What is Financial Modeling
We are constantly bombarded with queries from students of CFA/CA/Commerce/MBA and other backgrounds that they want to learn Financial Modeling to make a career in Finance.
They also have many questions in their mind. The most prominent ones are:
- What is Financial Modeling?
- What are the job opportunities after learning financial modeling?
- What are the different kinds of financial models?
- How much time will it take to learn it?
- How much proficiency is required in MS Excel to be able to build complex financial models?
- I dont have a finance background. How will i cope up ?
Let us try and answer all these points one by one:
What is Financial Modeling?
Financial Modeling is now one of the most indispensable skills to make a career in the fiercely competitive finance industry. It refers to the process of creating a model using MS Excel to project the financial statements for a company. Financial Modelling requires a mix of fundamental knowledge of Financial Accounting and Equity Valuation, as well as working knowledge of MS Excel
Job Opportunities after Learning Financial Modelling
- Equity Research: Equity analysts spend a considerable amount of time building a financial model for the company they are about to give a buy/sell recommendation on
- Investment Banking: Investments bankers need to arrive at a valuation of a target company based on which they pitch buyers/sellers
- Credit Research: Credit rating agencies, such as Crisil, use sophisticated financial models to evaluate credit quality of companies debt issues
- Project Finance: Sophisticated financial models are built in project finance, when deciding whether to do a specific capex in a project, e.g. building a new hotel
- Portfolio Investments: It is critical to evaluate equity investments in your portfolio, when you are looking to seek higher returns as compared to debt. Financial Modeling knowledge goes a long way in helping you understand the finer points of company’s financial statements. This will help in making sound investments in companies with growth potential (wrong investments in equity can cause capital destruction)
Types of Financial Models
- Equity Valuation Model: Here we try to find out the intrinsic value of equity for a company by using different valuation methods – DCF/Trading Comparables/Transaction Comparables, i.e. a company is coming out with an IPO at Rs500 per share. You can try and build a quick model and try and find out if the company deserves this price tag or not
- Leveraged Buyout Model: When somebody is looking to take a private company as public, by using substantial debt funding supported by small portion of own equity, then LBO models are built. For example, suppose Mukesh Ambani wants to buyout all shareholders in RIL Industries and make it a private company, then he will require a large amount of capital say $50 billion . Now, even Mr Ambani may not have that much personal wealth. So he can take a loan from financial institutions for $40 billion and the remaining $10 billion can be infused by him
- Project Finance Model: It is made in case of capital extensive projects. For example – ITC Hotels may be planning to set up a new hotel in Nainital. In that case they will have to build a project finance model to estimate future revenues/costs/capex requirment/funding structure/returns analysis. Only if the project seems feasible, can they think of actually taking the next steps
- Credit Model: These are made to evaluate the credit risk arising from different business segments. These are widely used in financial institutions and credit rating agencies
- Others: Apart from this, there can be different types of models – payroll, equity dilution, mergers, etc.
How Much Time is Needed to Learn Financial Modeling?
- We think 60 hours are enough if someone wants to learn equity valuation, project finance and LBO models. A person also needs to be good in MS Excel skills
- If a person is looking only to learn to build equity valuation models, then we feel 30 hours are enough to build a model right from scratch
- There are many long courses in the market spread over months. Many students ask will you be able to teach us all the points in your 10 day Advanced Financial Modeling (Investment Banking Course) . Well, the answer here is very simple – Our course has been designed as per the requirements of the industry. We at Cians Analytics work with large investments banks across the globe and know fully well the exact skillset needed in a candidate. We have hence designed a focused course zeroing in on all the important points and weeding out the non-relevant sections (which can be easily understood by reading a book)
- We also feel that education should not be expensive and everybody should get a fair opportunity to learn. Hence we have priced our courses very fairly compared to industry standards
- Some institutes have gone one step further and have devised a novel way of charging exorbitant fees . They already have extremely high fees of close to INR 50k and then they say – If you get selected in a company we refer your resume , we will charge another INR 50k +”. I mean, we find this really amusing. Why should a candidate pay you after getting selected because of his talent and skills ? It is not if you are guaranteeing the candidate a placement here.
- Many of our students have got placed in the same set of companies like E&Y, KMPG etc after paying a fees of just INR 21,800 vs paying lakhs of rupees in these run of the mill coaching institutes. The caveat – “Buyers Beware ” applies . Any company will hire you if you have the right skill set (doesn’t matter who referred you)
How Much Knowledge of MS Excel is Needed to Make Models?
- Well, a candidate needs to be proficient in MS Excel to make models. There is no escaping this fact
- Hence, in our course we have covered all the important topics and will teach MS Excel right from scratch
- We have not covered VBA/Macros, since we dont want to hoodwink people. Take our word, that it is impossible to learn even 10% of VBA/Macros quickly. These are specialized areas and we would recommend people to learn VBA/Macros only after they have mastered MS Excel. Its always better to have one bird in hand, rather than two in the bush
- We also have a Free Online MS Excel Course for people looking to only learn Excel at the comfort of their house. You can enroll and start learning
How will i cope up without finance background?
- We fully understand the challenge a non finance background student faces while learning finance
- Hence, after in depth research we have made a 110 page pre course handbook on “Financial Accounting & Equity Valuation”. This contains all the important topics in lucid language.
- Our advice to all students is to register as early as possible so that you get both the soft copy and the hard copy of this pre course handbook and you can start reading these concepts
- This process will help people from non finance background come up to speed even before the classes begin 🙂
There is a famous saying that “practice makes a man perfect”. So after you do a financial modelling course, start searching for more material and analyzing market leaders in their respective industries. Try and understand what are the operating metrics in different industries – retail, aviation, entertainment, construction, etc.
In case you have any queries, feel free to write to us at firstname.lastname@example.org or call us at 9818955001.
We will be glad to guide you.
Look forward to your comments and shares.