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Financial modeling is used by companies to estimate the financial performance of an investment or a project or a business segment. For the evaluation, this process considers various appropriate factors such as growth and risk assumptions and their potential impact. It is used to get a clear and concise picture of all the variables considered in financial forecasting.
Some of the common financial models used by companies are:1. Discounted Cash Flow (DCF) Model2. Initial Public Offering (IPO) Model3. Merger Model (M&A)4. Three-Statement Model5. Leveraged Buyout (LBO) Model6. Consolidation Model7. Sum of the Parts Model8. Forecasting Model9. Budget Model10. Option Pricing Model
Financial modeling requires a detailed analysis of a company's accounting, finance, and business information. Once the data is gathered, the process helps in predicting future financial performance of the company. It is mostly useful in company valuations.
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