Financial modelling is a quantitative analysis which is used to decide or a forecast about a project generally in asset pricing model or corporate finance. Different hypothetical variables are used in a formula to ascertain what future holds for a particular industry or for a particular project. In simple terms financial modelling means forecasting companies’ financial statements like Balance Sheet, Cash Flows, and Income Statement. These forecasts are in turn used for company valuations and financial analysis.
Financial modelling is useful because it helps companies and individuals make better decisions.
Financial modelling is not confined to only company’s financial affairs. It can be used in any area of any department and even in individual cases.
It is the goal of the analyst to accurately forecast the price or future earnings performance of a company. Numerous valuation and forecast theories exist, and financial analysts can test these theories by recreating business events in an interactive calculator referred to as a financial model. A financial model tries to capture all the variables in a particular event.
