What is Financial Modeling – Examples

Own a business? Interested in investing or looking for investors? Then you need a financial model. Financial modeling is the process of creating a framework or a model of a business’s financial situation. It usually comes in a form of a mathematical representation which shows the performance of all financing in a business, project, or any other investment. Business executives, entrepreneurs, venture capitalists, and other entities, greatly benefit from financial modeling, hence it became a great tool commonly used for those in need of help in financing.

There are many types of financial models which are commonly used nowadays. Listed below are financial modeling examples.

• Three Statement Model – most basic setup for financial modeling, consisting of the three statements such as the income statement, balance sheet, and cash flow.

• Discounted Cash Flow (DCF) Model – most used valuation method, built on the 3-statement model to value a business’ future cash flow based on its Net Present Value (NPV)

• Budget Model – either personal or business use, this is a popular model for creating a budget plan

• Forecasting Model – best use in a financial plan, to do a forecast, projection, and analysis

• Initial Public Offering (IPO) Model – commonly used by investment bankers and corporate development professionals to do a valuation of their business before going public

• Merger Model (M&A) – usually used by advanced financial modelers to conduct a merger and acquisition

• Leveraged Buyout (LBO) Model – another advanced financial model for creating a sound debt schedule 

• Sum of the Parts Model – this kind of model is usually built by taking several DCF models and summing it up together

• Consolidation Model – in this model, instead of just one business, there will be multiple business added into one single model

• Option Pricing Model – there are actually two ways you can create with this kind of model, but basically, this is usually presented purely as mathematical and acts as a calculator rather than subjective

To learn more about financial modeling and acquire financial models that you can use as a template, you can check out eFinancialModels which offers a wide range of industry specific financial model templates made by experienced financial modeling experts.