Financial modeling is a process of creating a summary by calculating a company’s profit and expenses in the form of a spreadsheet. Through this process, the company’s future decision or investment can be calculated ie., financial modeling is a representation of a company’s operation in the form of numerical. If you are interested in getting into a finance career and wondering what all financial modeling topics are covered in it, this post is for you. 

A guide to financial modeling topics

What are Financial Models?

Financial Models help compare competitor companies in the industry. The models are used as decision-making tools often used by financial analysts to research and analyze the stock performance of the company that might collapse further events and decisions. To find the estimated cost and profit gain of new projects, company executives use such models.

What Information Do Financial Models Contain?

To keep it as simple as possible and understandable, the Financial Model includes sessions of charts, graphs, supporting schedules, valuations, a balance sheet, a cash flow statement, an income statement, and sensitivity analysis.

What are the Different Types of Financial Modeling?

In Financial Modeling, 3 statement models are present as fundamental such as income statements, Balance sheets, and cash flow statements.

Topic Covered Under Financial Model: There are 10 models that are commonly used by all. They are,

  • Financial Model 1: Three-Statement Model
  • Financial Model 2: Discounted Cash Flow (DCF) Model
  • Financial Model 3: Merger Model (M&A)
  • Financial Model 4: Initial Public Offering (IPO) Model
  • Financial Model 5: Leveraged Buyout (LBO) Model
  • Financial Model 6: Sums of the Parts Model
  • Financial Model 7: Consolidation Model
  • Financial Model 8: Budget Model
  • Financial Model 9: Forecasting Model
  • Financial Model 10: Option Pricing Model

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What are the Career Options in Financial Modeling?

There are many high-paid job opportunities available after completing a financial modeling course. A few career options in the financial field are investment banking, equity research analysis, financial planning & analysis, credit analysis, corporate finance, financial analysis, project finance, consultancy firms, and real estate. Here, a few core subjects are discussed that are covered in the financial modeling syllabus.

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Top 8 Financial Modeling Topics

Financial Modeling 25%
Finance 23%
Excel 17%
Valuation 10%
Presentation and Visuals 8%
Budgeting and Forecasting 8%
Accounting 5%
Strategy 4%

 

1. Finance Modeling

Finance Modeling itself is a subject that carries 25% of the syllabus. Corporate Finance and Portfolio Management is a quite huge financial modeling topic covered.

Corporate Finance: Corporate Finance is an activity of planning and controlling the financial resources of the company. There are 3 major activities that corporate finance governs. They are investment & capital budgeting, capital financing, and dividends & returns of capital.

  • Investment and Capital Budgeting: This activity is done mainly to conclude with investment opportunities offered by planning according to the company’s capital assets for the long term. All such steps undergo strong financial analysis.
  • Capital Financing: This activity is carefully decided for the company’s investment through debt, equity, or by a mix of both debt and equity. In the market through bank investments by selling the stocks of the company or issuing debt securities long-term funding for capital investments can be obtained.
  • Dividends and returns of capital: This activity includes holding excess profit to invest in future businesses and other operational needs or to use the excess profit to distribute to shareholders as a dividend by the corporate managers. If the excess profits may not be distributed to shareholders then it is put to use for the expansion of the business.

What are the Career Opportunities in Corporate Finance?

In the corporate finance industry, there are multiple job positions available to enhance the corporate finance career. A few positions are Transaction Advisory, Due Diligence, and Valuations from the side of Public Accounting. Corporate Development, Investor Relations, FP&A, and Treasury from the side of corporations. Commercial Banking, Sales and Trading, Equity Research, and Investment Banking from the sell-side of the Bank. Portfolio Management, Private Equity, and Research from the buy-side of the Institution.

 

Topics Covered Under Corporate Finance: There are 19 Modules covered under the corporate finance topic. They are,

  • Module 1: Introduction to Corporate Finance
  • Module 2: Long-Term Sources of Finance
  • Module 3: Short-Term Sources of Finance
  • Module 4: Basic Concepts of Valuation
  • Module 5: Shares and Bond of Valuation
  • Module 6: Risk and Return
  • Module 7: Portfolio Theory
  • Module 8: Assets Pricing
  • Module 9: Capital Budgeting Decision – I
  • Module 10: Capital Budgeting Decision – II
  • Module 11: Cost of Capital
  • Module 12: Decision of Capital Structure
  • Module 13: Dividend Decision
  • Module 14: Working Capital Management
  • Module 15: Inventory Management
  • Module 16: Cash Management
  • Module 17: Receivable Management
  • Module 18: Derivatives & Risk Management
  • Module 19: Merger and Acquisition

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Portfolio Management: Portfolio Management is the art of selecting and building a group of long-term financial investments and risk-taking of a client or a company. Long-term financial investments are bonds, stocks, and cash. Portfolio Management is done by a few individuals on their own who need a basic level of understanding of key elements like maintaining portfolio building which includes rebalancing, diversification, and allocation of assets.

Types of Portfolio Management: There are two types of portfolio management. They are active portfolio management and passive portfolio management.

  • Active Portfolio Management: To overcome the performance of a competitive market to sell and buy assets and stocks by an individual, strategy is required in active portfolio management. Actively managed are generally closed-end funds.
  • Passive Portfolio Management: On the other hand, passive portfolio management is a long-term strategic investment that involves one or more exchange-traded index funds (ETF) which are known as index investing or indexing. Modern Portfolio Theory (MPT) helps build optimized index portfolios.

The three key elements of portfolio management are asset allocation, diversification, and rebalancing.

Asset Allocation: Asset allocation is a long-term mixed asset that protects and balances business from risk. With aggressive profile weight, investors move portfolios toward volatile investments. With conservative profile weight, investors move portfolios toward stabler investments like blue-chips stocks and bonds.

Diversification: Diversification spreads both the reward and risk between the assets of individual securities. The only investing method which is not possible is to predict the loser and winner on the ground.

Rebalancing: Rebalancing is where high-priced securities are sold and investing that amount in the lower-priced securities ie., out-of-favor securities. The practice of rebalancing is an annual exercise that allows gaining profits for the investors and also widens the opportunities for high-potential growth sectors.

What are the Careers Out of Portfolio Management?

After mastering portfolio management, start a career as a junior financial analyst, senior finance analyst, portfolio manager, and senior portfolio manager.

Topics Covered Under Portfolio Management: There are 8 Modules covered under portfolio management. They are,

  • Module 1: Objective of Investment Decision
  • Module 2: Financial Markets
  • Module 3: Fixed Income Securities
  • Module 4: Capital Market Efficiency
  • Module 5: Financial Analysis and Valuation
  • Module 6: Modern Portfolio Theory
  • Module 7: Valuation of Derivatives
  • Module 8: Investment Management

 

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2. Finance

Finance carries 23% of the Financial Modeling Topics, which is the second major topic to be learned. In short, Finance is money management that includes activities like borrowing, saving, budgeting, investing, lending, and forecasting.

Types of Finance: There are three types of finance. They are personal finance, corporate finance, and public/ government finance.

  • Personal Finance: Personal Finance is managing finances personally. Generating income, spending, saving, and investing comes under personal finance. The common sources of income include wages, bonuses, salaries, pensions, and dividends. Spending includes rent, mortgage payments, tax, food, travel, credit card payments, and entertainment purposes. The common forms of saving are a savings bank account, checking bank account, physical cash, and money market securities. The common forms of investing are real estate, commodities, bonds, stocks, mutual funds, and private companies. The common forms of protection are health insurance, life insurance, and estate planning.

Personal Finance Management Careers: Taking up personal finance as a career one can enter into wide job opportunities. They are a wealth manager, investment advisor, insurance advisor, tax advisor, estate planners, financial planners, mortgage brokers, and personal managers.

  • Corporate Finance: As discussed above, Corporate Finance is an activity of planning and controlling the financial resources of the company. There are 3 major activities that corporate finance governs. They are investment & capital budgeting, capital financing, and dividends & returns of capital.
  • Public/ Government Finance: To keep it simple, public finance is managing expenditure, revenue, and debt of the country by different governments and quasi-governments. Tax Collection, National Budget, National Debt, Expenditure, Surplus, and deficit are the components of public/ government finance. The common forms of revenue & expenditure include sales tax, income tax, property tax, value-added tax, import duties, and estate tax. The common form of public expenses includes health care, pension, infrastructure, education, defense, and employment insurance.

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3. Excel Financial Model

Financial Modeling Excel covers 17% of the syllabus in Financial Modeling Topics and is used as a tool for decision-making, cost estimation, and profit of the newly offered projects calculated by the executives of the company. To explain the events or impact of the particular stock in the internal and external factors financial analysts use these financial models to cross-check the company’s financial performance.

Powerful Excel formulas for Financial Analysis and Financial Modeling: Every financial analyst has a big deal to solve in excel. Here are a few amazing advanced formulas of Excel that work like a pro.

  • Excel Formula 1: Index Match
  • Excel Formula 2: IF Combined with and/ or
  • Excel Formula 3: Offset Combined with sum or average
  • Excel Formula 4: Choose
  • Excel Formula 5: XIRR and XNPV
  • Excel Formula 6: COUNTIF and SUMIF
  • Excel Formula 7: PMT and IPMT
  • Excel Formula 8: LEN and TRIM
  • Excel Formula 9: CONCATENATE
  • Excel Formula 10: Cell, Left, Mid, and Right Functions

 

Importance of Excel in Financial Modeling: One of the most fundamental and crucial skills to learning financial modeling is Excel. Financial Professionals are experts at Excel skills. Mathematic calculations, macro tools, and formatting are the unmatchable capabilities in Excel for financial reporting, financial modeling, and financial analysis. The Excel results are said to be more efficient and accurate by financial professionals and are considered the best to date.

Topics Covered Under Excel: There are 15 Modules to be covered under Excel in financial modeling topics. They are,

  • Module 1: Introduction to Excel
  • Module 2: Exploring Various Types of Data
  • Module 3: Introduction to Formulas
  • Module 4: Introduction to Function
  • Module 5: Modifying Cell Contents
  • Module 6: Cell References and Ranges
  • Module 7: Introduction to Charts
  • Module 8: Accessibility Checker
  • Module 9: Workbook Form the Scratch
  • Module 10: Modifying Worksheet Structure
  • Module 11: Copy and Paste Data from one File to Another
  • Module 12: Create an Excel Table
  • Module 13: Working With the Excel Table
  • Module 14: Formatting the Worksheet
  • Module 15: Preparing to Print the Worksheet

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4. Valuation

Valuation covers 10% of the syllabus in financial modeling topics and is a way to decide the company’s present value in much-needed situations. Financial Analysts use business valuation to find where the company is overvalued or undervalued ie., to find the current financial state/ worth of the company.

Types of Valuation: Valuation is a major of 3 types. They are Discounted Cash Flow (DCF) Analysis, Comparable Company Analysis, and Precedent Transactions Analysis.

Importance of Valuation in Financial Modeling: Valuation also plays a crucial role in financial modeling. It helps sellers to sell and buyers to buy the company by obtaining a reasonable value of the security. To understand and well-go with the company, valuation helps!

Topics Covered Under Valuation: There are 15 Modules covered in Financial Modeling Topics. They are,

  • Module 1: Case Law and Expert Testimony
  • Module 2: Compensation
  • Module 3: Cost of the Capital
  • Module 4: Discounts and Premiums
  • Module 5: Divorce
  • Module 6: Economics Damage and Lost Profits
  • Module 7: Fair Value for Financial Reporting
  • Module 8: Global Business Valuation
  • Module 9: GoodWill
  • Module 10: HealthCare
  • Module 11: Industry Analysis
  • Module 12: Intellectual Property
  • Module 13: Market Comparables
  • Module 14: S Corps
  • Module 15: Standards of Value

Make a Career out of Valuation: Though valuation is important in the financial field, career opportunities are also available according to the needs. After mastering valuation, one can make a career as a Valuation Analyst, Valuation Manager, Director of Valuation, and Partner/ CEO.

 

5. Presentation and Visuals

Presentation and visuals cover 8% of the syllabus in the financial modeling topics. Data Presentation and Visual plays a vital role by projecting complex model concepts in the easiest way which is used by the financial analyst.

Importance of Presentation and Visual in Financial Modeling: Presentation skill is one of the most needed skills in financial modeling. Some of the important objectives of the data presentations are visual communication, audience & context, charts & bar graphs, images, key points, principle designs, storytelling flow, dashboards, and Persuasiveness.

 

6. Budgeting and Forecasting

Budgeting and Forecasting cover 8% of the syllabus in financial modeling in the topic, to head the business in the right direction these tools are used for establishing a plan for it. Financial Forecasting estimates the total amount of revenue generated and income in the future and whether the company is directed in the right path.

Also tells how to allocate a budget for the company in the upcoming days. Whereas, Budgeting is nothing but comparing the current outcome of the company with the expected outcome planned for a minimum of one year.

Characteristic Features of Budgeting in Financial Modeling: Estimation of revenues generated and expenses done, Expected cash flow, Expected reduction of debt, and budget comparison for current versus expected one.

Characteristic Feature of Forecasting in Financial Modeling: Planning and allocating budgets for the future, short-term & long-term forecast, used for taking immediate change or action according to the forecasting data.

Topic Covered Under Budgeting and Forecasting: There are 6 modules covered under budgeting and forecasting in financial modeling. They are,

  • Module 1: Budgeting within a strategic framework
  • Module 2: Process of Building a Budget
  • Module 3: A Practical Guide to Developing Budgeting
  • Module 4: Techniques of Forecasting
  • Module 5: With Various Analysis Tracking Performance of the Budget
  • Module 6: Budgeting Tools and Techniques Applied on Excel

 

Career Out of Budgeting in Financial Modeling: Top budgeting careers are FP & A Analyst, Financial Analyst, Budget Analyst, and Management Accountant.

 

7. Accounting

Accounting covers 5% of the syllabus in Financial Modeling in Topics. Understanding accounting for financial modeling will enhance my skills in analyzing public and private companies’ financial statements. Financial Modeling Topics in accounting covers cash flow statement, income statement, and balance sheet which helps improve the robust skill to sort out the problems in advanced/ modern accounting.

Topics Covered Under Accounting: There are 10 modules covered under accounting in financial modeling. They are,

  • Module 1: Income Statement, Balance Sheet, and Cash Flow Statement
  • Module 2: Account Payable and Accounts Receivable
  • Module 3: Advanced Accounting Topics- Net Operating Losses and Tax Asset & Liabilities
  • Module 4: Inventory, GoodWill, and PP & E
  • Module 5: Revenue and Deferred Revenue
  • Module 6: Cost of goods sold, Depreciation, Amortization, and Interest Expenses
  • Module 7: Equity and Debt Financing
  • Module 8: Capitalized Interest, Debt Financing Fees, and PIK Debt
  • Module 9: Finance and Operating Leases
  • Module 10: Bonds and Discount
  • Module 11: M&A Accounting

 

Career Out of Accounting in Financial Modeling: Learning advanced accounting helps enhance a career in different ways. Some of the high-paid jobs are Investment Banking Analysts, Equity Research Analysts, Private Equity Analysts, Corporate Financial Analysts, and Credit Financial Analysts.

 

8. Strategic Financial Modeling

Strategic Planning covers 4% of the syllabus in financial modeling, which is an act of building a national framework to analyze where the company would be at a particular or expected point of time in the future. Strategic planning is done with the help of financial model tools. The fundamentals of accounts and financial analysis are the most needed skills for successful strategy planning.

Simple Effective Ways to Plan Better: Gather the facts to the point, Develop a vision board for strategy, Create the mission of the plan, Identify high-level strategic objectives, and last but not least action the planned strategy.

Topics Covered Under Strategy Financial Modeling: There are modules. They are,

  • Module 1: Introduction to Strategy Financial Modeling
  • Module 2: Role of Leadership in the Planning Process
  • Module 3: Planning Models
  • Module 4: Strategic Plan Using Planning Tools
  • Module 5: Role of Stakeholders in the Planning Process
  • Module 6: Identify the Vision and Mission of the Plan
  • Module 7: SWOT Analysis for Environmental Scanning
  • Module 8: Framing Strategic Issues

Career Out of Strategic Financial Modeling: The Top high-paid career out of strategy planning is Project Manager, Operation Officer, Marketing Manager, Business Development Director, Marketing Director, General Manager, Senior Market Manager, Brand Director, Regional Marketing Director, Program Manager, Senior Planner, Strategist, Brand Marketing Manager, and more according to the experience.

 

Frequently Asked Questions:

What Information Do Financial Models Contain?

To keep it as simple as possible and understand the Financial Model includes sessions of charts, graphs, supporting schedules, valuations, a balance sheet, a cash flow statement, an income statement, and sensitivity analysis.

What are the Career Options after Financial Modeling?

There are many high-paid job opportunities available after completing a financial modeling course. A few career options in the financial field are investment banking, equity research analysis, financial planning & analysis, credit analysis, corporate finance, financial analysis, project finance, consultancy firms, and real estate.

What are the Financial Modeling Topics Included?

Financial Modeling Topic includes Finance, Excel, Valuation, Budgeting and forecasting, Presentation and Visuals, Accounting, and Strategic Financial Modeling.

What is the Importance of Presentation and Visual in Financial Modeling Topics?

Presentation skill is one of the most needed skills in financial modeling. Some of the important objectives of the data presentations are visual communication, audience & context, charts & bar graphs, images, key points, principle designs, storytelling flow, dashboards, and Persuasiveness.

What are the Types of Valuation?

In Financial Modeling, Valuations are major of 3 types. They are Discounted Cash Flow (DCF) Analysis, Comparable Company Analysis, and Precedent Transactions Analysis.

Conclusion:

In the modern financial field, the demand for qualified and experienced analysts is increasing rapidly. Taking up the financial modeling topics explained here enhances your career far better. Financial Modeling itself is a large field with numerous job opportunities, find your area of interest and opt for it. Choose and Make it Wise!

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