Types of Financial Models

The 10 most common types of financial models used by finance professionals.

Top 10 types of financial models

Here is a list of the 10 most common types of financial models:

  1. Three Statement Model
  2. Discounted Cash Flow (DCF) Model
  3. Merger Model (M&A)
  4. Initial Public Offering (IPO) Model
  5. Leveraged Buyout (LBO) Model
  6. Sum of the Parts Model
  7. Consolidation Model
  8. Budget Model
  9. Forecasting Model
  10. Option Pricing Model

More detail about each type of financial model

To learn more about other types of financial analysis you may want to check out:

Three Statement Model – this is the most basic setup for financial modeling. As the name implies, in this model the three statements (income statement , balance sheet and cash flow) are all dynamically linked with formulas. Learn the basics here.

Discounted Cash Flow (DCF) Model – this model builds on the three statement model to value the business based on the net present value of the business’ future cash flow. These types of financial models are used in equity research and other areas of capital markets.

Merger Model (M&A) – this is a more advanced model used to evaluate the accretion / dilution pro forma of a merger or acquisition.  Level of complexity can vary widely, and most commonly used in investment banking and/or corporate development.

Initial Public Offering (IPO) Model – bankers and corp dev professionals will also build IPO models in Excel to value their business in advance of going public. This includes “an IPO discount” to ensure the stock trades well in the secondary market.

Leveraged Buyout (LBO) Model – a leveraged buyout typically requires modeling complicated debt schedules and is an advanced form of financial modeling.

Sum of the Parts Model – this type of model is based on several DCF models added together, as well as other components of the business that might not be suitable for a DCF (i.e. marketable securities, which would be valued based on the market).

Consolidation Model – multiple business units added into one model. Typically each business unit is its own tab, with consolidation tab that simply sums up the other business units.

Budget Model – used in financial planning & analysis to get the  budget for the coming year(s).  Budget models are typically designed to be based on monthly figures.

Forecasting Model – also used in FP&A to build a forecast that compares to the budget model. Sometimes the budget and forecast models are one.

Option Pricing Model – the two main types are binomial tree and Black-Sholes. These models are based purely on mathematical models, rather than subjective criteria.

Examples of financial models

Here are some screenshots of the various types of financial models discussed above. If you’d like to have the templates you can always download our financial models.

3 Statement Model

Download our 3 statement financial model.

DCF Model

Download our DCF model.

More learning

To learn more about financial modeling and valuation you may want to check out:

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