Best Financial Modeling Tools and Software

Q: What do you mean by Financial Modeling tools?

The financial modeling tools are the simple tools that are created in spreadsheet software like MS Excel to estimate the company’s financial performance in the future. This forecast is characteristically based on future assumptions of a company, and its past performances, and requires preparing a balance sheet, income statement, supporting schedules, and cash flow statement. Investment bankers, Research Analysts, entrepreneurs, and accountants use this model for a better understanding of a company’s performance while making important decisions about the business.

Q: What do you mean by the cash-flow statement, balance sheet, and income statement?

Cash-Flow Statement: It is a tool used by stakeholders that provide a vision of how companies effectively manage their operations. Many businesses use this statement to understand the performance of a company. It assesses a business's ability to convert cash from investments, financing, and operations. Balance Sheets: It helps Accountants, Investment Bankers, and Business owners to better understand the assets of a company. Particularly, balance sheets give an idea about what a business owns and what are its assets. It provides a note of what are business liabilities and debts. Income Statement: It is equally important as a balance sheet and it tells experts about the profit of a company that is generated in a particular financial year.

September 12, 2023 Swati Shrivastava Financial Modeling, Knowledge

Financial modeling tools are the simple tools that are used in spreadsheet software like MS Excel to estimate the company’s financial performance in the future. This forecast is characteristically based on future assumptions and past performances of a company and requires preparing a balance sheet, income statement, supporting schedules, and cash flow statement. Financial Modeling Tools are the future of Finance and related sectors.

Why Are Financial Models Used?

Financial models are used to get the final output on financial performance analysis and decision-making inside or outside of a business. Financial Modeling Tools help to reduce the efforts made on different business analyses. Inside the company, financial models are used for making decisions about:

Capital Raise (company’s debt/equity)
For the company’s acquisitions
Divested business assets and units
Forecasting and budgeting
Analysis of financial statements
Accounts management

What are these Financial Modeling Tools?

Financial Modeling Tools are the collective set of skill factors and information that helps forecasters in the evaluation of a company’s value or segments of business and help in the evaluation of the project’s viability.

Microsoft Excel

The one of most important and primary tools that an expert needs for analysis is Microsoft Excel. Microsoft Excel is a priority for most analysts because it has various functions that make the job easier.

Knowledge of Excel

Knowledge of excel is necessary, having MS excel is not just making things possible. It is essential to know the in-built functionalities of Microsoft excel. Otherwise, you will never understand how your work gets easier with proper knowledge of excel.

Finance Knowledge

Having an intermediate knowledge of finance is the key step in financial modeling. Finance is the root of financial modeling. The knowledge field has 3 levels, which are named as Basic level, intermediate level, and expert level.

Accounting Knowledge

Basic knowledge of accounting or norms of accounting is essential for financial modeling. To have an expert level of knowledge of accounting is not necessary.

Knowledge of Economy Factor

A basic level of knowledge is expected about an economic factor. Because you have to make decisions on pricing levels based on supply and demand and with a good knowledge you can do it perfectly.

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A Good Approach

A mindset to solve problems is important in financial modeling. You have to reach your desired goal, for that you need to start from different information types. That’s why the correct mindset and right approach are important.

Skills to Present Ideas

Having great presentation skills helps to define your role in the company. Presentation skills are referred to as PowerPoint PPT. A high-quality and professional presentation is expected while you showcase your skills.

Knowledge of Color Formatting

The important factors of color formatting the MS excel are efficiency, clarity, and consistency. A lack of knowledge of any factor will not fulfill the financial model’s purpose.

Skills of Decision Making

The final result of the financial model is decision-making. Everything prepared for the financial models must be related to decision-making.

Critical Thinking Skill

A broad mind for rationale and critical thinking is essential for various decision-making factors in financial models. Critical thinking is the correct approach to the thought process toward accomplishing the result.

Learn here the Basics of Financial Modeling

Know About Financial Modeling Software:

Financial Modeling Software is related to an operating system or a program. It is designed to represent a relationship between operation and finance to examine the business response under favorable and unfavorable conditions. It assesses the monetary consequences in advance and hence concludes the business’s interest under planned and unplanned circumstances.

There are different categories of financial modeling software available in the market, they are based on the particular needs of quantitative finance, corporate finance, accounting, and other business-related elements.

Financial Modeling Software Features:

Financial modeling software features can be given as follows:

Perform Exceptional Calculations: A software makes complex and hard calculations easily, that are quickly understood by the required needs of a business. These calculations are error-free most of the time and thus keep the expectations of the current economic situation intact.
Next-Gen Plans for Businesses: This software offers companies and experts various operational, economic, and financial scenarios; hence it gives a vision for future business planning and standards. Software is developed with different in-built controls and security to maintain the secrecy of the data.
Accessible to Enterprises: This software is created in a way that it offers easy access to the secured reports and data across the globe to its users and clients of the firm. It allows combining various operational models with the financial models to provide better analysis.
Bigger Database: This software avails a platform that allows a firm to store data of any size and create as many models as needed by the firm with no data stolen or lost fear.
Efficient with Time: A software analyses and interprets any type of data in lesser time as compared to working manually. This results in an added benefit to the older time-consuming reporting approach.

What Are the Different Financial Modeling Software Types and Examples?

Most of the IT companies in the world are working day and night for developing software by using the latest technologies to outperform the competing companies and meet the varied needs of a business. Few financial modeling software that is available in the competitive market can be given as follows:

Operis– This is advice-giving software that provides support and help to every business needs.
Oracle BI – This software is created by Oracle; it offers end-to-end financial supply chain solutions.
Quantrix – This software is used by experts for developing future estimates, budgets, and plans.
Business Objects– This Software is developed by the SAP; it helps in the data analysis of Business Intelligence.
IBM Cognos – This software has been developed by the company IBM; it helps to integrate the activities of Business Intelligence.
Hyperion – This Software is developed by the company Oracle; it helps in the management of financial activities.

Financial modeling tools and software go hand in hand for business analysis and decision making.

Recommended Read: Financial Modeling Courses in Mumbai

Financial Modeling Software Applications

The financial modeling software applications are used in different organizational levels that fall under the category of human resources, purchase, accounting, reporting, finance, and purchase, etc. Some of the financial modeling software applications can be given as follows:

Cash Flow

Prediction of cash flow is an important element of the principal concerns of a business. A cash statement is the summarized report of a company that shows the stability and financial strength based on the available liabilities and assets.

Capital Budgeting

This is the process of estimation to determine whether the investments or assets of a business are financed via own funds or through debts. This estimation process utilizes different techniques like internal rate of return (IRR), Profitability Index, Net Present Value (NPV), Payback Period, etc. But these techniques are done manually, hence it takes lots of time, however, the software offers solutions to the problems in a minute and provides an error-free statement.

Financial Risk Modeling

This technique uses the combinations of arithmetic, economics, and mathematics to determine the possible threats in a portfolio. The financial model development technique is a time-consuming process and it includes many calculative assumptions. To assist, financial modeling software offers results of the value of risk, market risk, past simulations, etc.

Option Pricing

To calculate an exact price of the tool of an entity such as debentures, shares, etc., is known as Option Pricing. These calculations are dependent on the assumptions that are associated with the time value of money and intrinsic value. Few financial models used to perform calculations are the Monte Carlo method, Black-Scholes model, etc.

Algorithmic Trading

The concept of algorithmic trading is recently introduced to perform automated programs in computers and software. This software is essential for the execution of a program because no human can reach the system’s speed to complete a task. It is an assigned command in the computer to sell or purchase stocks from the share market once desired conditions are fulfilled.

Professional Courses from IIM SKILLS

Financial modeling software is an important thing that every entity, like corporations and governments, is dependent on. The final result of this analysis helps to forecast demands for better resource utilization, to maximize productivity, and deliver good results to its consumers. If you use this software optimally, it potentially enhances the profitability and sustainability of a business. Along with software, a good knowledge of financial modeling tools is beneficial for any business.

Here are the best Financial Modeling Courses in Hyderabad

Get To Know How These Online Courses on Financial Modeling Work?

Few online courses have live tutors to teach students either in a group or one-on-one, but most of the online courses are self-paced. It means students can review the material anytime according to their schedule instead of attending time-to-time classes.

These online courses involve a combination of excel model templates, videos, PPT modules, complete downloadable guides or resources, etc. Most of the online courses require previous knowledge of basic Excel and accounting.

What is the Scope of Financial Modeling?

Financial Modeling applications have a broader range of scope, these models are widely used for making decisions like acquisitions, mergers, internal planning, capital raising, investments, budgeting, valuation, and forecasting.

Its scope increases while you also look at Ad Hoc Analysis, Scenario Analysis, Sensitivity Analysis, ROI, IRR, and Capital Projects. These activities are performed by experts in IB (Investment Banking), Equity Research, Private Equity, FP&A (Financial Planning and Analysis), and Corporate Development.

Also Read: Financial Modeling Skills

What Type of Jobs is Open After Completing a Financial Modeling Course?

Financial Modeling Courses are highly required after completing studies in Finance. The financial world is developing rapidly and it is important to gain knowledge about tools because this is the base for a successful business. A few essential topics involved in financial modeling courses are macro excel, pivot tables, valuations, etc.

After pursuing this course, candidates’ chances to work in the finance world increase, and they will easily get a job in the finance field. So, this is the best course for those who want to make a career in the finance sector. Candidates can find opportunities in industries such as Non-Profit Organizations, Equity Research Firms, Private Finance Firms, Government sectors, etc.

Here is a list of top-rated jobs that can be pursued after the completion of the online Financial Modeling course:

Financial Analysts, Directors, and Managers
Investment Banker (Analyst or Associate)
Equity Research Analyst

Also, Check out the best Financial Modeling Courses in India

Let’s See the Roles and Responsibilities of the Above Positions:

1. Financial Analysts, Directors, and Managers

The Financial Analyst job is getting more popular nowadays. This position plays an important role in any business because they majorly work with the department of FP&A. In this department Financial Analysts, Managers, Directors, etc. are involved. They should have hands-on knowledge of financial modeling tools for better results.
This role is essential for businesses because it helps to identify how a company is doing its work. It determines the financial condition of a business, whether they are going into loss, struggling, making profits, or remaining in a constant position.
A financial Analyst estimates the performance of investment types, bonds, and stocks, and guides the business according to the need for investment.
Some other essential skills for experts in the department of FP&A are writing and communication skills, analysis, identifying threats, strategic thinking, etc.

2. Investment Banker (Analyst or Associate)

In the current globalized world, investment plays an important role for a company as well as for an individual.
An IB Analyst is an expert in networking as well as communication. An Investment Banker is involved with the IPO, mergers, acquisitions; etc., hence they should be an expert in financial modeling.
Research with problem-solving and analytical skills are important elements of this profession.
IB Analyst performs detailed research on the opportunities associated with investments and are easily available for their clients in the market.
IBS is responsible to ensure whether their clients are making profits or not. They update clients on the current position of the financial market.
Investment Bankers are responsible for maintaining and making analyses of suitable opportunities for their clients and after that recommend investments based on their goals and needs.
The role of an IB Analyst is to deal with old and new clients and help them to perform tasks to get better output. They help businesses to implement and achieve their short-term and long-term goals.

3. Equity Research Analyst

ERA should have a handy knowledge of Excel and other financial modeling tools because they need to prepare business finance models and perform research along with deep analysis of a company. The main role of ERA is to provide in-depth and elaborative reports on the industry of the stock market.

Financial Modeling-based FAQs

1. What do you mean by Financial Modeling tools?

Financial Modeling tools are simple tools that are created in spreadsheet software like MS Excel to estimate the company’s financial performance in the future. This forecast is characteristically based on future assumptions of a company, and its past performances, and requires preparing a balance sheet, income statement, supporting schedules, and cash flow statement. Investment bankers, Research Analysts, entrepreneurs, and accountants use this model for a better understanding of a company’s performance while making important decisions about the business.

2. Explain some financial model examples and their uses?

There are various financial model types available that are used by experts to make better decisions about businesses. Business decisions involve business forecasting about requirements and changes, business growth, and capital raising. A few examples of financial modeling are LBO (Leveraged Buyout); which examines the funding impact of purchase with debts, Business Valuation, DCF (Discounted Cash-Flow), M&A (Mergers and Acquisitions); which examines the final output of mergers and acquiring with other businesses.

3. What are the roles and responsibilities of Investment Bankers?

An IB Analyst is an expert in networking as well as communication. An Investment Banker is involved with the IPO, mergers, acquisitions; etc., hence they should be an expert in financial modeling. IB Analyst performs detailed research on the opportunities associated with investments and are easily available for their clients in the market. IBs are responsible to ensure whether their clients are making profits or not. They update clients on the current position of the financial market. Investment Bankers are responsible for maintaining and making analyses of suitable opportunities for their clients and after that recommend investments based on their goals and needs. The role of an IB Analyst is to deal with old and new clients and help them to perform tasks to get better output. They help businesses to implement and achieve their short-term and long-term goals.

4. What do you mean by the cash-flow statement, balance sheet, and income statement?

Cash-Flow Statement: It is a tool used by stakeholders that provide a vision of how companies effectively manage their operations. Many businesses use this statement to understand the performance of a company. It assesses a business’s ability to convert cash from investments, financing, and operations.

Balance Sheets: It helps Accountants, Investment Bankers, and Business owners to better understand the assets of a company. Particularly, balance sheets give an idea about what a business owns and what are its assets. It provides a note of what are business liabilities and debts.

Income Statement: It is equally important as a balance sheet and it tells experts about the profit of a company that is generated in a particular financial year.

Conclusion:

Financial Modeling Tools are developed to forecast the business’s future financial performances and with the help of this tool, experts can make better decisions for a company. Financial Modeling includes various segments such as financial modeling tools software, better job opportunities, etc. Nowadays, online courses are also available in the market to learn deeply about financial modeling. Financial Modeling is the future of the finance sector, hence a great knowledge in this field provides you with a better job opportunity.