Why you need to learn financial modelling if you work in finance

Why you need to learn financial modelling if you work in finance


Ever heard of the term "financial modelling"? If you work in finance, you probably know businesses need to have a solid financial foundation to support their future – as do you!

Understanding expenses and revenue helps a business calculate its potential financial position. One of the ways that businesses do this is through financial modelling.

Businesses from just about every kind of industry use some kind of financial modelling.

Irrespective of your level, financial modelling skills have become one of the most highly sought-after skills for financial professionals today.

As the demand for financial experts in this field is increasing, so are the number of financial professionals with expertise in financial modelling.

Here, we discuss what financial modelling is, the different types of financial modelling techniques and why you should make sure to add financial modelling to your arsenal.

What is financial modelling?

Financial modeling is the process of creating a summary of a company's expenses and earnings in the form of a spreadsheet that can be used to calculate the impact of a future event or decision.

A financial model is simply a tool that is built in spreadsheet software such as Microsoft Excel to forecast a business' financial performance into the future.

This is a mathematical model designed to represent the performance of a financial asset or portfolio of a business, project, or any other investment.

Financial modelling techniques

There are many different types of financial modelling techniques. Here are some of the most common techniques:

  1. Three statement model: This is the most basic setup for financial modelling. The goal of this model is to help a business understand how their three financial statements – the income statement, balance statement, and cash flow statement - are linked.
  2. Discounted Cash Flow (DCF) model: The DCF model builds on the three-statement model to value a company based on the Net Present Value (NPV) of the business' future cash flow.
  3. Consolidation model: This type of model includes multiple business units added into one single model.
  4. Budget model: This is used to model finance for accounting, finance, and business professionals to plan a budget for the upcoming year or years.
  5. Forecast model: The forecast and budget models are often conducted around the same time and sometimes combined for a better understanding of the overall predicted financial position of a company.

    This is not an exhaustive list of every type of financial modelling, however these are the most common methods that can help you when you are approaching most financial situations.

Why do you need to learn financial modelling?

The digital revolution has changed the way industries work today. With more and more information becoming automated and the volume of information on the rise, it is becoming difficult to cope with vast amounts of complex data. This is where financial management graduates with expertise in financial planning and modelling can step in and come into their own. You could also do an online course to add this skill to your resume if you are already in the industry.

Financial modelling skills are an asset that most multinational firms are looking for when hiring financial professionals. Learning financial modelling and incorporating it into your expertise will help you enhance your job prospects and better understand the financial dynamics of an organisation.

Expand your career with Financial Modelling

Financial modelling is a representation in numbers of a company's operations in the past, present, and the forecasted future. Using excel you could create a financial budget, forecast a project cost, develop an option pricing model, or simply value a company, among nearly anything else.

Financial modelling is a long-standing way of understanding the financial position and potential of a company and is regularly used to assess everything from future stock prices to annual budgets and everything in between. Financial models are intended to be used as decision-making tools. This short course will give you that boost in confidence to make some important financial decisions and being able to do financial modelling can provide a wide array of career opportunities. If you are looking for a great career opportunity in financial modelling, register with us and upload your resume today!