In a simple word Financial Modelling is a detailed analysis of company’s financial data based upon historical performance and future projections. There is one biggest advantage of financial modelling is that once it build, it gives a repetitive effect. In today’s corporate world where the key of success is to create a value addition in the process, financial modelling is a great help to build a vertical growth.
Most of the people have got myopia about the financial modelling. They are thinking financial modelling is used only in analyzing financial statement or any other analysis related to supply chain, HR, operation etc., So the user of the financials modelling are limited to financial analyst, FP & A manager, Finance Head, GM Finance, Financial controller, CFO and partially to CPO, CTO, Supply Chain head, COO, CEO etc., but this is only one part of the story where financial modelling are used to build up a data which is historically present in company’s ERP system or to build up budget,forecasting, Demand analysis, AOP, MIS etc.,
There is a complete separate side of financial modelling which gives a border perspective and huge user base to it. Financial modelling helps in developing a new business setup where there is nothing available except some industry data and secondary research data.
These are the steps of building a model from scratch:
It helps to build a demand forecasting model, sources of supply, value chain, and competitor analysis and ultimately find the GAP of the entire process which helps to find out the vacant area available in the market and serving capability of the new comers. This will help to analyse the potential revenue sources through a proper revenue modelling.
There are two main costs in the business one is direct cost another is indirect cost. Financial modelling helps to determine both even when there is no historical data available as an example it helps to build a supplier competitive analysis and a cost benefit analysis which help to choose which supplier will give a weighted average benefit between Quality, Quantity and cost effectiveness.
Ultimately financial modelling helps to choose the business model, distribution channel, pricing strategy even the corporate level and financial strategy of the company. As your all figures are placed and all competition analysis and cost benefit analysis is in front of you so it is very easy to define which strategy to use for the target market. Will you use focus strategy or you have to take pricing war strategy to meet up the cut throat price war?
So from the above analysis we can easily understand in today’s user of financial modelling are not only limited to finance people it know everywhere from entrepreneur to the Investor. This is the field where financial modelling are more than essential.
Users of financial Modelling:
• Financial analyst
• FP&A Manager
• Financial controller/GM finance
• Finance Director
• Supply Chain head
• Banker/Investment banker/Hedge fund broker
• Demand analyst
• Competition analyst
• PE firms
• Share brokers/Analyst
• Business valuation analyst
• Budgeting and forecasting analysis
• Business heads
• Debt market analyst/Debt raiser
• Financial consultant/Wealth manager
This list is only the beginning there are lot of other user and use of financial modelling in practical life. We, Corporate Rishi as a developer of future business leaders are launching an improvise platform where we not only teach but we will build an experience of financial modelling.