Financial Modeling

A financial model is simply a spreadsheet, usually built in Microsoft Excel, that forecasts a business’s financial performance into the future. The forecast is typically based on the company’s historical performance and assumptions about the future and requires preparing an income statement, balance sheet, cash flow statement, and supporting schedules (known as a 3-statement model). From there, more advanced types of models can be built, such as discounted cash flow analysis (DCF), leveraged buyouts (LBO), mergers and acquisitions (M&A), and sensitivity analysis.

There are many types of financial models with a wide range of uses. The output of a financial model is used for decision-making and performing financial analysis, whether inside or outside the company. Financial models are used to make decisions about: 

• Raising capital (debt and/or equity)
• Making acquisitions (businesses and/or assets)
• Growing the business organically (e.g., opening new stores, entering new markets, etc.)
• Selling or divesting assets and business units
• Budgeting and forecasting (planning for the years ahead)
• Capital allocation (priority of which projects to invest in)

Forecasting a company’s operations into the future can be very complex. Each business is unique and requires a very specific set of assumptions, calculations, and knowledge of accounting and financial principles. Corporate CFO LLC provides comprehensive financial modeling prepared by experienced CPAs and MBA professionals.At this point, a CFO will take a critical look at the business’ financials, warts and all, and determine what needs to change.