Sure! Financial modelling is basically the process of building a mathematical model that represents the financial performance of a business, asset, project, or investment. It’s used a lot in areas like corporate finance, investment banking, private equity, real estate, and startups.
- Purpose: To forecast future financial performance based on historical data, assumptions, and projections.
- Typical Outputs: Income statements, balance sheets, cash flow statements, valuation analyses, and scenario analyses.
- Tools: Mostly Excel (or Google Sheets), but some advanced models use software like Python, R, or financial modelling platforms like Quantrix.
- Common Types of Models:
- Three-Statement Model: Connects the income statement, balance sheet, and cash flow statement.
- Discounted Cash Flow (DCF) Model: Used for valuing a company or project based on future cash flows.
- Merger & Acquisition (M&A) Model: Analyzes the financial impact of a merger or acquisition.
- Leveraged Buyout (LBO) Model: Used for buyouts with a significant amount of borrowed money.
- Budget and Forecast Models: Used internally to plan a company’s finances.