7 reasons why financial modelling skills are indispensable to investment banking skills.
What is financial modelling?
The term financial model refers to an abstract-mathematical version of a company's financial reality in a set of spreadsheets.
A model is thus a mathematical, simplified, and idealized version of the reality of a company. The model works out simple versions of real factors and translates them into spreadsheets that facilitate the execution of mathematical calculations on the data.
The purpose of a financial model is to represent reality as simply as possible while still being a realistic reflection of the company's situation, and thus to enable the company's financial statements to be projected on the basis of current and historical data.
Here are the 7 main reasons why financial modelling skills are indispensable to having investment banking professional skills:
- It allows you to give a transparent picture of the overall situation of a company.
- It helps to project the impact of any changes in the company's structure or business.
- Since financial models are designed taking into account historical data in addition to the structural situation, the model allows for the definition of scenarios with variables that reflect changes in the entire structure depending on their value.
- It is an integrated planning system that contains the profit and loss accounts, the balance sheet, and the calculation of capital flows with their respective dependencies. In this way, the model makes it possible to project the development and consequences of a change scenario for any given decision. This is an indispensable tool when making decisions affecting the structure of a company, as it makes the impact of any decision transparent.
- All companies need a business plan to organize themselves, but from the moment external financing comes in, whether, through credit or investment, the financial model becomes an essential planning tool.
- Investors only invest their money if they are convinced that the company will be able to repay loans and interest in the future, thus providing a return on their investment, which is why a transparent, complete, and correct presentation of the financial situation, especially the projected income, capital, and liquidity situation, is indispensable.
- Apart from their use in all matters relating to financing, financial models are also used for business management.
Why Imarticus for a CIBOP online course?
Financial modelling, i.e. the design and planning of a financial model, is mainly used in the preparation of a business plan or in the representation of a company's financial structure. The aim is to translate the reality of the company into an abstract model that provides a transparent picture of the overall situation of a company.
In Imarticus we offer Certified Investment Banking Operations Professional courses for those who need to start from scratch. If you have any questions, please do not hesitate to contact us to have more information on investment banking courses.