If you are studying finance and wishing to enter the finance industry, a financial modeling expert could be your ideal position. Basic knowledge of excel and accounting help in learning it. Financial modeling is one of the most sought-after skills in the finance industry, which also pays well. It is a good add-on to your CV, which distinguish you from other in the field of finance. This article discusses everything there’s to know about financial modeling.
About Financial Modeling:
Financial modeling is the process in which a summary of earnings and returns is compiled to predict upcoming financial events. Creating this realistic scenario and estimating future returns is important for decision-making in organizations. having a strong hold on financial modeling will give you the upper hand if you looking to pursue a profession in finance.
A financial model can be understood as a mathematical tool, typically produced on an Excel sheet used to analyze financial statements and make sound business decisions. In making financial models, a firm’s past financial data is used along with the result to establish corporate values, stock prices, or creditworthiness.
Financial models make it possible to take data-supported and well-informed decisions. Financial modeling helps organizations in developing new offers, suggesting sales options, or forecasting financial returns over a specific period, this prediction is beneficial to the business owner, financial experts, and even marketing specialists.
The need for qualified and experienced financial modeling experts is growing due to its wide application across the finance sector as in Investment Banking, Equity Research, Project Finance, Credit Rating, Mutual Funds, and Corporate Finance. Financial modeling, in a way, is a summary of a business’s performance backed by facts and data and aids in predicting future financial performance.
It helps the company to estimate the potential financial outcome in numbers or quantitative terms. Various measurements and techniques like bookkeeping, finance, operation, spreadsheets, etc are used in building these financial models.
Financial models are subjected to routine analysis in organizations, where organizations respond to a variety of financial predictions and occurrences and plan their future strategies accordingly like predicting the outcome of chosen funds and committing an amount of money or efforts to it.
Most financial models are used by analysts for research and forecasting of a company’s stock, or other financial decisions, as financial models provide a numerical representation of some and all aspects of a business’s financial activities.
Financial modeling is also used to determine a company’s value or to compare various companies in the same industry. Financial modeling also has certain limitations like different financial models having different outcomes, additionally, financial models are only useful if their assumptions or input are accurate.
The Benefit of Financial Models:
Financial modeling is both art and science of creating a dynamic model that provides businesses with additional support in decision-making processes. The process of financial modeling includes monitoring the general operation of the business, examining the financial statements, and doing appraisals and assessments, which ultimately leads to forecasting and budgeting for future financial events.
Financial modeling is in demand because of its various advantages to the organization and its management. Some of the advantages of financial modeling are:
- Financial models give a better and broader perspective on business, as they were made using a large amount of past and present data of the company. The analyst gets a better understanding of a business’s position when they see all events and their outcome in numbers. This makes them better equipped to tackle challenges and unforeseen events.
- Financial models are a great tool to evaluate the performance regularly as it aids in creating budgets and projections, in addition, it also assists in analyzing these projections in comparison with actual business results. When conducted regularly, this produces a real-time picture of how business is performing.
- Another use of financial modeling is in evaluating the business value, which is essential for large corporations with shareholders and investors. As they have to restructure appraisals benefit, by offering shares to investors or other parties. Financial models equip businesses to make better decisions, as they give them a reasonable idea of a business’s value by calculating free cash and other valuable assets that the business has accumulated over a while.
- Financial models make financial decisions quite easy for businesses as they can predict the effect of a particular event on business. It would take days to get actual the result and make a financial decision as per them. But financial models make it quite simple to produce a speedy result, making the decision-making process quick and effective as all the necessary data and information is readily available in a systemized manner.
- Financial modeling is also a risk reduction tool, as it can predict the effects of action and choices on business, as result it reduces risks or at least makes them manageable. When a business launch a new venture its cost, pricing adjustment, market rates, marketing effects, etc is directed and influenced by financial models.
Also Read: Strategic Financial Modeling
Sectors That need Financial Modeling
Financial modeling has many benefits as mentioned above, thus it is needed in various sectors of the finance industry. Some of them are:
The management of financial products and assets of an individual or business to generate the highest return with minimum risk over some time is called portfolio management. Financial modeling is used in portfolio management to facilitate guaranteed returns on investment.
Financial modeling’s detailed research on the best investment possibilities benefits organizations greatly in making decisions. This financial operation is performed by financial experts who are knowledgeable and experienced. Financial modeling is a terrific strategy for individuals and organizations to achieve desired returns and investment goals.
- Business Finance
Financial modeling gives a comprehensive picture of the organization’s financial situation and makes it easy to make crucial decisions. As financial modeling helps in determining important elements of business/ corporate finance like the cost of capital, return on invested capital, and various other operations
- Equity Research
Equity research is a process via which the financial statements of a company are thoroughly examined to know about its shares are worth buying or not. Equity research requires financial models to understand current financial sector trends, disclosures, and projections.
- Credit Analysis/Research
Credit analysis/ research requires financial modeling to analyze a company’s financial status based on its credit history, brand value, and creditworthiness. The credit research analysis is particularly important when businesses seek loans since lenders will like to know the business’s financial viability. Credit research includes the applicant’s credit and loan history, financial status and time taken to repay the previous loan, etc are a few elements taken into consideration.
- Investment Banks
The basic function of Investment banks is to issue new debt and equity instruments to investors on the behalf of organizations that can be private or government to obtain funds. They also negotiate deals and contracts on the behalf of the organization.
Financial models are used by investment bankers to get an extensive understanding of businesses and to engage in consulting, banking analysis, capital marketing analysis, research, and trading. Financial modeling is extensively used in investment banking as it makes it possible to predict the events and their effect on the company’s equity and its overall financial well-being.
You may also want to know about the practical oriented Online Financial Modeling Courses
Skills Required to Become a Financial Modeling Expert
To become financial modeling expert, one needs to have certain skills, which can be learned via course or of their own. A few of the skills are listed below:
- Knowledge of accounting fundamentals is a must to create financial models. To understand and analyze financial statements one needs to have a sufficient understanding of accounting concepts like accumulated depreciation as well as non-cash topics such as revenue recognition and accruals.
- Another skill required to make a financial model is forecasting or considering many factors as qualitative variables to predict the forthcoming events and their effects on business. Regression analysis is used to make predictions about future events based on past data. But regression analysis still requires you to make assumptions about future unknowns.
- Excellent excel skills are an essential need for financial modeling experts. Creating financial models is not an easy task, hence mastering all the keyword shortcuts of excel will help you in creating models rapidly with little effort. This is one of the most difficult skills to master, to get better at it practice a lot.
- One of the traits of a good financial modeling expert is his/her capacity to condense massive amounts of complex data into a straightforward and understandable financial model. The simpler financial model is best.
- A financial modeling expert should be a rational, methodical, and smart thinker. As to create the financial model, a rational process and simple design are required so that other users can immediately grasp the subject matter of the document, which is the main motive of any financial model.
- Presentation is another important skill a financial modeling expert should have as they have to regularly create effective PowerPoint presentations and pitch books to present their financial model’s findings to clients, managers, executives, etc.
- An undervalued skill in financial modeling is a good sense of design and aesthetics. It is simple to read and comprehend a financial model which has a clear layout, eye-catching charts, graphs, and polished appearance.
Learn more about the best Financial Modeling courses in India
Financial Modeling Course by NSE
The National stock trading exchange of India Limited (NSE), founded in 1992, is India’s first dematerialized electronic exchange institution. NSE is the first trading platform enabling smooth electronic trading via its cutting-edge, open, and completely automated technology. In terms of trading volume, it is one of the top trading platforms in India and it ranks fourth globally.
NSE effectively bought all investors under one roof via being the first nation stock that offers electronic trading services and supported instruments of debt, equities, and derivatives. The national stock exchange of India limited provides businesses with a platform for raising capital and provides investors with access to mutual funds units, currencies, shares, and debt units.
NSE provides overseas corporations three options to generate money in India namely; initial public offering (IPO), Indian depository receipt (IRDs), and debt issuances. NSE also owns a subsidiary called NSE academy, dedicated to spreading financial literacy on various topics such as banking, the stock market, and other financial services.
About the Financial Modeling Course by NSE:
It is an online course named ‘certification in online financial modeling. This course teaches all about building financial models, that represent the financial statements and investments of an individual or an organization. Financial models are created to give individuals and organizations ideas about their long-term investment and value development experience, and this is what NSE financial modeling course is designed for.
Their course curriculum is structured in a way that assists students in grasping the fundamental of financial modeling and understanding its real-world application to have a consistent and realistic financial picture of individuals or businesses. The financial modeling course by NSE gives students in-depth information and training necessary to understand the ever-evolving domestic and international financial market.
NSE Financial Modeling Course Highlight:
- The candidate will get a complete understanding of the financial statement.
- This course will introduce candidates to basic case studies for the creation of financial modeling.
- Apart from understanding financial statements candidates will also learn to analyze them.
- The candidate will also get a basic understanding of the techniques used for valuation.
- NSE’s financial modeling course curriculum also includes various financial modeling case studies, basic to advance levels, to give students a complete overview of financial modeling.
As financial modeling is a core finance field skill, it is recommended for students pursuing graduation, B.com, BBA, and other finance-related degrees like CA, CFA, and FRM. Postgraduates or MBA aspirants are also eligible to enroll in the financial modeling course by NSE. Working professionals can also enroll in this course to enhance their employment prospects in the field of finance.
Q1. Who is qualified to enroll in the financial modeling course by NSE?
A graduate degree, ideally preferred in the field of business and finance, and a 10+2 certification are the minimum requirements for learning financial modeling. Individuals from any stream are welcome to participate in this course because there are no strict rules. Additionally, there are additional requirements including a working grasp of Excel and a comprehension of the foundations of this industry.
Q2. Can I find employment after the financial modeling course by NSE?
Definitely, yes! Many doors in the field of finance are opened by financial modeling. Following the financial modeling course by NSE, the finance industry offers the majority of work chances. You can find employment in a variety of sectors, including equities research firms, governmental agencies, private finance corporations, and non-profit organizations. Investment banking, stock research, mergers and acquisitions, corporate development, project finance, portfolio management, and other common career paths follow a financial modeling course.
Q3. Is the financial modeling course by NSE useful?
The financial modeling course by NSE is unquestionably most beneficial for small business owners and startup entrepreneurs. They can extrapolate business judgments using financial modeling expertise to evaluate pricing models, calculate capital needs, comprehend investment demographics, and compute capital requirements. In addition to them, people looking to pursue a career in finance or current financial professionals can also profit from the course. With the help of their abilities, they can start a job or advance up the corporate ladder in terms of pay raises and promotions.
These were India’s top financial institutions, providing the most thorough financial modeling courses apart from NSE. Your list of potential courses has already been reduced; all that is left to do is match these choices with your unique preferences and needs. The financial modeling course by NSE is one of the top-notch courses available in India. A financial modeling education from one of these prestigious institutions like NSE will enhance your résumé and professional standing. It would be a fantastic accomplishment to highlight to potential employers and customers. The financial modeling course by NSE will boost your chances of getting hired and promoted significantly.