Financial Modeling Steps

List of Financial Modeling Steps

Here is a list of the most important financial modeling steps: (1) enter 3-5 years of historical financial information into Excel, (2) calculate the historical ratiosFinancial RatiosFinancial ratios are created with the use of numerical values taken from financial statements to gain meaningful information about a company. The numbers found on a company’s financial statements – balance sheet, income statement, and cash flow statement are used to perform quantitative analysis and assess a company's liquidity, leverage, growth, trends, and analysis for the company, (3) make assumptions about how the business will perform in the future, (4) forecast the income statementIncome StatementThe Income Statement (or Statement of Profit and Loss) shows performance from operations of a business. The financial statement begins with revenues and, balance sheet, and cash flow statement, (5) calculate free cash flow to the firm, (6) perform discounted cash flow (DCF) analysisDCF Analysis InfographicHow discounted cash flow (DCF) really work. This DCF analysis infographic walks through the various steps involved in building a DCF model in Excel. to value the company, (7) conduct sensitivity and scenario analysis, (8) perform error checking and stress-test the model, (9) create charts, graphs and tables, and (10) present the results of your analysis and recommendations.

Additional Questions and Answers

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In order to become a great financial analyst, below are some additional questions and answersKnowledgeCFI self-study guides are a great way to improve technical knowledge of finance, accounting, financial modeling, valuation, trading, economics, and other areas. These resources give you the technical skills you need to advance your career in investment banking, equity research, corporate development, and other areas of for you to explore further:

What is are the types of financial models?Types of Financial ModelsThe most common types of financial models include: 3 statement model, DCF model, M&A model, LBO model, budget model. Discover the top 10 types of Excel models in this detailed guide, including images and examples of each. Financial modeling is performed for many reasons including to value a business, raise money
What is sensitivity analysis?What is Sensitivity Analysis?Sensitivity Analysis is a tool used in financial modeling to analyze how the different values for a set of independent variables affect a dependent variable under certain specific conditions. Sensitivity Analysis is performed in Excel to asses risks, measure potential outcomes, and plan for an uncertain future
What is bookkeeping?AccountingOur Accounting guides and resources are designed as self-study guides to learn accounting and finance at your own pace. Browse hundreds of articles on important topics such as the income statement, balance sheet, cash flow statement, depreciation methods, how to link the 3 statements, debits & credits, journal entries
What are the most common valuation methods?Valuation MethodsWhen valuing a company as a going concern there are three main valuation methods used: DCF analysis, comparable companies, and precedent transactions. These methods of valuation are used in investment banking, equity research, private equity, corporate development, mergers & acquisitions, leveraged buyouts and finance

Example Excel Model

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Financial Modeling Steps

List of Financial Modeling Steps

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Example Excel Model

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