What is Financial Modeling?
Financial modeling is the process of creating a financial representation of a firm or entity. It comprises of a spreadsheet having data of the company’s expenses and earnings and gives exposure to the real-world financial situations of the firm.
It combines accounting, finance, and business assumptions to create assumptions that represent the company’s future performance using excel.
It showcases some or all aspects of a company’s operations, which includes future costs and revenues, investments, prospective future and anticipates worse or better options for the company.
Financial models are used for making strategic investments, Determining Pricing of security, Financial budgeting, Business forecasting, In Mergers and acquisitions, Preparing business portfolios, Diversification or raising capital, Determining Business growth, investment avenues, and Business/startup valuation, etc.
Career path in financial modeling
Equity and private equity research: –
Investment bankers have always used financial models built in Excel to value any given company when it comes to mergers and acquisitions or capital raising. The private equity financial model includes the internal rate of return(IRR), cash on cash return, net present value(NPV), other rates, or leverage.
Stock trading and portfolio management in financial modeling: –
Analysts and portfolio managers use financial modeling to determine a stock’s fair or intrinsic value. It is used as a basis for making investment decisions and recommendations such as buying, selling, or holding financial securities.
Credit analysis in financial modeling:-
Credit analysts look at different accounting ratios to determine the viability of a loan proposal. For a thorough quantitative analysis, the credit-scoring system uses financial models for a great deal of its data.
What are the Benefits of Taking Financial Modeling Certifications?
Certification in Financial Modeling can help you to gain valuable expertise in handling the financial decisions of an organization and opens up opportunities to work at a higher-level position as a Finance Manager, Group Manager, Audit Manager, or Business Analyst.
Jobaaj.com has an expert-curated online course on financial modeling to help you learn and master this field:-
A few of the benefits are listed below
- To acquire industry-standard skills that are globally useful and are applicable across various industries.
- To gain one of the most sought-after skills in the finance industry.
- To get to understand the various techniques and tools used in the industry.
- To get equipped with skills to create your quantitative financial models.
- To learn effective ways of working on spreadsheets.
- To strengthen your decision-making abilities.
- To recognize the essential factors and elements of extensive data.
- To improve analytical and quantitative skills.
- To boost the possibilities of getting a job with impressive perks, and based on a survey, 67% of the recruiters mentioned that they prefer certified candidates.
Invest in yourself by earning certifications that are challenging and revered by the industry. Click on the below link to Know More-.
What is the Scope of Financial Modeling?
Today, almost every company requires financial modeling professionals to understand the performance of financial assets to make decisions about investments.
Financial Modeling can be an excellent add-on skill. It involves how to build a financial model; how to use these models to evaluate a project, department, or entire business’ performance; how to make realistic financial projections, and execute a Pro-forma valuation of a company and subsequently make decisions based on the financial data. When it comes to jobs in finance, employers lookout for candidates who know financial modeling and the basics of business valuation, project finance, and portfolio management.
A short-term MS-excel based skill program in financial modeling will equip you to speak the language of finance to get a jump start on your MBA or make a career move.
There are roughly five thousand openings in the Indian job market right now, for people who are trained in financial modeling. It’s required by credit rating agencies, equity research firms, investment banks, and even mutual fund companies to name a few. No matter what the company deals with, professional awareness of the ins and outs of financial modeling is preferred by investors. Such professionals help guide the investors in determining whether investing in a certain company will be profitable for them or not.
So if you’re looking to make a career in finance, Here are a few types of companies that hire professionals who have excellent advanced Excel and Financial modeling skills.
1. Credit rating firms
A credit rating firm has to assess a debtor’s ability to pay back debt and figure out the company or individual’s chance of defaulting on the payment. To understand this, they need individuals with financial modeling background to make the right analysis.
CRISIL, ICRA, and CARE are a few big credit rating firms in India that you can look at.
2. Equity research houses
If you understand the equity market, then you know that any equity research house would require a strong team of people who know the ins and outs of financial modeling. It is the job of these companies to provide a detailed analysis of a company’s finances so that investors can decide how to allocate their funds. They also value companies for mergers, LBOs, and IPOs so knowing how stock valuation works is the key. Citigroup, Goldman Sachs, India Infoline, and Motilal Oswal are a few companies leading this field in India.
3. Brokerage firms
The job of these firms is to facilitate the buying and selling of financial securities. In other words, it means, helping buyers or investors trade in public stocks and other securities based on their market potential. Their job is to help their clients minimize risk by giving them the right advice, which is difficult without the knowledge of financial modeling. Angel Broking, HDFC Security, ICICI Direct, and Reliance Money are the market leaders in this space in India.
Financial modelers are hired by:
- Equity research firms
- Credit rating companies
- Finance companies
- Project finance companies
- Consultancy firms
- Corporate finance companies
What are the skills employers look for while hiring?
- JP Morgan chase
- Cognizant Technologies
- Morning Star
These companies want an executive-financial modeling or junior research analyst or a research associate who has the desired profile which contains some skills like :
Sector research, company profiling, extracting research relevant quantitative data, writing a research report, build models from scratch, and test financial models working on ad-hoc global sector/company research, etc.
- S&P Global
- Ernst and young
- Other advisory and valuation companies
These companies want a merger and acquisition associate who perform task like advisory to clients on Finance, Mergers, Acquisitions, Joint Ventures, etc. Conduct financial research for companies and industries, study competitor, business valuation, SWOT analysis, Prepare project feasibility report using financial modeling, etc.
- Hewlett Packard
- IDBI LifeInsurance
These are the topmost companies and banks in today’s world and they hire for FP & A – junior manager positions for financial planning and analysis. These roles require skills like performing financial analysis and building financial models to forecast future performance, assisting CFO to formulate budgets, planning periodic financials, do variance analysis, and profitability analysis.
- Bank of America,
- Merill lynch
- Morgan Stanley
- Edelweiss Wipro
These are some international companies who want investment banking associate, who know about how to evaluate opportunities to buy or partner, analyze competition landscape, prepare good pitch-book presentation and conduct qualitative and quantitative research on the industry, markets, and competitors and create strategic rationale, positioning pages, pitch-books, and investment decks.
- Blend financial services
- Cognizant Technologies Solutions
- Capgemini Consulting
- Vivro financial services
- KK capital services
They want an equity research associate and debt syndication-junior executive whose role is to conduct end-to-end research covering the sector and writing research reports, Prepare financial models in which historical and projections are included, preparing Information Memorandum, Projects Reports dealing with banks, NBFCs, and financial institutions and also do some legal documentation and due diligence.
How to become an expert in financial modeling, and what are the skills employers look while hiring?
To learn financial modeling, taking up certifications in Financial Modelling is the best way out. Signing up for financial modeling certification courses can help you gain valuable expertise in handling the financial decisions of an organization.
Further, it also opens up opportunities to work at higher-level positions as a Finance Manager, Group Manager, Audit Manager, or Business Analyst. Financial modeling. Be Focused on vocabulary even at the introductory level as finance requires so much new vocabulary that learning can feel like it involves a second language. In my opinion, it should be approached in the same way. Practice with real data. Try downloading SEC filings and building your models. The process will expose what you need to revisit. Give the model purpose. The exercise will be all the more valuable if you have an objective.
Signup today for Jobaaj’s finance courses to ensure a brighter future in Finance.