SPECIALISTS IN FINANCIAL MODELLING

Pasting Images from Excel into PowerPoint

Copying and pasting charts or tables directly from Excel into PowerPoint is not a straightforward as it sounds!  When you are embedding charts, tables or (heaven forbid) a spreadsheet into a PowerPoint slide, it’s best to paste the image in as a picture or JPEG. 

If you do a straight Control-C Control-V copy and paste, the original Excel file is automatically embedded in the PowerPoint document and this is not usually recommended, for a number of reasons;

  1. File size Each time you copy and paste a chart or a table, it copies all the data, and if you’re doing a few of them, the PowerPoint document will end up enormous.  
  2. Confidentiality Sometimes don’t want the data to be accessed from the slides for confidentiality reasons.  I’ve heard plenty of horror stories of modellers sending out PowerPoint files to clients and inadvertently including confidential data in the PowerPoint document which can then be accessed by anyone who pokes around in the chart.  In one particular example, a supplier sent through their final presentation for a bid tender submission, and the vendor was able to access the supplier’s entire financial model which contained all their pricing calculations!
  3. Colour themes When we do a straight copy and paste the colours of your chart take on the themes and styles of the PowerPoint slide.  This can be frustrating, when you’ve got the chart looking exactly the way you want, and it suddenly looks different when it’s been pasted.  Use “Paste Options” and select “Keep source formatting” to get around this.
  4. Version control If you’ve got shapes, extra graphics or text boxes on your chart then these have a tendency to move around if you adjust the size or position of the image in PowerPoint.  It’s best to get the image looking exactly the way you want, and then paste it in as a picture to ensure it does not change again.  

Instead of using Control-V to paste the image into PowerPoint, right-hand click instead, and select the “Picture” option. Note that the exact same concepts apply if you are copying and pasting from Excel into Word, Outlook or any other Microsoft product.

Remember that PowerPoint is intended to be used as a presentation tool, not for storing and manipulating data. It’s best to make any changes to the chart in Excel, and then copy it into PowerPoint once it’s finished. The concept is exactly the same as using a PDF to send a final report.  When you’ve put together a report in Excel, Word or specialised software, it’s much more professional to convert it to PDF before sending it out.  This way we can ensure that the final report looks exactly the way that we intended it to without worrying that the end user will make inadvertent changes, or not be able to view it properly due to licensing issues.

Of course, you may still deliberately choose to embed the Excel image, leaving the data in the PowerPoint slide for documentation purposes, or in case you need to make a change.  That’s absolutely fine, as long as you realise it’s there and are able to deal with the problems outlined above.  

To learn more about creating charts and presenting data visually, attend our Data Analysis & Dashboard Reporting course which run regularly in Sydney, Melbourne and Brisbane.

Gender Equality in Financial Modelling

Congratulations to Alvin Woon, the new 2017 ModelOff Financial Modelling World Champion! Every year, 16 ModelOff finalists are flown to compete at the Microsoft headquarters in New York or London. Yet again, not one female made it to the finals and when the organisers posted an image of 16 finalists of varying age, ethnicity and background – but all male – it predictably sparked a storm of online criticism.

The first couple of years ModelOff had at least one female finalist and in 2013 Hilary Smart won it but that victory was short-lived because the last two years running we’ve had male finalists only. My view is that the ModelOff attracts men who thrive on competition whereas women don’t feel the need to prove themselves. Even if we can explain the result, it doesn’t help. It’s an embarrassment to our industry that we can’t provide at least a few female modellers – I know there are plenty of us out there! My financial modelling training courses are always at least 50/50. Personally, I’ve never competed because I no longer model the long hours I used to and although I’m an industry expert, I don’t think I’d make the finals and I don’t need to put myself through it. Do all female modellers feel that way?

Modelloff Women - Gender Equality

The finalists are “chosen” by two anonymous online rounds so the selection panel doesn’t see race, age or gender when assessing the scores. It’s entirely skills-based so there’s no way that bias can come into it – the problem is that women simply don’t enter the competition. Finding female speakers on the topic is apparently just as difficult. I was the only female speaker at the Sydney ModelOff GTC for the past two years running and that’s just GOT to change. I know the organisers well; they are keen to address this problem and want to hear from the financial modelling community. I’ll be meeting with them soon to discuss how we can tackle this issue and I’m keen to hear what ideas you’ve got to attract more women!

Why every Excel model you build makes you a better modeller

There’s nothing quite like experience to really hone and sharpen your Excel modelling skills. Every hour that you spend nutting through a problem on the job means that the next time you come across a similar problem, you’ll solve it in a matter of minutes, not hours. This is especially true for creating complicated Excel formulas, or for model design and layout. So often I come across a problem when building a modelling solution for a client and I know I’ve seen this problem before.  Whilst it might have taken me half an hour to model it out the first time, often using trial and error but the next time it’ll only take a few minutes. The more experience you’ve got, the quicker and better modeller you’ll be.

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The Magic of Financial Modelling

I’ve come across a lot of preconceptions (and misconceptions) about the idea of financial modelling; many people think it sounds very elaborate and esoteric, even mystical. Some question whether the skill is a science or a creative tradecraft in the industry, and I’ve even heard suggestions that it’s a dark art!  But what is financial modelling really – an art, science, or just plain magic?

A financial model takes a theoretical idea or problem and translates it into a practical construct we can use to see what might happen in the future. Like a crystal ball?  Well, I suppose so, but it’s far more accurate!  For example, you might be worried about business risk and want to know what will happen to profitability if costs from a particular supplier were to increase. You can build a model to represent the business and run scenarios to see how profitability might be affected if these costs were to increase.  In this case, inputs are costs, volume and pricing, and outputs are profits. A good financial model has these inputs and outputs clearly defined and as we change the pricing inputs, the profitability projections will automatically change.  Being able to perform simple scenarios or sensitivity analysis in a model like this, the instant information can really seem like magic. So Financial Modelling is magic then?  Well no, not really.  Once you know how it’s done, you can break it down into a set of processes and in the same way as a card trick, it can be taught!

Is Modelling an Art or a Science?

As there are many components that make up a financial model, the skills needed for financial modelling are many and varied.  A modeller must be a good mathematician as well as someone who can think creatively and who possesses sound logic in order to pre-empt possible outcomes and make sound and reasonable assumptions about the business.  Like a fortune teller, you need to be able to read the situation and ask the right questions, assess possible roadblocks and side-step potential pitfalls.  A good modeller will not delve into unnecessary detail, knowing when to use rough estimates for assumptions, and when to perform precisely detailed calculations.

Simply put, the financial modeller must get the calculations correct, understanding the relationship between numbers, which data to collect, and be able to define and explain the assumptions made for future projections. There are also the considerations of other variables, such as stakeholder buy-in and the wider environment. How likely is it that the decision makers are going to change the growth rate assumptions over time? If not, a simple single input for growth will suffice.  Otherwise, a separate input cell needs to be created for every single time period of the model, which makes the model more complex to build as well as audit and understand. A good financial modeller can make the trade-off between simplicity, clarity and sophistication or complexity and has the ability to see how their model fits into the bigger picture.

So are these artistic skills or scientific skills?  In my opinion, they need both.

The scientific side of modelling is in quantifying the business performance, getting the mathematics correct and understanding the relationships between the quantitative data.  In order to engage and motivate investors, the numbers must be accurate and clear. This, in basic terms, means ensuring that data used reflects the true situation clearly and concisely, and highlights the key information. Taking this approach shows that precision and complexity are key features of the financial model, and will evoke confidence to those viewing and using the model.

A financial modeller certainly needs a certain level of artistic skill for the aesthetic design and layout of a model.  This is an area that many modellers and analysts struggle with, as aesthetics simply do not come naturally to left-brain thinkers like us. (Now, I know that this left brain / right brain theory has been largely debunked but I still think there’s something to it!) We are mostly so concerned with accuracy and functionality that we often fail to notice the way the model looks to someone else viewing it for the first time. Although it’s just a simple matter of taking our time when formatting, most of us could not be bothered with such trivial details as making models pretty, and consequently most models I see use the standard gridlines, font, and black-and-white colouring that are Excel defaults.

I’m certainly not suggesting that you embellish your models with garish colours, but you should take some pride in your model. I’d highly recommend that you spend a few moments to change the styles and formatting as you build the model so that it looks less like a clunky spreadsheet and more like a professional, reliable, well-crafted model you’ve taken your time over. Research[1] shows that users have more confidence in models with aesthetically pleasing formatting than those without, so one of the fastest and easiest ways to give your model credibility is to simply spend a few minutes on the colours, font, layout, and design.

The artistic nature of a financial modeller is also needed when the model requires forecasting of future performance.  Crystal ball gazing is probably not a skill that you possess, so you will need to spend some time thinking about how this is best done accurately.  A set of assumptions must be made to make predictions or forecast outcomes in your model.

If a financial model is required for an untested startup or product, then the model really is a true art; even the most basic calculations will involve a lot of assumptions and rationale explanations.  Working out which assumptions to use is a difficult task, especially if you don’t have prior history to go on. Sometimes it’s simply a matter of coming up with what you think is a reasonable assumption for the base case, and then performing sensitivity analysis on these inputs to see what the impact would be if you got it wrong (because let’s face it, they are highly likely to be wrong in this sort of situation!) Use your influence to gather data, perform careful research and analysis, or engage subject matter experts to help you to get some comfort around the inputs and assumptions. Before presenting the output of the model to stakeholders, ask for their feedback and input on the logic and calculations which have gone into the model. Use the knowledge of those around you; involve them right from the start of the project.  Get your audience and stakeholders to participate in the magic of the financial model building process, because as every great magician knows, audience participation increases engagement and attention span so that because they are involved in your model, they are willing for it (and you) to succeed!

In the 1990s when the internet sector was growing very quickly and the potential returns from internet-based companies soared to giddy heights, investors were lured into decisions based on impossible situations within models. They believed financial models depicting growth rates above 1000%.  Of course, a financial model is only as good as the assumptions that go into it and these models were not faulty, rather the assumptions were incorrect.  The incredible potential of these companies based on this exciting new product called the world wide web caused irrational behaviour as it triggered a belief that anything was possible and logical reasoning no longer applied. The financial models did not rely upon accurate calculations and had wild assumptions integrated – metrics predicting future performance such as page views and clicks – before there was any understanding of how these metrics could increase revenue.  Because these growth rates were based on unsustainable assumptions, it was only a matter of time before the dot-com bubble collapsed to cause widespread misery to all involved.

No matter what else, the calculations within a model must be realistic and must consider mathematical principles as well as incorporating clever and logical guesswork. Like a good card trick, your audience will want to know how you achieved it, and unlike a magic show, you cannot keep your “tricks” to yourself!  You need to be able to explain the magic (i.e. how you came up with the calculations) to continue the performance.


1. “Reducing Overconfidence in Spreadsheet Development”, Dr Raymond R. Panko, 2003

 

Financial Modelling World Championships and Certification

Teach at a workshopI was pleased to be invited to speak again this year at the ModelOff Sydney Global Training Camp (GTC) held at the Microsoft Offices last week. It was, as always a great learning and networking event and I thoroughly enjoyed spending a solid two days surrounded by others who also get very excited about financial modelling!

As well as hosting the GTC, the team at ModelOff have done some great things over the past few years to advance the standing of financial modelling as a discipline in its own right.  The ModelOff Financial Modelling World Championships are held every year and registrations are now open for the online Round 1 on 23rd September. If you fancy yourself a modelling whiz kid and want to gain some bragging rights at work, why not test your skills against the world’s best and see how they stack up? The results are not published and only the names of the finalists are made public so there’s no harm in giving it a go!

In addition to the championships, ModelOff has now partnered with The Marquee Group and formed the Financial Modeling Institute (FMI) to launch a new financial modelling certification. I’m proud to announce that Plum Solutions is one of the first approved training providers.  The certification is at three levels and first exam will be held on 21st October, and again in May and we have launched providing a Level 1 FMI Advanced Financial Modeler Exam Preparation course available in Melbourne and Sydney.  This course is available as public workshop or in-house at your organisation.

What does the FMI do?

  • Advances the financial modelling profession by delivering and administering the Financial Modelling Certifications and supports high quality education and training for financial professionals

What is the Level I: Advanced Financial Modeler (AFM) exam?

  • The Advanced Financial Modeler (AFM) is the first of three certification levels offered by the FMI
  • This exam forms the foundation for subsequent certification levels and focuses on the skills required to design and build integrated financial models

Why earn the AFM certification?

  • Skill Validation: Demonstrate advanced financial modelling proficiency to yourself and employers
  • Personal Development: Invest in yourself by earning certifications that are challenging and revered by the industry
  • Career Flexibility: Obtain a skillset that is globally relevant and respected across multiple lines of business

What is the exam format and how should I study?

  • 4-hour exam held at global testing centres
  • The next exam date is October 21, 2017
  • All exams are in English
  • You will be required to bring a valid piece of government-issued photo identification to the testing centre on exam day (e.g. passport or driver license)

Find out more about the certification

Find out more about Plum Solutions’ Exam Prep Training
 

 

Should I put “financial modelling” on my resume?

Student in a workshopI’m often asked what degree of skill level one needs to be able to include financial modelling as a skill on your resume or LinkedIn profile.  Once you’ve got an idea of exactly what is financial modelling, what is involved in the modelling process and you feel like you’ve got a good knowledge of financial modelling skills that you have used in the workplace then – yes – “Financial modelling” definitely needs to go on your resume and on LinkedIn. (Hint: no one can endorse you for a skill unless you list it on your profile, so be sure to keep your skills listing up to date).

Since the economic crisis in 2008, emphasis on financial modelling has increased and in response, we have seen a rise in job descriptions specifying financial modelling as a core deliverable.  If you’re applying for a job in finance then employers will no doubt look favourably upon this skill, as long as it rings true with the rest of your resume.  It’s important that you can embellish the tasks in previous roles with examples of what kinds of models you built.

There are lots of well-respected vocational short financial modelling courses that are available, however, what prospective employers really want to see is the application of financial modelling techniques in your everyday work.

Just reading a book or going on a financial modelling training course (even one of mine) doesn’t mean you can add “financial modelling” to your resume or LinkedIn profile!  You need to have actually used your modelling skills in the real-world environment.  Think about situations in past jobs where you have used Excel to create a model.  Take every opportunity to use models in your work.  If you’re not in work then find example models online, take them apart and see how you can improve them.

As with any information included on your resume, you must always be able to back up everything listed.  If you have had some experience using a financial model in a previous role, by all means, include it in your resume – but don’t exaggerate because you may well be asked in the interview to back up and discuss in great detail the intricacies of how you created a particular model.  Your resume should showcase your work history in the most favourable light but be realistic and able to back up your claims with real life examples – interviewers will not appreciate vague or cursory answers.

The majority of job descriptions incorporating financial modelling in the core skills of an available role are those in the economics, accounting, finance and project management spheres.  For these types of jobs, it may be a more generic level of experience that they are looking for. If you can understand how an Excel spreadsheet works and the principles of control, you may not want to include the term ‘financial modeller’ in your core skills. However, phrases such as “Ability to apply strong financial controls” or “Strong analysis skills, allowing a flexible approach to decision making” can display the desired capabilities.

At the very least, the interviewer would be looking not only for the basic Excel skills but also the ability to calculate scenarios, present data as well as use advanced formulas. Also be aware: it is common for candidates to be tested in their skills within the interview process. Some self-development in these areas ahead of a career change can really help. If you have your heart set on a role which requires financial modelling experience, there is a wealth of information, courses and training that can support you.  They can include advanced Excel and programming skills, as well as how to analyse financial reports and the more technical, industry-specific tools and techniques.

Experience in the field is also invaluable, of course. There are numerous voluntary opportunities where you could practice these skills and deliver a benefit while looking to get your foot on the ladder. Alongside this, self-study can support you in making this career change.  Just be careful not to get carried away when including the self-study on your resume; and back up your claims with specific examples of work you have completed.  Good luck!

 

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.

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