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financial modeling excelExcel has changed the way we approach the management of our companies and organizations. Excel offers powerful functions and formulas that allow for the efficient calculation of complex data sets to provide an indication of what the outcomes of various financial decisions or investments will be. Excel therefore makes it easier to create complex financial models that can be used for various decision making processes within the organization. Financial modeling has become far easier based on the functions and formulas available in Excel, but a solid foundation in Excel is required to create financial models, and the Excel for Business – Learn Excel Online offers over 96 lectures that will improve and enhance your Excel skills.

What Financial Modeling is

Financial modeling means creating a program or structure to help you make a decision about a specific investment or project. Financial models can be constructed on a simple piece of paper or in Excel, but the advantages of creating financial models in Excel are that Excel provides functions and formulas that provide accurate and efficient information based on complex calculations and numerical data.

Financial models are used by anyone dealing with decisions that are based on or that impact future finances. In fact, most of us use some form of financial modeling to make decisions about our lives. When we consider taking out retirement annuities or making other investment decisions that impact our financial future, we are relying on a form of financial modeling to make those decisions. We may not set up spreadsheets and take tons of data into account, but we are nonetheless weighing up current decisions based on their impact on our financial future. When we buy a house for example, we consider the mortgage repayments and also take into account the future value of the home to decide if it is worth buying the home or whether we would be better off renting the property.

The Learn Financial Modeling from Scratch course offers over sixty nine lectures and eight hours of content that will teach you how to construct a financial model from scratch using Excel.

How to Construct a Financial Model

As mentioned above, most organizations today rely on financial models to make crucial decisions about how finances should be spent or invested. Although financial models vary depending on what they are used for, there are a number of general steps that are required to create an accurate financial model. These steps include:

1.       Collecting data for the model

2.       Creating projections of that data for the future

3.       Creating various scenarios based on the data collected

Data Collection for Financial Modeling in Excel

Most financial models start with a set of financial data. Financial data will include the historical data available for the proposed financial model. If for example you are creating a financial model to decide if an investment in a company’s shares or stocks may be a good idea, then the model would start with the Income Statements and Balance Sheets of the company involved. Historical data may also include figures that represent the growth of a particular market or market segment to allow for the prediction of future sales.

Accurate data collection is essential for an accurate financial model because the accuracy of future prediction is directly related to the accuracy of historical information. Data collection should include all of the aspects that may affect future predictions and a good financial model will include data on all of the aspects that affect the decision.

Creating Projections based on the Data

Once you have collected the data for the model, it’s time to decide how to structure the model to create future predictions for the data based on historical data. Financial models in Excel are generally constructed as either vertical models or horizontal models. There are various pros and cons to each type of structure and the Financial Modeling: How to Build a Complete Model with Excel course offers a comprehensive foundation on how to create financial models in Excel, how to select the best structure for your model and how to properly set up a model, create assumptions, and write formulas in Excel.

There are a number of Excel formulas that are essential for setting up future projections. These formulas include the IF functions, COUNTIF and SUMIF functions as well as the AND, OR, AVERAGE, MAX and MIN functions. The CFA approved Financial Modeling and Valuation Course will teach you how to use these functions and formulas in Excel to create accurate financial models and valuations.

Creating Scenarios Using Excel

The final step in creating a financial model is to create various scenarios for the model to predict the outcome of different decisions. The creation of different scenarios will often depend on the industry or sector that the financial model applies to. A financial model built for a product in the Oil and Gas Industry will have different data and scenarios than a model built for the Pharmaceutical Industry for example.

The CFA approved and accredited Financial Modeling using Excel course will teach you to create financial models for various industry sectors using Excel. It will show you how to create “what-if” studies to see what happens when the inputs change by changing the values of the collected data.

Who Should Learn Financial Modeling In Excel

Financial modeling is an essential tool for anyone trying to make financial decisions that are impacted by various different variables. Organizations involved in the development of new products must be able to create accurate financial models that will help them predict the profitability of a new product. Investment bankers and banks must be able to create accurate financial models to predict the potential profits and security of their future investments. Creating accurate financial models is also an essential skill for start-ups that rely on investor funding or that rely on securing a loan to start their own business. The Financial Modeling in Excel for Startups course will teach you how to create a financial model for a start-up business from scratch, using Microsoft Excel, which will help you raise funds for your business and get you one step closer to realizing your dreams.

Page Last Updated: February 2020

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