Can I Learn Financial Modeling on My Own?
In the current times, opportunities are more. All that one has to do is tap on the resources available. It is not mandatory to join any institution if an individual reads and practices and adopts the methods explained by the experts in various books and lectures that are available on the internet. Practicing is the key to mastering the subject of Financial Modeling. One has to be disciplined in devoting adequate time to read and practice. However, joining an institution will help an individual to learn Financial Modeling in a structured way and can clear the queries from time to time with the teaching faculty.
Financial Modeling is a mathematical representation of numerical data on a Spread Sheet. Based on the earlier operations of the Company, projections are worked out and can give a fair idea about the road map of the Company’s future Operations with certain assumptions. It is one of the essential tools for the management to take appropriate decisions. It also helps to estimate the total cost of future projects and also to arrive at the proposed profits that can be expected by the Company.
Definition of Financial Modeling:
According to Mr. Carol M Kopp “Financial modeling is the process of creating a summary of a company’s expenses and earnings in the form of a spreadsheet that can be used to calculate the impact of future happenings.”
Different Aspects of Financial Modeling:
- Balance Sheet
- Profit and Loss Account or Income and Expenditure Statement
- Cash Flow
- List of Assumptions and presumptions
- Valuation Statements if any
- Different Ratios.
Types of Financial Modeling:
1. Discounted Cash Flow Financial Modeling
Discounted Cash Flow (DCF) is a type of valuation method that is used to estimate the valuation of the Investment, based on its expected future Income. It helps the Mangers and business owners to decide on the purchase of Captial Items and also in assisting to budget for future capital commitments. It helps in ascertaining and estimating the future cash flow of the business.
2. Merger Method of Financial Modeling
In the case of the Merger Model, one has to combine the financial statements of both the Parties ( i.e. Buyer and Seller) while acquiring the business and to calculate the consolidated debt, Earning per Share, Fresh issue of Shares of the new Commercial House to be found out.
3. Initial Public Offering Method ( IPO Model) of Financial Modeling
In the case of the Initial Public Offering Method, the shares are being offered to the public for the first time. There are two types of Issues, one is the fixed price issue or book building issue where the rate is fixed after the closing date of the offer of the bid.
4. Leverage Buyout Method of Financial Modeling:
This method is useful to ascertain the maximum price that can be paid or payable by the Company that could generate an appropriate return.
The following are some of the basic requirements for learning financial modeling of their own:
- Basic Knowledge of Accounting and understanding of Financial Reports such as Balance Sheet, Profit and Loss Accounts, and Cash Flow of the Company.
- Sound Knowledge of Financial Ratios.
- Love Numbers crunching.
- Mastery of Excel through the internet teachings.
- Ability to take Logical steps for forecasting.
- Check on small details.
Scope of Financial Marketing:
The Demand for Financial Marketing professionals is increasing day by day. It is required across many Sectors such as Realty, banking, and Investment. The Financial Modeling of each Sector may be different depending upon the general trends of the Industry.
Also Read: Strategic Financial Modeling
Use of Financial Modeling :
- Understand the Growth of the Company and its development
- It helps in Budgeting
- It helps in allocating finance for new purchases.
- To determine the value of Business
- For selling part of the Properties of the Business
- To acquire any new business or buy new property.
The Way to Understand Financial Modeling:
If one has to master Financial Modeling, the best way is through practice on figures of various entities. It may take a month or two to learn and understand the concepts of financial Modeling.
Free Online Courses Available Online:
Many institutions are giving opportunities to learn Financial Modeling on their own and online. Some of them are listed below:
- Financial Analysis for Business Decisions: How to use Tableau and Financial Modeling: hosted by Future Learn
- Business Financial Modeling specialization hosted by Coursera and the University of Pennsylvania
- Practical Financial Modeling Boot camp hosted by skillshare
- True financial Modeling hosted by Udemy
- Financial Modeling Foundations hosted by LinkedIn Learning
- Understanding Financial Statements hosted by Future Learn
- Financial Maths hosted by Alison
- How to Build a Financial Model in Excel hosted by YouTube and Wall Street School
- Free Financial Modeling Basics –Mini-Course hosted by Udemy
- Free Excel Crash Course – Spreadsheet Tutorial for Finance hosted by Corporate Financial Institute
In the last few years, Education Institutes have notched the top slot in parting short-term training courses such as Financial Modeling with their trained and experienced persons. A Certified course in Financial Modeling gives more leverage to one’s career. The internet has been a boon and has brought a plethora of opportunities.
Many schools are giving free tuition or with some fees on Financial Modeling and parting training through the internet which can be availed by individuals sitting at home and without attending a regular classroom session. So anyone can join the courses at their convenience.
Best Books of Financial Modeling:
Some of the recommended books that one can study and learn about Financial Modeling of their own are:
- Mastering Financial Modeling in Microsoft Excel was written by Alastair Day
- Financial Modeling in Practice: A Concise Guide for Intermediate and Advanced Levels written by Michael Rees
- Financial Modeling is written by Simon Benninga
- Financial Modeling and valuation are written by Paul Pignataro
- The Handbook of Post-crisis Financial Modeling written by Emmanuel haven and Philip Molyneux
- Financial Forecasting, Analysis, and Modeling are written by Michael Samonas
- Building Financial Models (McGraw- Hill Finance and Investing) written by John S Tjia
- Financial Modeling for Business Owners and Entrepreneurs written by Tom Y Sawyer
Although most books deal with Financial Modeling, in my personal view “Mastering Financial Modeling in Microsoft Excel” by Alastair Day is one of the ideal books for beginners.
Apart from the above, Some E-books are Available on Kindle:
- 7 Financial Models written by Paul Lower
- Financial Planning & Analysis and Performance Management Written by Jack Alexander
- Financial Modeling is written by Anurag Singal
- Financial Modeling for Equity Research written by John Moschella
- Investment valuation: Tools and Techniques for determining the value of any assets written by Ashwath Damodaran
So here is an opportunity for someone who asks “can I learn Financial Modeling on my own.”? One can explore the views of many Authors. Many of the books are quite comprehensive and easy to learn through excel.
In today’s world where everything is available on Google, self-learning is quite easy and convenient.
- People can choose their convenient time and fetch the Financial Modeling book they wanted to study.
- Through regular practice can master it too.
- Many of the books are written with practical examples, so it is easy to understand for the readers even if they are not from the field of finance.
Technology has made life easy. A clear understanding of efficient Financial Modeling can save time and money. With so many opportunities why ask can I learn Financial Modeling on my Own?
Here are the best Financial Modeling Courses in India
However, Financial Modeling has certain limitations.
- The proposed projected figures could be far from reality. In the real world, there are always changes taking place from time to time. So the assumption and presumption could go wrong.
- The Proposed projections could be worked with incorrect data in the current context and may be invalid.
- Not accounting for wastage is another drawback.
- If no provisions for comparative cost have been made it will show incorrect figures.
Challenges of Financial Modeling:
There are several challenges of the Financial Model a person can face during expansion programs, mergers, and acquisitions, while budgeting or forecasting, or while selling the Business to another commercial house. Further, there may be issues relating to Balance Sheet figures or the basic premise of assumptions and presumptions which can impact the entire working of the Financial Modeling.
Unless one can understand the situation and act in time, Financial Model can fail due to changes in situations. It is pertinent to say that the entire Financial Model should be broken down into smaller steps so that it can be easily adopted and worked upon rather than getting into working on a big complicated formula.
Best Practices that One Can Follow:
Before getting down to working on the future projections of any Organisation, the following homework has to be carried out during the initial discussions:
To Understand the Project Clearly:
It is mandatory to understand the past and current situation of the Organisation before one starts preparing the blueprint and the road map for the future of the Company. An initial brainstorming session can help to get a fair idea.
To Construct a Proper Structure According to the Requirement:
The Structure that has to be prepared, should be more relevant, and viable for the Organisation. It is ideal to work as a team in the early part of the career to know the tricks.
Break it Down into Simple Steps So that Anyone can Follow:
It is ideal to break down each component of the project into small compartments so that it is easy to implement and control. The easy way is to draw a flow chart or small sketches for proper understanding.
To Work with Utmost Good Faith and Integrity:
Integrity is one of the important parts of carrying out any project successfully and generates lots of goodwill and regard. It helps to keep one focused and work towards the goal. It also enables the creation of goodwill.
To Re-run the Financial Model at Every Step to Confirm the Working:
It is a good practice to re-run the model a few times to confirm at every step so that one does not miss out on any vital issues. Re-run enables us to check the steps and correct the errors immediately.
Check out the Financial Modeling Tools
Steps for Creating Financial Modeling :
- Step 1: To take the Historial Data of the Company.
- Step 2: To ascertain the current status of the Company through various Ratio Analyses such as EBITDA, debt-equity ratio, Return on Equity ( ROE), Return on Income ( ROI), Depreciation to Capital Expenses, and NPM.
- Step 3: Income Statement Analysis
- Step 4: Ascertaining the Working Capital Requirement, and. Cash flow statement
- Step 5: Working on Depreciation on Capital Expenditure
- Step 6: Amortization of Assets
- Step 7: Other Long Term expenditures if any.
The Prospects of Financial Modeling:
The Prospects of Financial Modeling are bright and with the various businesses coming under one umbrella all over the world it has become imperative to develop a competitive Financial business model to serve the needs of the people all over the world. In the current context, the management has to be ready with the latest technology to not only withstand the competition but also for the exponential growth of the Company. The prospects in India and abroad for Financial Professionals are quite good and always in demand.
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Who are People Joining the Financial Modeling:
Generally, “The Financial Modeling” course is enrolled by people who are inclined towards seeking jobs in the financial sector, the banking sector in particular, or by any person who wishes to be an entrepreneur or wanted to pursue a career as a teacher or professor of Financial Management.
Generally, Financial Professionals are always in demand and earn well in the Industry as they play a vital role in the Organisation. Professionals with a degree in CFA, CA, CS, CFI, and CIMA are always in demand and earn well. The demand is more not only in the metro cities in India but also abroad.
Apart from the professionals, any person in the financial field who may have to learn Financial Modeling can get acquainted with various ratios and financial statements if he is working along with the top management. The knowledge of Financial Modeling will empower the individual to take appropriate steps and guide the top management to take appropriate decisions from time to time.
Every business organization irrespective of the Sector is required to prepare financial statements such as Balance Sheet, Profit, and Loss accounts, and cash flow every financial year that give the net worth of the business and profits that the Company has registered during the time The Top Management after going through the financial statement.
Further, Understanding Financial Modeling helps the Investors too to read the balance sheets and financial statements and understand the progress of the business and its road maps. Investors can decide whether it is worth keeping the stock of a particular company in their portfolio or selling them. In today’s scenario, everyone connected to the business can update themselves through the internet from time to time and is not required to ponder “can I learn Financial Modeling.”
Q1. How to learn Financial Modeling?
Financial Modeling could be learned through reading books, by watching lectures that are available on the internet, on YouTube by oneself, or by attending the regular classroom session physically or internet. Practice and consistency is the key to mastering the subject.
Q2. Can anyone learn Financial Modeling?
Yes, anyone who intends to understand or work in the financial field can learn Financial Modeling. One can take up the Financial Statements such as Balance Sheet, Cash Flow, Profit, and Loss Accounts and start working in Word excel.
Q3. How does Financial Modeling help?
Financial Modeling helps us to understand the basic criteria and read the Financial Statements such as Balance Sheet, Cash Flow, or different ratios to co-relate and arrive at a proper decision and also to know the performance of the Commercial house. It also helps to estimate future expenditure and /or commitments and prepare accordingly.
With lots of Choices, it is quite easy and convenient to learn Financial Modeling. The Internet and books have provided all of us with lots of opportunities to learn at our convenience and are easily accessible too. It is just that persistency and consistent practice that can help us to master the subject in due course of time. In today’s world, a Financial Modeling course can be a big leap toward a good career. A baby step today can bring a huge difference.