Financial modelling is the process of building abstract models to represent a real world financial situation. These models can be built either completely from scratch or based on existing models such as the following:
- Discounted cash-flow Model – this financial modelling model assesses the viability of an investment opportunity. This model uses future free cashflow forecasts and discounts them to arrive at a present value which is used to evaluate the potential for investment. If the value determined from the discounted cash-flow model is higher than the investment amount, the investment may be a worthwhile one.
- Comparative Company Analysis Model – This financial model is based on the comparison of a company to its competitor of a similar size and in the same market. This model is based on the belief that similar companies will have similar valuations multiples. Much like when are looking for a house to buy online in the same area of the same size you will compare prices of those existing houses to reach a conclusion.
- Sum-of-the-Parts Analysis Model – This financial model provides a range of values for a company’s equity by adding the value of its individual business units together to arrive at the total enterprise value. This technique is often used in the protection against a hostile takeover of a business or restructuring a company to unlock the value of a business segment.
- Leveraged-Buy-Out-Model – A financial modeller will use this analysis when the acquisition of a company will be funded mainly through debt. This model determines the maximum purchase price that can be paid through leverage or debt as well as equity return parameters.
- Industry Specific Model – As all industries are very different from one another, there will be specific models used for specific industries such as Oil and Gas, Real Estate and Banks and Financial Institutions.
There are more financial modelling models that we haven’t covered above which we will in due course. There is also a lot more in depth information to each analysis model which can take years of learning and practice.
We offer a number of financial modelling courses for aspiring modellers as well as advance financial modelling experts,
Established in 1998 Goalfix Financial Modellers has grown into a highly specialized firm of financial modellers and model trainers. We offer a number of financial modelling courses for aspiring modellers as well as advance financial modelling experts. To learn more about financial modelling services or financial modelling courses offered contact Goalfix today.