Financial modeling refers to the process of building a simulation how the relevant industry parameters will affect the financial performance of a company during the next years. Since the model are heavily oriented towards financial information, financial models are characterized by a multiple of assumptions and calculations which are needed to derive the resulting financial forecast in terms of cash flow of basis. Such cash flow forecast then can be used to calculate the appropriate financial indicators such as the internal rate of return (IRR) or net present value (NPV) which are needed to make educated and rationale financial decisions. Financial models. Financial models are used by entrepreneurs and executives in all aspects when it comes down to make financial decisions, be it the allocation of budget towards investment projects, investment decisions, capital raising from banks or investors, buying or selling a company, breakeven analysis and many more applications.
Many businesses rely on specialized consultants for their financial modeling services. Businesses need to derive a detailed forecast on prices, volumes and costs which normally ends in a very time consuming exercise in order to build a solid financial model. Hiring an independent financial modeling freelancers or analyst makes it much easier to get that work done since the time-consuming work can be outsourced.
The main advantage of building a financial model is that it provides entrepreneurs and executives with a rational basis to make financial decisions. Since a financial model is a simplified version of reality, the usefulness of a financial model is determined by the quality of the analysis and the accuracy of the assumptions used. If you feed a financial model with the wrong assumptions and parameters, most likely also the outcome will be wrong. Financial modeling in excel therefore requires to ensure that the analysis performed is as accurate as possible and therefore needs the help of specialized financial modelers.
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