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What is financial modeling?

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What is financial modeling

Financial modeling is the chance of carrying out the quick analysis in order to take accredited administrative decision. This is the tool that allows to “living” these decisions without loss of committed facilities.

Financial modeling helps to answer on such questions in the sphere of conduct of business as:

–        And what it will be if?

–        What variant to choose?

–        To what repercussions this lead?

–        What it’s necessary to do in prevailing conditions and in projecting conditions&

–        Does it hold a candle?

Financial modeling allows:

–        to project the work of the company on the several periods ahead in the presence of several special inductive parameters;

–        to imitate money flows in prognostic period and in correspondence with the planning activity of the company;

–        to show the sources and aims of financing of company’s activity in prognostic period;

–        to bring in correcting’s rapidly and to make multiple revaluation of different scripts of the project or variants of business development;

–        to save time essentially for taking decisions that allows to avoid the approach the unacceptable variants.

The demand in the financial modeling appears when it’s necessary:

–         to estimate the capital spending project;

–        to prepare business plan;

–        to choose the scheme of attraction of money;

–        to set business planning in the company;

–        to take better strategically decisions;

–        to estimate different variants of the further development of business.

In general financial modeling looks like the performance of sequence of special steps that allows to get the necessary result. These steps are:

–        collection and analysis of “historical” initial data;

–        definition of the basic inductive parameters for the model;

–        definition of the level of the model’s specification,  presentation formats of key indexes and reporting forms;

–         working out of binding: input data ? calculations ? output forms;

–        working out of imitation model of the flow of funds, income and expenditure and on-balance-sheet-items;

–        creation and comparison of the models of alternative variants of capital spending projects;

–        accounting of integral indexes of investment effectiveness and preparation of recommendations of their appliance;

–        quantification of the project’s risks;

–        accentuation and analysis of value chains;

–        the estimation of the influence of capital spending projects on the company value – analysis of key factors of creation of value;

–        and also the preparation of all necessary reviews and expert reports of the results of modeling.


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