Imarticus Learning
India’s leading professional education institute, offering certified industry-endorsed training in Financial Services, Investment Banking, Business Analysis, IT, Business Analytics & Wealth Management
Financial Modeling refers to a process with the help of which, professionals are able to calculate the financial strength of a firm, in various situations. According to Investopedia, “Financial modeling is the process, whereby a firm constructs a financial representation of some, or all aspects of the firm or any given security. Financial models are usually characterized by performing calculations and providing recommendations on the basis of that information”. These financial models can range from simple calculations to complex structures, which can take up to hours to run. A basic financial model would refer to that excel file you use to project your income and expenses of any given month. Financial models are extensively used across the world for various purposes, mainly business planning. These models basically help in providing answers to certain questions, that would be very important to the business in the long run. For instance it could be regarding the probability of it being profitable to offer new credit cards to existing users, or the way a business model would look after the acquisition of a competitor. While constituting a financial model can help you achieve certain results in terms of expanding your business, there are a few fundamental challenges that one might face. While this process is pretty simple, there are some mistakes that may make it seem like its a bit difficult. One of the most common mistakes is using of the financial model for answering questions related to overall profitability of the firm. When it comes to just one specific problem, a financial model is the best bet, as they offer the most question specific insights. Here all the decisions that are taken, are based on some sort of inputs and assumptions. But this does not mean that hard coded values for assumptions and start collecting inputs from various places, because that may lead you to wrong decisions. Thus it is always advised to call out all the inputs and assumptions in one singular sphere and then, linking of the code in accordance with the same. Another reason for the occurrence of errors is the fact that analysts, tend to look at the financial model as a mathematical exercise. This leads to them not tying up numbers or models impact of changing numbers, which lead to bigger glitches. It basically about looking at the big picture while taking care of the most miniscule of details. When it comes to the applications of financial models, the more structured approach is always preferred. It basically deal with first understanding the business requirements, then going on to finalizing dimensions and granularity, which takes one to the next step of applying business logic so as to ensure consistency. Then comes the process where you involve your customers by testing certain scenarios and finally the documentation of the very model. Once the documentation is done, your model is very much ready to roll out. These challenges are faced by quite a number of people, which is why they turn to experts in the form of various institutes which specialize in programs of financial modeling. Imarticus Learning is one such institute with its industry oriented curriculum and expert driven courses as well as their experiential learning.
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About ImarticusImarticus Learning is a education institute based in Mumbai. We offer certified industry-endorsed training in Financial Services, Investment Banking, Business Analysis, IT, Business Analytics & Wealth Management. Archives
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