Financial modelling skills

If there is any skill worthy of note in the corporate world today, it should be financial modelling. With the heightened demand for financial modelling analysts, finance professionals who want to remain relevant in this field, resolve to garner skills essential in financial modelling. Little wonder the skill- financial modelling, is rated the most sought-after for finance professionals.

What is Financial Modelling?

Financial modelling, which is quite like financial statement forecasting, is a synoptic representation of genuine (real) financial situations. The process involves the construction of mathematical models to help in the financial statement analysis as well as the decision-making process, of a firm.

This implies the conversion into numerical prognosis (or statement), sets of assumptions made by any company as regards market behavior. And so, individuals who will practice financial modelling should be skillful in both calculations and simplified constructions of financial representations, regarding any aspect of a firm.

Why is Financial Modelling Important?

Financial models provide a distinct image of a company’s forecasted financial performance. This summarily tells the importance of financial modelling- the technique allows for improved decision-making. This it does, by pointing to the risks associated with implementing certain decisions.

It also aids future planning, as a firm can with the help of financial models, prepare for situations likely to arise in the future. Certain companies use financial modelling to accurately project future working capital requirements.

Much more, in the area of capital budgeting, financial modelling is needed. Models can help to estimate business risks and ideas in terms of costs. It also allows for cost-profit estimation of a newly proposed project. And that’s just about it, the need for financial modelling in the corporate world cannot be overemphasized.

The journey of a skilful financial modeller

A firm trying to cope with both financial and non-financial information can be a daunting task. This situation applies more to accountants whose financial models primarily focuses on profitability, analysis, project evaluation etc., whilst financial model for bankers primarily focus on risk assessment.

Financial models for banker primarily focus on things like option pricing, credit scoring, portfolio analysis etc. whilst for accountants it will primarily focus on financial statements, forecasting, capital budgeting, cost of capital, business valuation etc.

How then do you as an accountant go about understanding the complexities of the financial situation, constructing an abstract and representation of such situations and reaching a reasonable conclusion? In simple terms, what is it that accountants need to possess to manage financial modelling issues?

• You need to understand the purpose of the model: This helps to determine a desirable structure for the model. The truth is that, to a large extent, models vary in purpose.  For example, understanding when a model is required simply for valuation purposes it saves you the stress of constructing a complex model which better serves the purpose of decision-making.
• You should have a good knowledge of Accounting concepts: This shouldn’t sound strange. No finance field is devoid of basic accounting and finance concepts. And so, a good understanding of these concepts is required to be a skillful financial modeler.
• You need to be good in your use of Excel: No financial modelling analyst jokes with the use of Excel. You must be pretty good at using formulas, charts, VBAs, keyboard shortcuts and other Excel tricks relevant to the finance field. This way, you can be much more at ease while creating financial models.
• Time management is key: Need I repeat that? Truly, model construction can be difficult and time-consuming. It is not enough to be a pro at constructing financial models, you must be better at presenting such models on time. Anything else, would be a nightmare to contemplate.
• Be a critical, prudent and consistent thinker: You should be looking at the bigger picture. Put on your wide/varifocal lens. You also need to be well-informed about everything in the socio-economic environment.

Get to know more about market-competition, customer base and technical know-how. All of these aids the process of decision-making- which is one of the importance of any financial model.

So, as a financial modeller, it is your responsibility to build models that aid easy and effective decision-making to save your organization the risks associated with taking wrong decisions.

• Continuous Professional Training: This way you are up to date with the skills required in financial modelling. Training aid skill acquisition and help to develop strength. There are many online training courses/programs that help people acquire financial modelling skills. You also learn at your own pace.

Remember, financial modelling is a much sought-after skill, so you need to be well vast and trained if you are to be successful in the field. We could help in this area, so why not get in touch with us, to see how we can help? A happy journey to becoming a better and more focused and successful financial model expert.