Financial modeling is the process of creating a summary of long-term projections of a company’s expenses and earnings.
It is usually presented in the form of a spreadsheet that can be used to calculate the impact of a future event or decision.
The whole concept of financial modelling is built on using of so called “assumptions”.
Some financial models are equipped with the embedded scenario-analysis techniques which provide the end-user with the opportunity to change the key assumptions and watch the outcome.
Financial models are multi-purpose devices and can be useful for every single business irrespective of its industry and size. They are extensively used for business analysis and decision making by inside and outside companies’ stakeholders: owners, management, investors, finance providers, clients, etc.
Main reasons to use financial models:
Valuation
Obtaining external financing (debt or equity)
Market expansion
New product development
Making other strategic decisions
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