Financial modeling in Excel refers to tools used for preparing the expected financial statements predicting the company’s financial performance in a future period using the assumptions and historical performance information. One may use such financial models in DCF valuations, mergers and acquisitions, private equity, project finance, etc.
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The companies intend to use it as a method of decision-making, estimating the future costs and profitability levels of their current strategies that they have implemented or the viability of future projects and investments. The models help the management anticipate what will be the impact of a particular decision or project on the stock prices and market valuation of the company.
Financial Modeling In Excel Explained
Financial modeling in Excel is all around the web. There has been a lot written about learning financial modeling. However, most of the financial modeling pieces of training are the same. It goes beyond the usual gibberish and explores practical financial modeling used by Investment Bankers and Research Analysts.
The process of financial modeling makes use of historical data as well as current data to make an evaluation and assessment of the future of the business with regard to its profitability, cost, revenue, sales, and overall financial performance. It acts as a guide to decision-making, providing the management with a proper plan of action to drive the business toward success and growth.
Excel is a tool that is commonly used for this practice. However, even though creating financial models in excel has a lot of value and unlimited scope of usage in the industries, it is not explored to its optimum extent. It is a skill and part of financial analysis that combines the use of financial skills, accounting skills and data analysis to attain the objective of forecasting the future.
Microsoft Excel provides the perfect base for this analysis through the use of financial statements, which are profit and loss statements, cash flow statements, balance sheets, and all other supporting documents. The accuracy of the projections made will largely depend on the availability of data, the accuracy of the information, and the skills and knowledge of the professionals who create the model.
In this free financial modeling Excel guide, we will take the example of Colgate Palmolive (2016 – 2020) and prepare a fully integrated financial model from scratch.
This guide for creating financial models in excel is over 5,000 words and took me three weeks to complete. Therefore, save this page for future reference, and do not forget to share it.
Step 1 - Download the Colgate Financial Model Template.
