Financial Models that you can Create with Excel

All those of you who have graduated in Finance and are looking for careers in finance, must know how to create financial models with excel. This will provide a great boost to your resume whether you wish to pursue further financial management studies or you wish to join the workforce. Learning macros on excel will provide you with great options for creating financial and/or analytical models on excel. Some of the financial models you can create using excel are:

Company Financial Models 
 

All companies have financial data which can help predict their future performance. An analyst can create company financial models which are generally a large number of spreadsheets that contain these data and the analyst’s views with regard to this data and the estimates he/she creates from these. These estimates could relate to revenue, cost of goods etc. 

These financial models usually have time on the x-axis and the value for revenue or cost of goods sold etc. on the y-axis. To create these models, you as the creator must input estimates for the line items eg. revenue. After this, you must ensure that you use the right formulae. This will serve as the base for further interconnected models such as cash flow, balance sheets etc. Learning about excel macros will help you create more sophisticated scenarios for bull/bear markets. 

Valuation Models

 

Whether or not you build company models, building one’s own valuation models is highly recommended. You can create simple models such as EV/EBIDTA, price earnings etc. or go for creating more complex models such as discounted cash flow for more rigorous results.

  

Discounted Cash Flow  

A discounted cash flow model is highly regarded for valuation. Several analysts and companies consider discounted cash flow very important in the absence of corporate financial performance report. The excel sheet can be created to hold year-on-year cash flow estimates on a single row, whereas on the other rows/columns below it there can be growth estimates, discount rates etc. The first estimate can be used from your company’s  financial model and the rest can be built by creating growth rate estimates year-on-year or using bulk estimates. The other details such as discount rates have to each be entered in separate rows. After inputting all details, the NPV function on the spreadsheet must be used for processing the estimates for growth and discount rates. A terminal value must also be calculated at the end. 

Remember this 

By creating the above models yourself, you will learn a lot about a company’s functioning and what it might need to do in order to grow. However, use of detailed financial models does not discount human discretion and understanding. You can also learn to create these models through short online finance courses.