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How Can I Learn Financial Modeling on My Own?

Are you someone like me who doubts whether I can learn financial modeling on my own or not? If yes then this article is for you. This article will help you to clear this doubt by helping you understand what financial modeling is, its applications, who need it, the pre-requisites of learning it, and the steps to be followed to learn it by yourself and build a financial model. The article also includes affordable resources from which you can take help to move in the right direction.

How can I learn financial modeling on my own?

What is Financial Modeling?

A financial model is a tool built-in spreadsheet software such as MS Excel to predict or forecast a business’s financial performance in the future. It is a representation in numbers of a company’s operations in the past, present, and the predicted future. The financial models are used as decision-making tools and have many valuable uses for company executives.

Executives might use these models to estimate the costs and the profits of a new project. For financial analysts, it helps to explain or anticipate the impact of events on a company’s stock, from external factors such as a change in regulation or economic policy to internal factors such as a change of strategy or business model.

It helps to estimate the valuation of a business or to compare businesses to their peers in the industry. They are also used in strategic planning to test various scenarios, allocate corporate resources, calculate the cost of new projects, and decide on budgets.

Financial modeling is the process of creating a summary of a company’s earnings and expenses in the form of a spreadsheet (Financial model) that can be used to calculate the impact of future events or decisions on the company’s performance.

The prediction is typically based on the company’s past performances and assumptions about the future. It requires preparing an income statement, cash flow statement, balance sheet, and supporting schedules, also known as a 3-statement model. From there, more advanced types of models can be built such as leveraged-buyout (LBO), discounted cash flow analysis (DCF model), mergers and acquisitions (M&A), and sensitivity analysis.

Key Takeaways:

  • A financial model is a representation of the number of different aspects of a company’s operations.
  • Financial models are useful to estimate the valuation of an organization or to compare it to its competitors in the industry.
  • Various models produce different results. A financial model is only as good as the inputs and assumptions that go into it.

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Applications of Financial Modeling:

The financial models are used for decision-making and financial analysis, whether inside or outside of the company. Inside a company, financial models are used to make decisions about:

1. Raising Capital

The financial model helps to assess the financial feasibility of a project and create a funding plan from various components.

2. Risk Management

Risk management is understanding co-relations between possible outcomes of an event. A financial model helps to find the probability of a certain adverse event and its impact to prepare in advance.

3. Mergers & Acquisitions

The financial model helps in forecasting revenue and preparing debt schedules by conducting competitor analysis for the company that is going to be merged or acquired.

4. Selling or Divesting assets and Business units

In large businesses reevaluation of assents and different verticals is necessary to know how they are performing and if they are performing badly, at what value they should be sold or divested. Information from financial models plays a critical role in making such decisions.

5. Budgeting and Forecasting 

Budgeting and forecasting is something that is being conducted frequently by the majority of the companies and there is no other better tool than a financial model to calculate it.

6. Capital Allocation

Every year big corporates come up with new projects and the prioritization of the projects has to be done depending on many factors one of them is capital expenditure. To allocate the capital to various projects and prioritize it in a productive way it is necessary to have an understanding of the company’s current and past performance, financial models make this process hustle free by providing the data needed.

7. Valuation of a Business

Calculating the monetary value of a business is not an easy task it requires consideration of lots of things and the financial model provides sufficient sections to calculate the present value of each asset and liability leading to an accurate valuation of a business.

8. Financial Statement Analysis/Ratio Analysis

Ratio analysis gives insights into a company’s liquidity and operational efficiency through the balance sheet and income statement.

9. Management Accounting

Company-specific financial models help executives to make better decisions for the future growth of their organization.

Also Read: Financial Modeling Skills

Who Builds the Financial Models?

  • Investment Bankers
  • Equity Research Analysts
  • Credit Analysts
  • Risk Analysts
  • Data Analysts
  • Portfolio Managers
  • Investors
  • Management/Entrepreneurs

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Can I Learn Financial Modeling on My Own Without Any Prior Skills or Knowledge?

Financial modeling majorly requires using MS Excel to forecast and analyze a company’s earnings and performance.  Apart from MS Excel skills to create financial models, an understanding of financial statements and the data they contain is necessary. At the very least understanding the 3 basic financial statements is a must, which are: 

  • A Balance Sheet: It provides the overall snapshot of a business’s finances. It balances a company’s assets with its liabilities and equity.
  • A Profit and Loss Statement: It measures sales and expenses within a given period. To calculate gross profit, subtract the cost of goods sold (how much it costs to create products) from total revenue. To calculate net profit, subtract the total operating expenses from gross profit.
  • A Cash Flow Statement: It compares how much money is going in and out of the business. Sales revenue, loans, and investments are considered cash inflow. Equipment purchased, inventory, and expenses are considered as cash outflow.

How Can I Learn Financial Modeling on Your Own?

Below are some basic non-technical steps one should follow:

  1. Develop Advanced MS Excel Skills: To hone your MS excel skills search online for tutorials, lists of shortcuts, and formulas, or you can enroll in an introductory course on MS Excel if you don’t have any experience with it.
  2. Learn to Analyze Financial Statements: Learn to analyze financial statements (such as balance sheets, profit and loss statements, and cash flow statements) and the data they contain.
  3. Watch Online Video Tutorials: Search for step-by-step online tutorials on informative platforms such as YouTube that fit your needs.
  4. Look for Free Textbooks on Search Engines: Textbooks are good options to find an in-depth explanation of any topic, search for such famous free textbooks about financial modeling on online platforms.
  5. Practice Creating Simple Scenario Models: Once the theoretical knowledge has been acquired it is necessary to do the particle work to hone subject matter skills. Create or search online for hypothetical scenarios and practice them in MS Excel.
  6. Use Case Studies and Templates to Practice Financial Modeling: Use real-life case studies to get a better idea of how things work in the industry and also develop templates for future references.

Practice… Practice… Practice…

Reading equity research reports can be a helpful way to practice, as it gives you something to compare your results with. You can also pick up a mature company’s historical financials, build a flat-line model for the future, and calculate the net present value per share. The value should be closest to the current share price or the target prices of equity research reports.

Recommended Read: Financial Modeling Courses in Mumbai

Sections in Financial Model:

  • Assumptions
  • Balance sheet
  • Income statement
  • Cash flow statement
  • Supporting schedule
  • Valuation
  • Sensitivity analysis
  • Charts and graphs

How Can I Learn Financial Modeling My Step-by-Step?

Below are the commonly followed steps to build a financial model:

1. Past Financial Data and Assumptions:

Every financial statement starts with a company’s last 3 years’ financial statement data by inputting them into Excel. Try to reverse engineer the assumptions of the old data by calculating gross margins, revenue growth rate, fixed costs, variable costs, and inventory days, to name a few.

2. Start With the Income Statement:

Once the forecast assumptions are in place, calculate the top of the income statement with revenue, COGS (Cost of goods sold), gross profit, and operating cost down to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

3. The Balance Sheet:

Once the top of the income statement is in place, start calculating inventory and accounts receivable (Functions of revenue and COGS). Next, calculate the accounts payable (function of COGS and AP days).

4. Develop the Supporting Schedules:

Create a schedule for capital assets as well as for interest and debt, before completing the balance sheet and income statement. Both capital assets schedule and debt schedule will be pulled from the historical period.

Also Read: How to Become a Certified Financial Modeler

5. Complete the Balance Sheet and Income Statement:

The income statement and balance sheet will be completed from the information of the supporting schedule.

6. Cash Flow Statement:

Build the cash flow statement using the reconciliation method after the completion of the income statement and balance sheet.

7. DCF Analysis:

Calculate the free cash flow after completing 3 statement model and perform the business valuation.

8. Sensitivity Analysis and Scenario:

The sensitivity analysis assesses the risk of an investment by changing some or all the assumptions.

9. Charts and Graphs:

Once the data collection, segregation, and analysis have been completed it is necessary to represent it to executives in a way that is easy to understand and get a clear idea to make a better decision. Charts and graphs are one of the most used creative ways in the corporates to represent the data and different scenarios. Make a decent dashboard containing important data, charts, and graphs.

10. Stress Test and Audit:

Once the model is ready it is necessary to conduct a stress test for the extreme scenario to see if the model behaves as expected or not.

Recommended Read: Financial Modeling Courses in Bangalore

From Where Can I Learn Financial Modeling on My Own?

Learning everything by yourself is not an easy task, it requires lots of effort and time. In today’s world where access to resources and information is quick and easy thanks to increased internet penetration, there are higher chances of getting lost or distracted in the maze of information.

Such situations should be avoided as they sometimes demand more effort and ultimately leads to burnout. To ensure you stay on the right track can take the help of social media platforms or online learning platforms along with the steps mentioned above.

On social media platforms such as YouTube where access to content is free, many of the subject matter experts share their knowledge and experience that might be useful from the learning perspective. The only disadvantage of learning from social media platforms is that you will not have any physical evidence to prove your knowledge.

On the other hand, many online learning platforms do not only offer recorded or interactive sessions to acquire new knowledge but also projects to hone new skills and a certificate on the successful completion of the course to prove your knowledge and skills.

But, you may find various training programs teaching financial modeling with so many compelling benefits such as partnering with leading universities, flexible, and job-relevant online learning for individuals, and so on. Also, many of them have pre-recorded sessions. Isn’t it better to invest your time and energy in finding and following your intelligence to make you educated, rather that the recorded sessions?

Many of these courses are offered by reputed universities such as the University of Pennsylvania, Columbia University, Duke University, etc. Some of the courses also offer financial aid depending upon the fulfillment of their criteria. But nothing can be more rewarding than your own hard work.

Taking mini-steps and investing your intelligence can make you a professional financial modeler. Of course, we have discussed above the simple steps to make learning easier and more joyful for you. In that way, you will cover all major aspects of financial modeling. It provides exposure to creating robust, efficient, and flexible financial models. It is a new-age and specialized industry-oriented skill that is high in demand. So, allow yourself to make a decision.

Frequently Asked Questions (FAQs)

Q. Can I learn financial modeling myself?

Yes, it is possible without taking any help, just follow the steps mentioned above and you will get sufficient knowledge and skills to develop a basic level of financial models.

Q. Can I learn financial modeling on my own without spending any money?

Yes, it is possible to learn financial modeling without spending any money.

Q. How can I learn financial modeling on my own without spending any money?

One can take the help of free video course content on YouTube along with free guides available on the internet just like the one mentioned in this article.

Q. Can I learn financial modeling on my own without any mentor?

It is possible to learn financial modeling without any mentor but there are higher chances that you might end up getting lost in the process if finance is completely a new area to you.

Q. Can I learn financial modeling without any prior skills or knowledge?

To build a financial model he basic understanding of financial statements is necessary to interpret the data. Apart from that intermediate level of MS Excel skills are also necessary.


I hope the information mentioned in the article helped you to clear my doubt about whether am you can master financial modeling on your own or not. Learning financial modeling is not a difficult task if you move in the right direction with the right pace but if the situation is the opposite that task might become tiresome. Try to follow the steps mentioned above as it will lessen your hustle and make your learning quick and easy.

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