Financial Model

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The content written in this blog is actually based on my limited knowledge been grasped at meetings and small responsibility given to me in the company.

My note- Today is Saturday 5 days left to complete 2 months for training!

What is a financial model?

Basically they are the projections based on few assumptions, but these assumptions are not totally an amount which are only assumed but are based on factual and previous history of similar projects taken by experienced consultants. (This is for future project)

Financial modelling is a numerical representation of some or all aspects of a company's operations. (This is for past and present operation)

These projections are very large but the fun fact is they are derived from very small information which are contained in assumption sheet.

My mentor told me if you have manually change anything in the model then it's not a good model the only things need to be changed should be changed only in assumption sheet.


What are the main component of financial model?

1. Assumption sheet
The assumption sheet contain all the information from which all other information are derived via formulas and connections nothing is feed manu7ally anywhere else in model excluding the formatting.

2. Formatting
Formatting is really required as it will give meaning to your work, a work that is not understandable  is waste and financial modelling takes a lot of time and you cannot waste time either of yours or others.

Many decisions are taken by the organization based on financial model it should be have correct information rightly found when needed.

3. Bifurcation of all accounts into sheets
Now it totally depends on your project goals, like for example I'm working on a project which will be set up in the future and has no operation right now so most of the assumptions are taken by experts who have worked on these kind of projects before.

So in this kind of project the cost and revenue will be the most important thing to see in the model which will be executed through different accounts in the same model. 

Now it may be for revenue projections only, that differs. All the factor do effects your accounts bifurcation.

4. Three important accounts in financial model are-
a. Assumptions
b. Profit and Loss
c. Revenue

These are the few things that I have learned till now this will be a series so don't forget to follow as I will post all the new thing I learn plus each step required for making a financial model, plus all the knowledge needed for it.


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