Financial Modeling Software

What does the future hold for Excel, software and financial models?

Software vs Excel

When it comes to building a financial model there are many trade-offs between using Excel and some type of software.

Using Excel is a totally customized way of building a model from scratch and can handle any type of layout, structure, calculations or format you want.  It is, however, prone to errors.

Software offers the structure and error prevention we all want in our analysis, but at the cost of not being about to accommodate attributes that are specific to a company or an asset.

Excel is the ultimate way to understand a business

When it comes to understanding a business and a piece of financial analysis, no type of software can ever replace Excel.  This is because  going through the painstaking steps of calculating everything about a business yourself really helps you understand it.

Imagine a type of software that automatically takes a company’s financial statements, forecast and capital structure, then automatically spits out an NPV.  This would save you a lot of time, but would not teach you anything about the business.

It’s the unfortunate truth that building a financial model from the bottom up in Excel is the best way to really understand a business and an investment opportunity.

Visit the template section to see different ways of utilizing Excel to model financials.

Software can be helpful for risk management

After you’ve built the model in Excel it may make sense to use risk management software for running Monte Carlo analysis or other types of risk and sensitivity analysis.

A software called @Risk (“at risk”) by Palisade is a power way of performing risk analysis using Monte Carlo simulations.  Given how hard (or near impossible) it is to do this in Excel on it’s own, it makes sense to incorporate something like @Risk.

Additional information

Check out our resources section to learn more about corporate finance.

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