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Financial Modeling Using Advanced Excel

A financial model is a tool created in spreadsheet software like Excel to forecast a business's financial performance based on historical data and future assumptions, typically involving an income statement, balance sheet, and cash flow statement. These models are used for various decision-making processes within organizations, including budgeting, financial analysis, capital allocation, and business valuation. Advanced models can also include discounted cash flow analysis, leveraged-buyout scenarios, and sensitivity analysis.

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57 views2 pages

Financial Modeling Using Advanced Excel

A financial model is a tool created in spreadsheet software like Excel to forecast a business's financial performance based on historical data and future assumptions, typically involving an income statement, balance sheet, and cash flow statement. These models are used for various decision-making processes within organizations, including budgeting, financial analysis, capital allocation, and business valuation. Advanced models can also include discounted cash flow analysis, leveraged-buyout scenarios, and sensitivity analysis.

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Emeka
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© © All Rights Reserved
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Financial Modeling using Advanced Excel

1. Overview
A financial model is simply a tool that’s built in spreadsheet software such as MS Excel to forecast a
business’ financial performance into the future.  The forecast is typically based on the organization’s
historical performance, assumptions about the future, and requires preparing an income statement,
balance sheet, cash flow statement, and supporting schedules (known as a 3 statement model).
From there, more advanced types of models can be built such as discounted cash flow analysis (DCF
model), leveraged-buyout (LBO), mergers and acquisitions (M&A), and sensitivity analysis. Below is
an example of financial modeling in Excel

2.  What is a financial model used for?

The output of a financial model is used for decision making and performing financial analysis,
whether inside or outside of the organization. Inside an organization, management will use financial
models to make decisions about:

 Budgeting and forecasting (planning for the years ahead)


 Financial statement analysis/ratio analysis
 Management accounting
 Capital allocation (priority of which projects to invest in)
 Valuing a business
 Raising capital (debt and/or equity)
 Making acquisitions (businesses and/or assets)
 Growing the business organically (e.g., opening new stores, entering new markets, etc.)
 Selling or divesting assets and business units

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