Financial Modelling – What, Why & How?

At Cambridge Finance we train professionals in the construction, development and analysis of financial models. We believe this is a hugely valuable skill in real estate and the financial industries. Why? Please read further.

  1. What?

Before delving into why we need financial modelling, let us first look at a definition.

financial model is a tool (typically built in Excel) that displays possible solutions to a real-world financial problem. And financial modelling is the task of creating a financial model.

Danielle Stein Fairhurst – dummies.com

The financial model varies depending on the information the user wishes it to provide. At Cambridge Finance we specialise in real estate financial modelling, therefore variables are inputs such as rental values, lease length, break clauses and so forth.

A financial model is far superior to a ‘normal’ spreadsheet. A financial model is dynamic;  it can illustrate relationships between several variables, show forecasts and potential outcomes otherwise referred to as scenarios.

In short, a financial model utilises several variables, inputs and outputs, and is both flexible and dynamic.

  1. Why?

The simplest way to consider why we need to build financial models is to look at the same analogy with a car. Constructing a car requires amassing car components, creating a detailed design and production process and finally testing a prototype. Without these stages you could be short of an engine or have engine failure!

It is the same with financial models.

Prior to making an investment decision , it is critical to you, your clients and ultimately your organisation, to have built a financial model and run it through a rigorous testing procedure in order to understand how the financial model should perform. These tests will be hypothetical but it can help you mitigate risk and maximise return.

Financial modelling is a tool that allows us to look into the future and by making calculated assumptions about how variables will behave, we can see potential outcomes. This is a process that can be done on paper, however it would be hugely time consuming and unable to account for unexpected scenarios such as a break clause in year 3. In which case you need to restart the whole process again.

Being able to work our equivalent yields quickly and efficiently has changed my life.

Cambridge Finance – Testimonials

The beauty of a financial model is it’s flexibility.

Many businesses have multiple investments, to have paper calculations or non dynamic spreadsheets for these would be cumbersome and rudimentary.

Financial modelling enables informed, well founded financial decisions.

  1. How?

In order to make the financial models we make accessible and understandable we need to apply standard techniques and avoid using functions that can cause errors such as circular references. The presentation needs to be professional and easy to read.

Unlike other real estate finance and modelling courses which I’ve taken, the course was based on the very latest Excel modelling functions, which led to the creation of streamlined and easy to explain models.

Cambridge Finance – Testimonials

In order to make the financial models we make accessible and understandable we need to apply standard techniques and avoid using functions that can cause errors such as circular references. The presentation needs to be professional and easy to read.

Unlike other real estate finance and modelling courses which I’ve taken, the course was based on the very latest Excel modelling functions, which led to the creation of streamlined and easy to explain models.

Cambridge Finance – Testimonials

The more complicated the investment structure that is being modelled, the more interrelationships with functions and variables there need to be. Building your core understanding and knowledge from ground level up is thus imperative to have the skills to not only develop but also analyse complex financial models. 

At Cambridge Finance we can help you understand the very foundations of modelling, and train you to construct robust, flexible and professional financial models that will enable you to make discerning financial decisions.

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