What is Financial Modelling?

There are all sorts of complicated definitions of financial modelling, and in my experience there is quite a bit of confusion around what a financial model is exactly.

A financial model is a structure (usually built in Excel) to solve real world financial problems mathematically, containing dynamic and flexible inputs and outputs.


Financial Modelling for Valuations

Building valuation models requires a specialized knowledge of valuation theory (using the different techniques of valuing an asset), as well as modeling skills. If you’re a casual financial modeler, you probably won’t be required to create from scratch a fully functioning valuation model. But you should at least have an idea of what types of valuation financial models are out there.


The Lifecycle of a Financial Model

Financial models sometimes don’t start out life intended to be a full-fledged financial model.  You might start fiddling in Excel, and go from there.  In its most basic form, a model might start its life as a rough calculation or a “back of an envelope” scribble – something that can help you make the most basic of financial decisions such as; how much money do I have left when the bills have been paid?  Those useful little calculations that help you plan whether you can afford to renovate your house.