Financial Modeling Skills

Overview of the most important skills for financial modeling.

Overview of financial modeling skills

This free guide outlines the most important financial modeling skills required to be a world class financial analyst.   Financial modeling is the art of building a dynamic tool (an Excel model) that can be used to evaluate investment opportunities, mergers & acquisitions (M&A), capital raising, or to assess a company’s historical and forecasted financial performance.

The most important financial modelling skills are:

  1. A solid understanding of accounting
  2. Strong Excel skills
  3. Knowing how to link the 3 financial statements
  4. Understanding how to build a forecast
  5. A logical framework for problem solving
  6. Attention to detail
  7. Ability to distill large amounts of data into a simple format
  8. An eye for design and esthetics

Each of these financial modelling skills will be broken down in further detail below.  As the image below shows, these skills can be divided into 3 categories: accounting/finance, Excel, and problem solving/logic/design.

Accounting skills

In order to build a financial model it’s important to have a solid understanding of accounting fundamentals.  This includes concepts like the matching principle, accruals, revenue recognition, non-cash items like depreciation, amortization, and more.  You need to have enough accounting skills to understand how to read financial statements, how at dissect them, and how to build them back up again.

Excel skills

Strong Excel skills are critical for financial modelling, and it can be more of an art than a science.  You’ll need to know all the main keyboard shortcuts to help save time and build models as quickly as possible.  You’ll also need to know all the main formulas and functions to perform calculations and financial analysis.

Check out our Free Excel Course to make sure you have the basics down!

Linking the 3 financial statements​

Another skill that’s very important is being able to link the 3 financial statements.  This means taking historical financial statements (income statement, balance sheet, and cash flow statement) and dynamically linking them together in Excel.  For example, connecting net income on the income statement to retained earnings on the balance sheet. This can be one of the trickiest skills.

Free step-by-step guide: how to link the 3 financial statements in Excel.

Problem solving skills​

A good financial analyst has the ability to think logically, and in a very organized manner.  When building a financial model it’s important to follow a logical flow of information so that other users can easily understand what you’ve done when they jump in your Excel file.

For more on what it takes to be a great financial analyst, check out our free guide outline our proprietary process called The Analyst Trifecta.

Attention to detail

This is an absolutely essential skill for financial modelling. Given the vast amount of information and intricate nature of a complex model, if you don’t have attention to detail, you’ll unfortunately never make it as a financial modeller.

Check out our financial modeling courses to see the level of detail that’s required.

Simplification of complex information

One of the hallmarks of a someone with great financial modelling skills is their ability to distill large amounts of complex information into a simple format.  As Leonardo da Vinci said, “simplicity is the ultimate sophistication”.

Check out Advanced Excel Skills Course to help you simplify complex information.

Design skills

One of the least discussed yet most important financial modeling skills is having an eye for design and aesthetics.  A good model is easy to follow, and easy on the eyes – it should have clean formatting, beautiful charts and graphs, and look professional.  This is one of the 3 pillars of our Analyst Trifecta method, which we outline in our guide on how to be a great financial analyst.

Example financial model

Different types of financial models

We’ve outline in detail the various types of financial models, which include the 3 statement model, DCF analysis, LBO, M&A, and much more.

Another way to get acquainted with the different types of financial models is to purchase all our financial modeling templates and work through them yourself.

More financial modeling resources

We hope you now have thorough understanding of the various financial modeling skills required to be a world class financial analyst.  You may want to check out some of our other popular resources, including: