A Complete Guide to Financial Modeling Job Description

Have you passed your class 12th examination? Are you a student from a commerce background? There are lots of career options that you can choose to make a career in. But, if your inclination is towards finance, there is a career option that is currently a hot favorite. The career option that we are talking about is financial modeling. Before we begin with the topic, we will be discussing what financial modeling is, what it is about, its benefits, and its career options after you do a financial modeling course, and finally, the financial modeling job description. 

Definition of Financial Modeling Job Description – It is the process wherein a company’s expenses and income are summarized in a spreadsheet to determine the impact of a future happening or decision. A financial model is used by a company’s executives for many purposes. 

The financial analyst uses it to analyze and predict whether or not a company’s stock performance can get affected by future events or executive decisions. The future events or executive decisions can be from inside factors like changes in business model or strategy. They can also be from outside factors like changes in regulation or economic policy. To fully understand what a financial model is, we have a full description of the subject. 

Comprehending Financial Modeling Job Description

A company stores its financial operations that have occurred in the past, present, or future in a spreadsheet (Excel). The models are then used as decision-making devices. A company uses it to approximate the costs and calculate the profits of a demanded new project.  It is also used to determine the value of a business, and compare businesses to contemporaries in the industry.

And lastly, it is used in tactical planning to assess various possibilities, estimate the cost of new projects, distribute corporate resources and decide on budgets. To get an idea, we are providing some examples of a financial model – discounted cash flow, merger, and acquisition, or in-depth appraisal.

Now, we are moving on to the next section – different types of financial models.

Comprehending Different Types of Financial Modeling Job Description 

To know more about the different types of financial models and to execute a detailed analysis of the financial model, we have provided a detailed description below. The reason for that is to get nice templates and a concrete understanding of corporate finance. 

1. Three-Statement Financial Modeling Job Description

The three-statement model is the most fundamental setup for financial modeling. Just like its name, the three statements – income statement, balance sheet, and cash flow – are dynamically connected with the formulas in the spreadsheet – Excel. This is done to set up so that all the accounts are joined and a set of theories can enforce changes in the entire model. To do that, it is imperative to learn to link the three statements and that need a solid base of accounting, finance, and Excel skills.

2. Discounted Cash Flow (DCF) Financial Modeling Job Description

The DCF model expands on the three-statement model by valuing a company according to the Net Present Value (NPV) of its forecasted future cash flows. The DCF acquires the cash flow statement from the 3-statement model, makes a few changes, wherever it is necessary, and then utilizes the XNPV function in Excel to discount the cash flows to arrive at a current, present value at the company’s Weighted Average Cost of Capital (WACC). Equity research and other areas of the capital markets use this financial model. 

3. Merger & Acquisition Financial Modeling Job Description

This financial model is a very advanced model and the pro forma accretion/dilution of an acquisition or a merger gets evaluated by it. Mostly, each company uses a single tab, wherein the consolidation of Organization A + Organization B = Merged Co. The complexity level varies widely. The area wherein this model is used is an investment banking and/or corporate development.

4. Initial Public Offering (IPO) Financial Modeling Job Description

To value their company before going public, investment bankers and corporate development professionals build IPO models in Excel. These models assume how much investors would be prepared to pay for the company under consideration while also analyzing similar companies. To guarantee that the stock trades favorably in the secondary market, the valuation in an IPO model includes “an IPO discount.”

5. Leveraged Buyout (LBO) Financial Modeling Job Description

Financial modeling is an advanced technique used in leveraged buyout transactions, which often involve complex debt schedules. Since there are so many layers of funding, circular references are created, and cash flow waterfalls are necessary, an LBO’s financial model is sometimes one of the most intricate and difficult of all types. Outside of private equity and investment banking, these types of approaches are not very prevalent.

Find here the best Financial Modeling Books

6. Sum of the Parts Financial Modeling Job Description

Several DCF models are combined to create this kind of model. The value of the business is then increased by any additional components that would not be appropriate for a DCF analysis (such as marketable securities, which would be valued according to the market). To determine the company’s net asset worth, for instance, you would add up (thus, “Sum of the Parts”) the value of business unit A, business unit B, and investments C, fewer liabilities D.

7. Consolidation Financial Modeling Job Description

Multi-business units are combined into a single model in this type of approach. Typically, each business unit has its tab, and the consolidation tab just totals the other business units. Adding Division A and Division B together to create a new, consolidated worksheet is similar to a Sum of the Parts exercise in this case. A free consolidation model template is available from CFI.

8. Budget Financial Modeling Job Description

For those working in financial planning and analysis (FP&A), this is used as a model for finance to create the budget for the upcoming year (s). The income statement is a key component of most budget models, which are typically built using monthly or quarterly data.

9. Forecasting Financial Modeling Job Description

This kind is also used in financial planning and analysis (FP&A) to provide a forecast that differs from the budget model. The forecast and budget models can be found in a single workbook on occasion or they can be completely distinct.

10. Option Pricing Financial Modeling Job Description

Binomial trees and Black-Scholes models are the two primary categories of option pricing models. These models are more or less simple calculators included in Excel because they are simply based on mathematical formulas rather than subjective criteria.

You may also read a guide to the most effective Financial Modeling Techniques

Several companies rely on financial models for impactful decision making like getting an enhanced and greater understanding of a business. The utilization of financial modeling tools and techniques has increased because of its numerous advantages.

Here Are a Few Advantages of the Financial Modeling:- 

1. Enhanced and Detailed Understanding of a Business

Usually, to get a developed financial model, the companies initially do a detailed and deep study and research about their business. During that time, the analysts comprehend the operations of a business and what factors could affect such business.

At the same time, the businesses also need to understand the expected changes that might occur in a scenario where the internal, as well as the external environment, changes in a business. Hence, a financial model helps the companies to get a better understanding of their business, and the factors that are affecting them than their rivals. This also allows the companies to be ready for any unusual scenario.      

2. Periodic Performance Review

To know the performance of a business, it becomes important to conduct variance analysis. Only financial models help the companies to execute the variance analysis by differentiating the actual outcomes of their business versus the budgets. To get feedback on a company’s business operation performances, reviews are done periodically. The businesses can make adjustments to their operations based on the variance analysis with the use of a few advanced financial models, which ultimately leads to increased overall earnings.

3. Making Decisions on Fund Requirements & Strategy

With the help of financial models, companies get clarity on what will be their cash inflow and outflow. With that, they also get to know the net cash flow that is needed to run their business operations. The next step the companies take is to decide the funding source – whether it will be debt or equity.

After that, financial models help the companies to understand what would be its cash flow position after payment of interest and loans. Thus after this, the companies decide whether and to what point can they borrow debt and what will be the level of equity financing. 

Also Read: Strategic Financial Modeling 

4. Business Valuation

Companies use financial models to know how much value is their business. Using a financial model, companies determine their free cash flows that will accumulate in their business at different points, after which they can calculate the fair value of their business. This further helps them during any restructuring, like when stakes are sold to external investors or parties. 

5. Minimization of Risks

A financial model aids in conducting due diligence by revealing the financial impact of a particular activity, which helps firms reduce total risk. For instance, if a company wants to enter a new market, a financial model would help the company determine how much it would cost, the impact of marketing, how prices would change, and other factors.

6. Financial Models Help in Generating Faster Outputs

Companies may need months to get answers to certain financial questions and to calculate the effects of a certain decision. But, through financial models, companies can get quick results that help in making quick decisions. Thus, this is how financial models are used by companies for their businesses.  

7. Pretty Much Accurate Forecasts and Financial Budgets

Using financial models, companies can create forecasts and financial budgets that are based on business data so that their activities do not fall out of the system and remain within the said structure. If a company does not follow a business strategy or budget, it can leave a negative impact on its businesses.

8. Helps in Business Growth

A financial model also helps a company to grow its business by advising the areas where it can produce higher profits. It also allows the company to execute a cost-benefit analysis. The models are also useful when evaluating the cost-benefit analysis of new projects. Financial models can be used by businesses to determine where and how much money should be invested to increase profitability and growth.

Now that we know the benefits of financial models, the time has come for us to reveal the jobs one would get if one enrolls in financial modeling course. 

9 Best Financial Modeling Job Descriptions

If we enroll in a course to get an understanding of the financial modeling job description, numerous jobs are being offered by several national and international banks, corporate firms, and venture capital companies. Most of the job posts begin with Analyst or Associate, senior roles like Manager, Vice President, and Director. However, to get these jobs, one must have a solid grasp of accounting, Excel, and, finance. Here are a few job descriptions:-  

1. Investment Banking

Investment Banking needs financial models for different types of services and deals like underwriting in debts or equity, leveraged buyouts, hybrid markets, and, mergers and acquisitions. In this role, the financial models are built-in Excel, majorly, by an analyst or an associate.

You might pursue a career as a professional analyst in the investment banking sector because investing has become such a crucial part of contemporary life. Additionally, the salary for these financial modeling jobs is better than it is for jobs in the general financial industry. After taking a financial modeling course, there are attractive work opportunities in the investment banking industry.

Additionally, this job allows you to create complex Excel models to help big public companies, governments, and private corporations. Your training in financial modeling will help you value businesses for Mergers and acquisition and advisory mandates using Excel models.  

Advance your expertise by enrolling in the high-rated Financial Modeling Courses in India

 2. Equity Research Analyst

 After investment banker, equity research and equity analysts are the most sought-after jobs following the completion of financial modeling course. The research analysts produce comprehensive, and, detailed stock market research reports. These reports are detailed because based on these reports the companies can take big investment decisions like selling, purchasing, and owning specific investments. 

While equity research analysts help the investors to make these decisions by offering lengthy financial analyses. One can be an equity research analyst after he completes a financial modeling course. However, before applying for the same, one must have a good grasp of accounting, finance, and, excel.

 3. Financial Planning and Analysis (FP&A)

Financial planning and analysis is another financial modeling job description that has been in demand since the emergence of financial modeling. In this job role, a person has to forecast the performance of a company and work with his unit to keep a tab on the cash flows. When forecasting a company’s future financial results, FP&A analysts consider current business and economic trends, examine past firm performance, and attempt to predict future obstacles and issues.

Despite it being one of the most challenging jobs, financial planning and analysis can be ideal jobs after completing a financial modeling course. In FP&A, candidates get the chance to help a company to grow by assessing its performance.

4. Credit Analyst 

Working as a Credit Analyst for credit rating agencies is part of the job description for financial modeling. The financial models utilized by credit rating agencies are used to value businesses. By assessing project costs, determining budgets, and distributing necessary resources, financial modeling supports strategic planning.

Based on the borrower’s business, financial, industrial, and managerial capabilities, these agencies evaluate the borrower’s risk. To determine the possible risk to investors and lenders, credit analysts evaluate the creditworthiness of investments and borrowers. They look at financial statements and make use of ratios while assessing the financial history of potential borrowers.

After taking a financial modeling course, credit analysts may make excellent employers. The work can be quite fulfilling, and it will teach you how to become an expert credit analyst in a particular business or field.

5. Corporate Finance

Being at the center of a company’s operations is possible with a career in corporate finance. Big companies frequently receive help from the corporate finance division with capital raising, mergers, and acquisitions. Investment bankers provide the Corporate Finance team with advice on a variety of transactions, including mergers and acquisitions, restructurings, divestitures, project financing, and asset purchases.

After taking the financial modeling course, a career in corporate finance may be appropriate. The potential is seemingly limitless because corporate finance is so crucial to firms and involves such a wide range of duties.

6. Financial Analyst

Many times, the names of financial analysts and managers are mentioned in financial modeling career options. Have you ever wondered why these financial modeling career options are so much in demand currently? The term financial analyst is very wide and does not have any particular application or field.

The outcome of the research can be applied in numerous fields like investment banking, corporate finance, credit, equity, and security training and investment. You can test your skills and knowledge in the post of a financial analyst to aid businesses. A financial analyst is one field you can consider after financial modeling course.

7. Project Finance 

Project managers can create and assess project finance models, thanks to their financial modeling expertise. To scale up the project, a clear cash flow will need to be built and analyzed, and this may be done using financial modeling. Managers of financial projects are in charge of the financial stability of a company.

In addition to establishing strategies with long-term financial objectives in mind, they are responsible for keeping a tab on direct investment activities and financial reporting. A strong combination of organizational abilities, financial awareness, and schedule-making capabilities are required for this position.

A qualified project manager may ensure improved team productivity when it comes to financing projects and makes a huge difference. Following a course in financial modeling, a job placement as a project finance manager may be perfect. Because they are adept at finishing projects on schedule and within budget, project finance managers are highly sought after by corporations.

Excel your finance managements skills with these Online Financial Modeling Courses

8. Consultancy Firms

Many companies utilize financial modeling programs to help them with budgeting. Financial modeling consultants are individuals or organizations that corporations recruit to carry out specific financial modeling tasks, such as budgeting and forecasting, mergers and acquisitions, capital raising, and other important financial responsibilities.

Because they don’t have a dedicated finance planning and analysis team that could build, implement, and analyze financial models for the company, small enterprises frequently hire these consultants. Top companies and business houses also recruit financial modeling experts to handle budgeting and forecasting, mergers and acquisitions, capital raising, and other financial processes.

On the other hand, some firms may recruit internal staff in their financial planning and analysis team who work as consultants. After completing the financial modeling course, one may look into consulting companies for jobs.

9. Real Estate 

The strategic forces behind property investments are real estate and finance analysts. They conduct market research and make recommendations and estimates regarding the most effective resource allocation. When financial analysts are at their best, they assist their companies to develop long-term portfolios and direct them toward investments with high returns.

All forms of financial modeling and analysis include managing an investment’s future potential, and real estate is no different. An expert can suggest a fund portfolio manager decide whether and when he should buy or sell, as well as find the best prospects before rivals. Following the financial modeling course, real estate financial analysts could be a good fit for employment.

The usual employer of a real estate financial analyst is a large business with a sizable portfolio. Having learned all about the necessary financial modeling job descriptions, it is time for some question-answer sessions. If you have some questions, shoot right away. 

Frequently Asked Questions

Q1. What precisely separates financial analysis from financial modeling?

In a business, financial analysis is done using trend analysis and data derived from financial statements and other economic and financial reports. On the other hand, financial modeling is a device that enables a company to reflect the actual financial scenario to make the best and most timely decisions to boost profitability.

Q2. What abilities are needed to master financial modeling?

You can start a career in finance by learning financial modeling, but it takes specific traits to succeed. The following is a list of some of the abilities required to become an expert in financial modeling.

• Good grasp of finance and accounting
• Excel Skills
• Research skills
• Time Management
• Decision-Making Ability
• Linking 3 financial statements
• Forecasting skills
• Problem-solving skills
• Attention to details

Q3. How does finance modeling benefit a candidate for a CA?

Although Chartered Accountants are taught to be proficient in accounting and taxation, over time their methods tend to become somewhat mechanical. Most CAs adhere strictly to accounting standards and tax rules as their guiding principles. Contrarily, financial modeling educates people to read between the lines and outside of the financial figures.

Financial modeling teaches chartered accountants to adopt an analytical attitude, which is crucial in the domains of equities research, investment banking, and financial analysis, from formulating hypotheses to making predictions based on past or expected trends. The fact that Chartered Accountants now have more options than just accounting, auditing, and taxation is one of the most crucial reasons for them to master financial modeling. These include research, analysis, project finance management, currency analyst, and other disciplines that they are looking into.

Conclusion

A financial modeling skill is constantly in demand and will remain so in the future. By now, we hope that you have gained a better idea of the expanding employment opportunities in financial modeling in India as a result of this article. Financial modeling expertise is highly sought after in the modern world, as businesses rely on data science to develop financial models and predict future trends.

It differs significantly from normal accounting and auditing jobs and has a wide range of applications in finance and related sectors. Training and dedication are necessary for a job as a financial analyst. For individuals who love financial modeling and data analysis, it is one of the most promising career choices.