Financial Modelling – What Is It’s Purpose?

Financial Modelling

Financial modelling is used to estimate the valuation of a business, portfolio or property. We use spreadsheets to inform and make financial decisions.

Spreadsheet users will have different perceptions of financial models depending upon need and experience. Financial models relate to mathematical models which represent a simplified version of a financial asset’s performance.

Financial modelling can be as detailed as necessary, making investment decisions better-informed, more rational, and can be presented to others in an easier-to-understand manner. Our dependence upon modern technology increases every day. Thus, businesses expect data to be presented in the visually engaging and adaptable manner that such technology enables.

Financial modelling gives abstract pictures of real-world financial scenarios. We view potential outcomes depending on various changes in the economy. In short, we get a much better picture of risk. The valuable insights such models afford enables prudent business decisions.

Financial models are used both internally for business planning and analysation. Externally they are used to inform investors or creditors. All important variables that may affect the financial outcome are included. This enables businesses to view different scenarios, be prepared and have contingency plans in advance. Coronavirus has shown us the importance of being prepared for the unexpected!

Main purposes of financial modelling:

  • Plays a key role in raising capital through debt or equity securities
  • Budgeting & forecasting
  • Valuation
  • Helps businesses to sell assets, therefore provide more liquidity
  • Acquisition decisions
  • Helps inform investors and managers for budgeting, forecasting &business planning
  • Helps financial institutions in assessing financial risks
  • Financial statement analysis
  • Management accounting

A good financial model will be flexible, easy to follow, and consistent. The assumptions made and conclusions within should be clear and the purpose of the financial model will drive the functions. The more you build up your financial modelling knowledge you, the more detailed and specific you can be in your financial modelling.

We understand how important good financial modelling skills are and have introduced two new certificate courses to start or build upon your skills.

New Cambridge Finance® Certificate Courses

Cambridge Finance® Certificate In Commercial Real Estate Valuation & Climate Risk

This Certificate In Commercial Real Estate Valuation & Climate Risk Course gives delegates a firm understanding of the why, what and how of commercial property valuation. We look in-depth at the climate risk impact on long-term value drivers and how to build this into your calculations. Then look more closely at financial models, using real life examples and case studies. Our aim is for delegates not only to be able to produce a valuation for a commercial property but also to fully understand it.

Cambridge Finance® Certificate In Real Estate Development & Financial Modelling

The Certificate in Real Estate Development & Financial Modelling Course will equip you with the knowledge to make investment decisions. To identify and mitigate risks & deal with the intricacies of property acquisition, management, and disposal. You will discover how to construct a robust financial model to assess the risk and return profile. Used for development, re-development, refurbishment, and value-add investments. Tailored to give you an in-depth understanding of the development process. Equip you with the tools to utilise your knowledge in a constructive and informative way and present the information to others.