Financial Modeling

A Comprehensive Guide to the Financial Modeling Topics

The foundation upon which commercial buildings are built is planning. Businesses that have diligently monitored their external environment and continued to prepare forward are frequently those that survive and prosper over the long term. Humans inherently have a variety of planning skills. Every salaried individual schedules their bill-paying for the following month. Every homemaker plans for the most cost-effective manner to buy the many items the family needs. Large-scale planning is also quite similar in many aspects of a business. Let’s get a detailed idea about Financial Modeling Topics for a better understanding of its requirements in Business.


First, we understand some basics of Financial Modeling:


What is Financial Modeling:

Financial in the context of modeling refers to calculations involving intricate mathematics. Therefore, the production of abstract representations of a company’s financial accounts is referred to as financial modeling. These models are designed to help decision-makers simulate their options and, in the end, comprehend how those options will affect the financial health of the company.

A financial model gives a company the ability to simulate different revenue and cost scenarios. This is the rationale behind the widespread use of financial models by businesses before major choices like the introduction of a new product line, entry into a new market, or acquisition of a rival.


Financial Modeling Approaches:

There are two approaches used in financial modeling. Both of them have advantages and drawbacks of their own. The precise strategy is decided based on the company’s budget and level of technical proficiency. These two approaches are in detail below:


  • Top-Down Approach:

The top-down method approaches financial modeling from the outside in. This suggests that the strategy begins by taking into account the entire market. The financial modeler must then start by speculating on how the macro-market is likely to develop in the next months. For instance, it is thought that the financial model’s starting point is the growth %, entrance obstacles, etc.


  • Bottoms-Up Approach:

The top-down strategy is the exact opposite of the bottom-up strategy. This strategy starts by examining internal factors, such as the good or service being provided. Operational planning is carried out based on these internal variables, allowing the department-level budget and production capacity to be determined.

Companies that operate in a stable market where the external conditions are unlikely to alter significantly over a short period benefit more from the bottoms-up analysis. The bottoms-up strategy requires the collection and analysis of point-of-sales data, which many businesses cannot afford. It is an expensive proposition because of this.


What is the Objective of Financial Modeling:

Key staff is better able to make judgments, thanks to financial modeling. These models are employed in a variety of decision-making processes. Therefore, not all sorts of decision-making can be handled by a single model. As a result, many sorts of models must be developed.

These models differ in the inputs they require and the outputs they produce. A professional financial modeler should be familiar with the fundamentals of these various models. For this reason, they have been thoroughly discussed below.

It’s critical to realize that financial modeling is not a technique where precise results can be reached by following a precise procedure. Financial modeling is just a framework or set of rules that are used to create a variety of financial models.

There are various types of models for different types of decisions. Important models are listed below:

  • Profitability Planning
  • Liquidity Planning
  • Credit Planning
  • Valuation of Campines
  • Valuation of Financial Instruments


Pros and Cons of Financial Modeling:

Corporations employ financial models practically every day. These models are useful for making several important strategic choices. Financial modeling isn’t flawless either, though. It is not a solution to every issue that a company’s finance department is now having.


Pros of Financial Modeling:


  1. Give more ideas about business:

An in-depth knowledge of the business is necessary to develop a financial model. Therefore, it is reasonable to say that corporations that develop financial models are somehow required to conduct more due diligence than their competitors.


  1. Help to Make Strategy

When businesses employ financial models, they can better understand their cash flow situation. It is straightforward to ascertain the company’s cash flow requirements, borrowing capacity, and interest payment capacity. This helps the company choose the appropriate financing strategy.


  1. Help in Making Proper Valuation

Financial modeling enables businesses to recognize their genuine value. Discounted cash flow models are used to determine a company’s value in the absence of modeling. Some of these models erroneously assume that revenues and expenses have linear ties financial models can be used to determine the precise amount of free cash flow that will accrue to the organization at different points in time.


Cons of Financial Modeling:


  1. It will take time

First and foremost, it’s critical to recognize how time-consuming financial modeling is. This is so that all the necessary duties can be completed for the project of establishing a financial model. The model must be checked for both technical and financial anomalies, the data must be gathered, and the underlying elements must be determined. Especially in the case of small-scale companies cannot afford much time and money on this and that’s why not possible to apply every time.


  1. Not always accurate

Financial models have often shown themselves to be deficient. It is important to realize that accuracy is a feature of the model Nobody has the expertise required to calculate factors like interest rates, tax rates, and market shares with accuracy. One may nearly always assume that if figures are forecast far into the future, they won’t be met.


  1. Few factors can’t consider

Soft factors like issues integrating the cultures of the two acquired companies have contributed to the failure of many mergers. Financial models cannot take into account such qualities. On the one hand, models account for cost savings brought about by the merger, which will result in synergies. On the other hand, they fail to account for the costs that may result from a lack of cultural compatibility. Over time, this causes assets to be overvalued.


Financial Modeling Future:

The process of financial modeling requires a lot of technology. This indicates that financial models are still using the most recent technologies at this time to guarantee that the simulation is using the most recent results. But as time goes on, technology is also developing quickly. Artificial intelligence, robotic process automation, and machine learning advancements will undoubtedly have an impact on financial modeling in the future.


  • Data Collection using Automation
  • Big Data used for Financial Modeling
  • Automation for creating Financial Model
  • Automation for updating Financial Model


Let’s See the Details of Financial Modeling Topics.


1. Financial Modeling

Financial modeling is a subject that carries 25% of the syllabus. A very broad range of financial modeling topics is covered, including corporate finance and portfolio management.


Corporate Finance:

Corporate finance is the planning and management of a company’s financial resources. Corporate finance is in charge of three main activities. Budgeting for investments and capital, financing for capital, and dividends and returns on capital are three of them.


  • Investment and Capital Budgeting: The major goal of this activity is to identify investment possibilities via long-term planning by the company’s capital assets. Such actions are all subject to thorough financial scrutiny.


  • Financing in Capital: This process involves carefully selecting whether to finance a company’s investment with debt, stock, or a combination of both. Long-term finance for capital investments can be obtained on the market through bank investments, the sale of the company’s stock, or the issuance of debt securities.


  • Dividends and capital returns: This activity entails holding surplus earnings to invest in new ventures and other operational requirements or to use the surplus profit to pay a dividend to shareholders by the corporate managers. If the surplus profits cannot be dispersed to shareholders, they are used to fund business growth.


Topics for Corporate Finance:

  • Module 1: Introduction to Corporate Finance
  • Module 2: Long-Term Sources of Finance
  • Module 3: Short-Term Sources of Finance
  • Module 4: Basic Concepts of Valuation
  • Module 5: Shares and Bond of Valuation
  • Module 6: Risk and Return
  • Module 7: Portfolio Theory
  • Module 8: Assets Pricing
  • Module 9: Capital Budgeting Decision – I
  • Module 10: Capital Budgeting Decision – II
  • Module 11: Cost of Capital
  • Module 12: Decision of Capital Structure
  • Module 13: Dividend Decision
  • Module 14: Working Capital Management
  • Module 15: Inventory Management
  • Module 16: Cash Management
  • Module 17: Receivable Management
  • Module 18: Derivatives & Risk Management
  • Module 19: Merger and Acquisition


Portfolio Management

The art of choosing and constructing a group of long-term financial investments and taking risks on behalf of a client or a business is known as portfolio management. Bonds, stocks, and cash are long-term financial investments. Few people work alone on portfolio management, which requires a fundamental understanding of essential concepts including maintaining portfolio construction, which involves rebalancing, diversification, and asset allocation.


Portfolio management has mainly two types of portfolio management.

  • Active Portfolio Management
  • Passive portfolio Management.


Elements of Portfolio Management are as below:

  • Asset Allocation: A long-term mixed asset, asset allocation guards and balances the firm against risk. Investors skew their portfolios aggressively toward volatile investments. Investors shift portfolios toward more stable investments, such as blue-chip stocks and bonds, by using a conservative profile weight.


  • Diversification: By distributing the reward and risk among the assets of individual securities, diversification reduces both. Predicting the winner and loser of investment on the spot is the only investing strategy that is impossible.


  • Rebalancing: Rebalancing is the process of selling expensive securities and investing the proceeds in less expensive, or out-of-favor, equities. Rebalancing is a yearly procedure that increases chances for high-potential growth sectors while also allowing investors to make money.


Topics for Portfolio Management:

  • Module 1: Objective of Investment Decision
  • Module 2: Financial Markets
  • Module 3: Fixed Income Securities
  • Module 4: Capital Market Efficiency
  • Module 5: Financial Analysis and Valuation
  • Module 6: Modern Portfolio Theory
  • Module 7: Valuation of Derivatives
  • Module 8: Investment Management


Also Read: Online Financial Modeling Courses


2. Finance

The second most important topic to master is financial modeling, which comprises 23% of the topics covered. Finance is, in essence, the management of money and involves tasks like borrowing, saving, planning budgets, investing, lending, and predicting.


There are three types of Finance:

Personal Finance: Personal finance is the management of one’s finances. Personal finance includes earning money, making purchases, saving money, and investing it. Wages, bonuses, salaries, pensions, and dividends are some frequent sources of income. Rent, mortgage payments, taxes, food, travel, credit card payments, and entertainment costs are all included in spending.

The most popular methods of saving are actual cash, money market securities, checking and savings accounts, and savings bank accounts. Real estate, commodities, bonds, stocks, mutual funds, and private enterprises are among the popular investment types. Estate planning, life insurance, and health insurance are the typical protection strategies.


Corporate Finance: Corporate finance is the planning and management of a company’s financial resources. Corporate finance is in charge of three main activities. Budgeting for investments and capital, financing for capital, and dividends and returns on capital are three of them.


Public Finance: Public finance refers to how various governments and quasi-governments manage the nation’s spending, revenue, and debt. The elements of public/government finance are taxation, the national budget, the national debt, expenditure, surplus, and deficit. Sales tax, income tax, property tax, value-added tax, import tariffs, and estate tax are examples of frequent sources of revenue and expenses. Health care, pensions, infrastructure, education, defense, and employment insurance are examples of common public expenses.


3. Excel

Excel covers 17% of the syllabus in Financial Modeling. The company’s management uses it as a tool for decision-making, cost estimation, and profit calculations for newly offered projects. Financial analysts use these financial models to compare the company’s financial performance to events or the impact of a specific stock on internal and external factors.


Topics for Excel:

  • Module 1: Introduction to Excel
  • Module 2: Exploring Various Types of Data
  • Module 3: Introduction to Formulas
  • Module 4: Introduction to Function
  • Module 5: Modifying Cell Contents
  • Module 6: Cell References and Ranges
  • Module 7: Introduction to Charts
  • Module 8: Accessibility Checker
  • Module 9: Workbook Form the Scratch
  • Module 10: Modifying Worksheet Structure
  • Module 11: Copy and Paste Data from one File to Another
  • Module 12: Create an Excel Table
  • Module 13: Working with the Excel Table
  • Module 14: Formatting the Worksheet
  • Module 15: Preparing to Print the Worksheet


4. Valuation

In financial modeling topics, valuation covers 10% of the syllabus. It is a method for determining the company’s present value under critical circumstances. Business valuation is a tool used by financial analysts to determine if a firm is overpriced or undervalued or to determine its present financial standing.


There are three types of valuation types.

  • Discounted Cash Flow (DCF) Analysis
  • Comparable Company Analysis
  • Precedent Transactions Analysis


Financial Modeling Topics for Valuation:

  • Module 1: Case Law and Expert Testimony
  • Module 2: Compensation
  • Module 3: Cost of the Capital
  • Module 4: Discounts and Premiums
  • Module 5: Divorce
  • Module 6: Economics Damage and Lost Profits
  • Module 7: Fair Value for Financial Reporting
  • Module 8: Global Business Valuation
  • Module 9: Goodwill
  • Module 10: HealthCare
  • Module 11: Industry Analysis
  • Module 12: Intellectual Property
  • Module 13: Market Comparable
  • Module 14: S Corps
  • Module 15: Standards of Value


5. Presentations and Visuals

In financial modeling topics, presentation and visuals cover 8% of the syllabus. Presentation and Visual play a crucial function in the use of financial analysts by projecting difficult model concepts in the simplest method possible.


6. Budgeting and Forecasting

In financial modeling topics, budgeting and forecasting cover 8% of the syllabus. These tools are used to create a plan for the firm to steer it in the appropriate direction. Financial forecasting determines how much money will be made overall and, in the future, as well as if the business is headed in the right direction.

Describes how a budget will be distributed for the organization in the next few days. Contrarily, budgeting consists solely of contrasting the company’s current performance with the forecasted performance anticipated for at least one year.


Financial Modeling Topics for Budgeting and Forecasting:

  • Module 1: Budgeting within a strategic framework
  • Module 2: Process of Building a Budget
  • Module 3: A Practical Guide to developing budgeting
  • Module 4: Techniques of Forecasting
  • Module 5: Analysis Tracking Performance
  • Module 6: Budgeting Tools and Techniques


Must Check: Financial Modeling Courses in India


7. Accounting

In financial modeling topics, accounting covers 5% of the syllabus. My ability to analyze the financial statements of public and private companies will improve once I have a better understanding of accounting for financial modeling. Cash flow statements, income statements, and balance sheet topics included in financial modeling courses assist students to develop a strong ability to solve difficulties in contemporary accounting.


Financial Modeling Topics for Accounting:

  • Module 1: Income Statement, Balance sheet, and Cash Flow Statement
  • Module 2: Account Payable and Accounts Receivable
  • Module 3: Advanced Accounting Topics
  • Module 4: Inventory, Goodwill, and PP & E
  • Module 5: Revenue and Deferred Revenue
  • Module 6: Cost of Goods Sold, Depreciation, Amortization, and Interest Expenses
  • Module 7: Equity and Debt Financing
  • Module 8: Capitalized Interest, Debt Financing Fees, and PIK Debt
  • Module 9: Finance and Operating leases
  • Module 10: Bonds and Discount
  • Module 11: M&A Accounting


8. Strategy

In financial modeling topics, the strategy covers 4% of the syllabus. Creating a national framework for analysis of the company’s position at a certain or anticipated future time point is what this action entails. Financial model tools are used to aid in the process of strategic planning.

The abilities that are most essential for effective strategic planning are the foundations of accounting and financial analysis. To make a strategy easily assemble the pertinent information, Create a strategy vision board. Make the plan’s mission clear. Decide on high-level strategic goals, and last but not least, put the intended strategy into effect.


Financial Modeling Topics for Accounting:

  • Module 1: Introduction to Strategy Financial Modeling
  • Module 2: Role of Leadership in the Planning Process
  • Module 3: Planning Models
  • Module 4: Strategic Plan Using Planning Tools
  • Module 5: Role of Stakeholders
  • Module 6: Identify the Vision and Mission
  • Module 7: SWOT Analysis for Environmental Scanning
  • Module 8: Framing Strategic issues


Frequently Asked Questions (FAQs) About Financial Modeling Topics


Q1. What is Financial Modeling?

Making a summary by using a spreadsheet to calculate a company’s revenue and expenses is known as financial modeling. This procedure makes it possible to estimate the company’s potential investment or choice.


Q2. How is a financial modeling career?

After completing financial modeling, there are numerous well-paying work prospects accessible. Investment banking, equities research analyst, financial planning & analysis, credit analysis, corporate finance, financial analysis, project finance, consultancy businesses, and real estate are a few job opportunities in the financial industry.


Q3. Exactly What is there in Financial Modeling?

To make it as easy to read and comprehend, the Financial Model comprises sessions of charts, graphs, supporting schedules, valuations, a balance sheet, a cash flow statement, an income statement, and sensitivity analysis.


Q4. What includes in Financial Modeling?

Monetary modeling Excel, valuation, budgeting and forecasting, presentation and visuals, accounting, and strategic financial modeling are among the topics covered in this course.


Q5. Will financial modeling be in demand in the future?

Yes, of course. The entire globe and economy are based on finance. Even if it is a small business or large, there is always a need to represent data and analysis of data to grow the business in a better way.


Let’s Conclude With Financial Modeling Topics:

The need for knowledgeable and experienced analysts is growing quickly in the modern financial sector. Taking up the themes of financial modeling discussed here will greatly advance your career. Find your area of interest and pursue it. Financial modeling is a vast field with many work options. I hope this article about financial modeling topics gives you more insight and is helpful to choose your career in this field.

Hiral Vyas

In 2008, I post graduated from Indira Gandhi National Open University with a Master of Computer Application. However, my passion for writing and reading never dies. Consequently, I began my own Gujarati blog in 2009. Also began contributing as a guest writer to numerous Gujarati blogs. In 2015, I released my first Gujarati book ‘Balak Ek Geet’. Even though I'm satisfied working as a coder for more than 15 years, my passion drives me. I, therefore, changed my career to become a content writer after having this great experience and learning that writing is my genuine calling. Writing blogs, articles, and digital content creation gives me great satisfaction.

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