What is Financial Modelling?

Financial modelling is a powerful technique that utilizes current business data to forecast a company's future needs and positions. By creating detailed representations of a company's financial performance, it aids in the strategic allocation of both financial and non-financial resources. This process helps mitigate risk, secure funding, engage with stakeholders, develop growth strategies, and predict future scenarios. In essence, financial modelling is crucial for the continuous growth and success of any business.

While often associated with investors and stock valuation, financial modelling is beneficial for all types of businesses and individuals planning their finances or investments, including real estate.

Types of Financial Models

Various types of financial models exist, each tailored to specific business needs and individual requirements. At Horízōn, personalization is key, and we create customized models to fit unique situations. Commonly used financial models include:

• Three-Statement Model

• Discounted Cash Flow Model

• Merger Model

• Initial Public Offering Model

• Leveraged Buyout Model

• Sum of the Parts Model

• Consolidation Model

• Budget Model

• Forecasting Model

• Option Pricing Model

These models are typically built in Excel and Google Sheets, though specialized financial modelling software can also be used. At Horízōn, we create financial models in Excel and Google Sheets while providing continuous support and training for those who prefer different software.

The Three-Statement Model

The three-statement model integrates the income statement, balance sheet, and cash flow statement, all dynamically linked through formulas in Excel or Google Sheets. This interconnectedness allows a set of assumptions to drive changes across the entire model, requiring strong knowledge of accounting, finance, and spreadsheet skills.

The Budget Model

Frequently used by businesses, the budget model focuses on predicting the budget for the upcoming year, emphasizing the income statement. This model helps manage costs, distribute resources more effectively, and ultimately increase profit.

The Versatility of Financial Models

Financial models are versatile tools that can be adapted in numerous ways to assist with business decision-making. They provide a framework for analyzing various scenarios, planning for future growth, and making informed financial decisions.

For more detailed information on the different types of financial models, check out our article on different kinds of financial models. If you would like to learn more about how financial modelling workshop can benefit your business, you can sign up to attend one of our workshops, or alternatively, sign up for a free 30-minute consultation.