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What is Financial Modelling & what are the different types of Financial Models?

Financial models are a vital part of the business decision-making process. They help executives in evaluating a business’s financial health and predict its future performance. Financial models allow companies to make data-driven decisions by providing them with valuable insights. That is why the demand for a skilled chartered financial analyst is very high among companies. Organizations require their expertise to enhance their financial decisions. 

In the following sections, we will discuss financial modelling and its different types. So, read on... 

What is Financial Modelling?

Financial modelling refers to using financial models to forecast a business’s financial performance. You use the company’s historical data to forecast its future performance. 

Financial modelling requires you to prepare an income statement, cash flow statement, balance sheet, and other supporting schedules. As your model gets more advanced, you will have to use more data such as SWOT analysis, ratio analysis, and discounted cash flow analysis. 

Further, financial models help you in making various crucial decisions related to investments. They will help your decision-making process during acquisitions, raising capital, planning business growth, budgeting, and selling or divesting business units. 

What are the Different Types of Financial Models?

Financial models are primarily of 10 types:

  1. Option pricing model
  2. Forecasting model
  3. Budget model
  4. Consolidation model
  5. Sum of the parts model
  6. Leveraged buyout model (LBO)
  7. Initial public offering model (IPO)
  8. Merger model (M&A)
  9. Discounted cash flow model (DCF)
  10. Three statement model 

Each of these models has unique applications. The one you pick and use depends on the requirement. For example, the DCF model uses cash flows to find the net present value and the internal rate of return. Similarly, the budget model helps in planning the financial blueprint of the company and focuses particularly on the income statement. 

How to Learn Financial Modelling?

There are many ways to learn financial modelling. However, the most effective way to do so is by taking up financial modelling courses. Enrolling in financial modelling courses would help you learn important concepts such as ratio analysis, SWOT analysis, cash flow analysis, and financial statement preparation, through industry experts in a structured manner. Also, these courses provide you with a proper curriculum so you learn every concept step-by-step. 

Moreover, a financial analyst course teaches you the latest in-demand skills so you are up to date with market standards. Notably, Imarticus offers its Financial Analysis Prodegree program in collaboration with KPMG.

While picking a financial analyst course, it would be best to check the financial analytics course syllabus first. This would help you understand what skills it teaches you, and what you can expect from it. You can learn more about a financial analytics course syllabus here.

Financial modelling is certainly one of the most important aspects of business decision-making. Learning this skill can help you pursue an in-demand career much easier. If you are interested in becoming a chartered financial analyst, then you will have to acquire this skill. 

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About Imarticus
Imarticus Learning is India’s leading professional education institute that offers training in Financial Services, Data Analytics & Technology. We’ve successfully transformed careers of over 35,000+ individuals globally through our Certification, Prodegree, and Post Graduate programs offered in association with leading and renowned global organisations in the Financial Services, Data Analytics & Technology domain.
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