This document provides an introduction to financial modeling. It explains that financial models are used to answer underlying questions for companies, banks, investors, and other stakeholders. A financial model is a spreadsheet representation of numerical financial data that helps with decision making. It discusses how models are used in equity research, project finance, mergers and acquisitions, and other areas. The document also outlines attributes of good models and prerequisites and job opportunities for learning financial modeling.

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Financial Modeling
Introduction
Financial Modeling

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Financial Modeling
Introduction
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Financial Modeling

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Why does anyone make a financial model?
To answer
Some Underlying
Questions…
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For Example
• Companies
– Should we invest in this project?
• Banks
– Should we give loans for this project?
• Credit Rating Agencies:
– Can the company service its creditors? What is the
rating that we should give this debt issue?
• Equity Investors
– How does the future of this company look like? Are we
buying at a fair price?
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What is Financial Model?
• It is a representation for numerical flow of any
financial data.
• It is a decision making and planning tool for finance
professionals.
• It is performed with the help of a spreadsheet or
some dedicated financial software.
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Use of Financial Modeling
It is widely used on financial
decision making and
planning processes like:
• Equity Research
• Project Finance
• Financial Planning
• Mergers and Acquisitions
• Leverage Buyouts (LBO)
• Startup Investing
• Credit Analysis
• Derivatives
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Financial Modeling Decisions
• Equity Researchers:
– Is the stock undervalued or
overvalued?
• Companies:
– Whether to make investment in
the project or not?
• Bankers:
–Should loan be given for a
project or not?
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What does a model look like?
• A models can be very basic , perhaps a single excel sheet
OR
• It can be 30-40 sheets or even multiple workbooks with
several macros and can be fairly detailed and complex.
• It largely depends on the end use that you have in mind.
• If used for internal analysis it may remain a simple Excel
worksheet or the final output may be a well done report.

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Example…

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Attributes of Good Models
• Realistic
– Assumptions used in the model should be realistic to get realistic output else a common
saying prevalent among financial modeling professionals is “Garbage in, Garbage out”.
• Error-Free
– Many financial decisions are based on models, hence it should be error free for non-
erroneous decision.
• Flexible
– Changes are inevitable, hence the model should be flexible enough to incorporate any level
of changes.
• Easy to use
– The model should make it easy for a user to understand the movement of figures.
• Easy to understand
– Should not be a one man’s language.

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Users of Financial Modeling
Various finance professionals
who use financial modeling
are:
• Bankers
• Investment Bankers
• Project Finance
professionals
• Equity Researchers
• Financial Planning Advisors
• PE & VCs
• Hedge Funds
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Prerequisites for Learning Financial Modeling
• Knowledge of MS Excel
• Basics of Economics
• Accounting Fundamentals
• Financial Management
• Knowledge of Financial
Market
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Job Opportunities in Financial Modeling
• Financial KPO’s
• Equity Research
• Investment Banking
• Banks
• Hedge Funds
• Insurance Companies
• Mutual Funds
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Thank You…