Financial modelling is one of the most in-demand skills in the finance sector. From financial analysis to business valuation, financial models are versatile and customisable. Financial modelling is useful in predicting the future sustainability of a company. It gives meaningful insights into a company's financial performance and helps company officials make strategic decisions.
The changing job profile of an accountant has shifted the focus from traditional accounting to a more research-based and analytical approach. Moreover, fierce competition in the modern-day finance world makes it imperative for accountants to upskill and keep themselves relevant in the job market.
Read this article to learn how learning financial modelling can help push your accounting career to new heights.
What is financial modelling?
Financial models are spreadsheets which analyse the performance of a company. They make forecasts and predictions based on the information provided to them. The process of the creation of these models is known as financial modelling.
Financial modelling is performed using versatile spreadsheet applications like MS Excel. Programming languages like C++ and Python can be used for customised financial models.
Notably, financial modelling involves two main steps. First, a spreadsheet with revenue and expenditure data is created. This data is then analysed to simulate a company or stock's future market prospects.
The Three Statement Model, Sum Of Parts Model, Discounted Cash Flow Model, Budget Model, and Sensitivity Analysis are examples of financial models.
What are the benefits of financial modelling?
The goal of financial models is to investigate a company’s competitiveness in the market. It uses company data and identifies relevant metrics. Financial models are thus used as decision-making tools in the world of finance.
Some benefits of financial modelling are as follows:
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Forecasting
Financial models allow a company to have a glimpse into the future. Using historical data, they are capable of simulating future cash flow patterns. The models can also forecast company growth, revenue patterns and possible expenditures.
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Making valuations
Financial modelling can predict the value of a new project or venture even before it starts. They can help determine the value of a project or a business in the market. Finance executives use the data from financial models to make informed decisions. They can also compare a company's performance with its competitors.
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Financial analysis and budgeting
Budgeting and financial analysis are areas where financial models find wide application. Certain models can give an idea of the probable costs and profits of a new business venture. They help identify profitable projects to which financial officers can allocate resources.
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Portfolio management
Making smart investments are key to the success of any business venture. The stock market can help a company raise capital for future ventures. Financial models help identify stocks which can generate maximum revenue with minimal risk. The flexibility of financial models caters to a company's specific financial goals.
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Risk management
Additionally, financial models can analyse the risk factors of investments and portfolios. Simulations of market turbulence or policy changes are possible through certain financial models. This allows finance officers to anticipate challenges and prepare for them beforehand.
Why should every accountant learn financial modelling?
Financial modelling is a skill every accountant should have. Here’s why:
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Accessible skill to learn
Financial modelling is a rare finance skill one can learn with minimal investment. To start, an individual needs a device with a spreadsheet application like MS Excel. It is a free-to-use software perfect for practising financial modelling. Its flexibility and widespread use make learning financial modelling in MS Excel convenient.
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Complements existing accounting skills
Having accounting skills is a prerequisite to understanding and implementing financial models. It helps them provide a comprehensive analysis of data and financial statements.
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Broadens the scope for career growth
Financial modelling is a practical skill with applications in an array of sectors. Learning this skill can help accountants add value to the enterprise they work for. They can even make career moves and aim for higher-paying positions. Financial analyst, forex analyst, and project finance manager are some of the career options that accounting professionals can choose post earning a certification in financial modelling.
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Makes you stand out
In a competitive field like accounting, having practical skills is a must. Companies always look for people with unique skills to complement their theoretical knowledge. Completing a course in financial modelling will catch prospective employers' eye. It thus increases the hiring potential of an individual.
Conclusion
Making financial models is the first step in any business venture. Accountants with expertise in financial modelling make great contributions to their companies. Knowledge of accounting and financial modelling enhances the skills possessed by finance professionals. They climb the steps of the corporate ladder and grow to become valuable assets to the company.
Do you want to add financial modelling as a skill in your resume? If yes, look no further than Financial Analysis Prodegree by Imarticus Learning. This online certificate course prepares finance professionals for a career in financial analysis.
