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3 Tips How To Learn Financial Modeling

( How To Learn Financial Modeling - Financial models are used to forecast a company's future earnings, performance, and financial health. Whether you own a business or aspire to a job in finance, financial modeling is a great addition to your skillset. Creating models requires attention to detail, and it can take time to get the hang of it. You'll need financial skills and a solid foundation in Microsoft Excel, so brushing up on these areas could be your starting point. From there, you can use video tutorials, textbooks, and online courses to learn how to create financial models.

How To Learn Financial Modeling

  • Learn how to create models yourself

How to Learn Financial Modeling

Brush up on your advanced Excel skills. Financial modeling typically uses Microsoft Excel to forecast and analyze a company's earnings and performance. If you are not an advanced user, first improve your Excel skills.

Search online for video tutorials and lists of abbreviations and formulas. It can be helpful to sign up for an introductory Excel course if you don't have any experience with it.

How to Learn Financial Modeling

Learn how to analyze financial statements. To create financial models, you need to understand financial reports and the data they contain. At the very least, you need to understand the 3 basic financial reports, namely:

A balance sheet that represents the general snapshot of a company's finances. It compares a company's assets (value assets) with its liabilities (debts) and equity (ownership interest or earnings). The 2 sides must always be balanced: liabilities plus equity must always equal assets.

An income statement measures revenue and expenses over a period of time. To calculate gross profit, subtract the cost of goods sold (COGS, or how much it costs to create products) from total sales. To calculate net profit, subtract total operating expenses (all overheads such as utilities, insurance, marketing, and legal fees) from gross profit.

A cash flow statement that compares how much money is going into and out of the business. Cash inflow includes sales proceeds, loans and investments. Cash outflow includes equipment purchased, inventory, and expenses.

How to Learn Financial Modeling

Watch video tutorials. There are many free step-by-step tutorials on modeling on YouTube and other services. Schedule 1 to 2 hours of distraction-free time to watch a tutorial. Because creating a financial model is time-consuming and involves a lot of detail, most video tutorials are at least 30 to 60 minutes long.

Search for tutorials that meet your needs. For example, search "Introduction to Financial Modeling" or "Basics of Scenario Modeling" if you want to extrapolate your small business's revenue and operations. You can also focus on other applications such as B. Investment banking modeling, real estate modeling and other industry-specific techniques.

It can be helpful to use separate computers (or other electronic devices) to watch a tutorial and follow Excel. If you're watching on one computer and have Excel open on the other, you don't need to switch between windows.

How to Learn Financial Modeling

Look for textbooks at your local library. Textbooks are a good option if you don't have internet access or don't want to follow online tutorials. You should be able to find useful textbooks in a library. You can also buy books online or at a bookstore.

The standard textbook for financial modeling is Financial Modeling by Simon Benninga (MIT Press, 2014).

Financial Analysis and Modeling Using Excel and VBA by Chandan Sengupta (Wiley, 2009) is another important text.

How to Learn Financial Modeling

Start building simple scenario models. Enter a record containing a balance sheet, income statement, cash flow statement, and other financial information into an Excel spreadsheet. Create a separate sheet with assumptions or possible scenarios, such as B. Changes in expenses, goods sold, price per item and taxes. Then, on the next sheet, define formulas to calculate your company's finances based on these possible scenarios.

They use historical data and assumptions to forecast revenue and performance and create financial targets. Suppose you sell dog bones. It costs $5 to make, is priced at $8, and last year it took 10 workers to make and sell 10,000 bones.

If you want your business to grow 10 percent annually, use the assumption sheet to forecast how many bones you'll need to sell to make 110 percent of last year's revenue. If your sales were $80,000 last year, you would want to sell 11,000 bones and make $88,000.

You can also use the acceptance sheet to find out changes in payroll. If 1 employee produces 1,000 bones, you must add 1 employee per year to meet your production forecasts.

How to Learn Financial Modeling

Use templates and case studies to practice creating models. Once you have a foundation, search online for "case studies of financial modeling practice". You can find free business datasets that you can use to create more complex models. Many case studies also come with ready-made models that you can either use as a template or compare to your own.

  • Participated in courses in financial modeling

How to Learn Financial Modeling

Look for free resources. Search online for "free financial modeling course". You can also find resources focused on Excel and financial literacy.

Udemy ( offers free courses on financial modeling. You can also find resources there that cost less than $50 (USD).

How to Learn Financial Modeling

Invest in online course packages or a distance learning program. Business schools and other reputable organizations offer online courses, and many of them are quite cheap. Investing in a program can save you the hassle of checking free resources and organizing them yourself. In addition, you can list the course on your CV.

List a course on your resume under Education, in your Skills section, or in a new section with other specific training or professional certifications.

Harvard Business Review offers spreadsheet modeling course packages for around $100:

The Wharton School of Business offers a non-credit 5 course program in financial modeling:

How to Learn Financial Modeling

Take a class at your local college or university. Although it is the most expensive option, attending an in-person class is a good option if you prefer hands-on, face-to-face learning with a teacher. Find a local community college or university and check out the course offerings for Introductory Financial Modeling courses.

  • Learn specific modeling techniques

How to Learn Financial Modeling

Use basic models to plan your small business. You don't need a complex 40-page spreadsheet to forecast your small business growth. Focus on learning how to create simple Excel spreadsheets to set financial goals and forecast your business growth.

For example, model your company's growth goals to forecast how many units you would need to sell to meet your sales goals. Your model would also help you plan for space and staff expansion.

You can also model changes in COGS to help you adjust your unit prices and account for potential increases in production costs.

A model that tracks profit per long-standing customer can help you set a marketing budget and set new customer acquisition goals. If your average customer spends $50 a week for 5 years, they generate $13,000 in sales. If your profit margin is 21 percent, the average customer will make $2,730 in profit over 5 years. You must spend less than $2,730 per new customer acquisition over 5 years or you will lose money. For example, if you spend $50,000 on marketing over 5 years and acquire 18 new long-term customers, you are unlikely to break even.

How to Learn Financial Modeling

Model possible scenarios to prepare for operational uncertainties. In addition to basic financial forecasting, you can use financial models to predict how a given scenario might affect your business. Examples of this are sudden changes in sales, demand or production costs.

Suppose sudden or seasonal shifts in demand are common in your industry. You could create a model to predict how your organization will need to adapt to these changes.

For example, if you sell homemade candy and charge a 40 percent jump from October through December, you may need to rent an additional commercial kitchen and hire seasonal workers. Your model would help you plan for these seasonal increases in revenue and operational expenses.

How to Learn Financial Modeling

Find out about industry-specific models if you need specialist knowledge. Aside from basic small business planning, there are myriad forms of specialized financial models. If you want to become an investment guru, you should research the finances of an industry before investing in a company in that industry. If you want to get into the real estate field, you should familiarize yourself with financial modeling of real estate.

As with basic financial modeling, you can find video tutorials, textbooks, and courses on specific modeling techniques.

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