Financial modeling is the process of creating an abstract representation to depict an organization’s actual financial standing. This mathematical model illustrates how a portfolio or asset is performing. An important aspect of receiving professional financial modeling training to set yourself up for a career change is learning what kinds of fields and industries that training will help you find work in. Each industry has its own unique requirements and expectations for prospective employees, and you should consider these expectations when you begin training. This is true for students who have an idea of what kind of work they want to do and for students who aren’t yet certain about what path they want to take after learning financial modeling skills.

What is Financial Modeling?

Financial modeling is the process of evaluating a company’s past performance to predict the likelihood of various financial outcomes. Those who create financial models rely on financial forecasts to do so. The assumptions in a forecast are played out using the organization’s financial statements to predict how various statements may look in the future. Since these models are based on financial statements, they are typically generated monthly, quarterly, or yearly. It’s common for financial models to be constructed using manual data entry in an Excel spreadsheet. 

Read more about what financial modeling is and why you should learn it. 

What Can You Do with Financial Modeling Skills?

Financial modeling provides a way to perform a detailed analysis of all possible financial outcomes of a business decision. It helps an organization budget for the future and analyze the company’s performance against goals and targets, as well as determine the organization’s current value. Financial models allow individuals to compare one company’s performance against its competitors. These models can analyze financial statements, ratios, and capital structure, as well as estimate financial metrics for new projects. They can help professionals estimate a company’s projected growth, organize its budget, evaluate investments, decide between acquisition or merger, and determine which projects to prioritize.

Common Industries That Use Financial Modeling

Financial modeling is an important skill for those interested in working with finance. Companies of all types and sizes value those who have the skills to analyze data, make forecasts based on their findings, and share their results with other stakeholders. The following sections will take a brief look at some of the ways financial modeling is used in professions like accounting, investment banking, venture capital, and financial analytics.

Accounting

Accountants are tasked with gathering, monitoring, and correcting their organization’s finances. This ensures their employer can make important and timely financial decisions. These professionals perform a range of tasks, such as financial audits and reconciling bank statements, so they can be certain their organization’s financial records are as accurate as possible, and that money is being effectively managed. This often involves creating a financial model. Accountants also compile and organize financial data like sales records and purchase receipts and ensure that any documentation is accurate and adheres to current regulations and laws. In addition, these professionals focus on ways for their organization to grow financially and present these findings in the form of financial reports. Other common tasks for Accountants to perform include issuing invoices, ensuring invoices are paid in a timely manner, and managing client payroll. 

Because managing an organization's finance is a large undertaking, several subfields have evolved in the field of accounting, such as those that focus on international accounting or taxes. Accountants who work with financial models earn approximately $80,000 a year. This profession is expected to experience an average growth rate of approximately 6% over the next decade.

Investment Banking

Investment Bankers serve as financial advisors for organizations or governments. They work with clients to help them raise money and maximize profits. To do so, these professionals perform tasks like floating bonds, issuing stock, organizing the sale of a company, or negotiating the parameters of acquiring a rival country. Investment Bankers provide organizations with financing options like underwriting or handling the details of a corporation’s initial public offering (IPO). Investment Banks that handle IPOs create a prospectus that details important information like legal compliance concerns, stock offerings, and establishing an initial stock price at an appropriate level. Those who work in investment banking use Microsoft Excel for many tasks, such as creating models for large public companies, governmental agencies, and private equity companies. 

When capital markets perform well, Investment Bankers also benefit. When more money is generated and market activity increases, Investment Bankers can find additional projects, particularly high-paying ones. Investment Bankers who create financial models earn a competitive salary of $290,000.

Venture Capital

Venture Capitalists are private equity investors who supply capital to organizations that are deemed to have a high growth potential. In exchange, the Venture Capitalist is given an equity stake. These professionals provide funding to small companies that are interested in expanding but lack access to various equities markets, as well as startup ventures. Most venture capitalist firms are created as limited partnerships in which all partners invest in a fund. This fund generally is assigned a committee for making investment decisions. As soon as an emerging growth company shows promise, pooled investor capital is used for funding. The venture capitalist firm is given a substantial portion of the equity in exchange. When deciding which companies to invest in, Venture Capitalists search for those that have a large potential market, a service or product that is unique from the competition and will likely have a competitive advantage, and a well-established management team. Since they stand to own a large percentage of any company they invest in, Venture Capitalists often seek opportunities in industries they are familiar with

Organizations that work with venture capital use financial models to thoroughly evaluate the business. To spot high-growth companies to invest in, Venture Capitalists make models that account for variables like market size, short-term cash losses, and other economic factors. This ensures that even risky investment decisions are backed with as much support and evidence as possible. Venture Capitalists are well-paid for the financial models they create. These professionals make a yearly salary of approximately $200,000.

Financial Analytics

Financial Analysts provide their organization with an overview of its financial data so this information can be used to inform the decision-making process. This, in turn, can improve how a business performs. By studying past business performance and applying predictive analytics, Financial Analysts offer insights into how an organization has performed in the past, as well as how it may perform in the future, so sound financial decisions can be made to maximize profits and decrease costs. To successfully execute their job, Financial Analysts need to stay current on their company’s financial standing at every step of the analytics process. They often use financial modeling to assess their company’s value drivers that can increase its worth, as well as to ensure that it will be viable and profitable in the years to come.

Businesses of all sizes, from large international corporations to tiny startups, benefit from optimizing their financial data. Creating a financial methodology that uses the least amount of resources and has a high probability of success is essential for businesses to remain competitive. Those who perform financial analytics help their organization prepare for what may come in an ever-changing market. These professionals ensure all of their organization’s important financial data is stored safely and can be accessed by those who need this information. They also measure and oversee assets like equipment supply or cash flow to most effectively manage finances and accounting tasks. Financial Analysts make approximately $95,000 a year. This profession is expected to experience above-average job growth of 9% over the next ten years.

Learn Financial Modeling Skills with Noble Desktop

Noble Desktop offers several excellent learning options for those interested in financial modeling. Noble’s Financial Modeling Bootcamp covers the basics of accounting, finance, and corporate valuation. Noble also offers a Financial Analyst Training Program that provides instruction on how to create a full valuation model. Noble has financial modeling training courses in-person and live online. Those interested in working with Excel for data modeling can attend the hands-on Excel Bootcamp. Noble’s FinTech Bootcamp is also available, which teaches learners how to create machine learning models and work with programming languages SQL and Python for financial data analysis.

Key Takeaways

• Financial modeling is the act of summarizing a company’s earnings and expenses and compiling this information into a spreadsheet. It can then be used to calculate the potential ramifications of various decisions or future events.
• Those with the training to create financial models help their organization assess its current value and budget for plausible future occurrences.
• Financial modeling is used in many industries, such as accounting, investment banking, venture capital, and financial analytics.
• If you want to learn more about how to create financial models for your organization, let Noble Desktop help. This top educational provider offers hands-on financial modeling training in the in-person and live online environments.