Financial modeling is the process of forecasting the performance of a certain asset, using the relationship between the operating, investing and financial variables.
Activities included under financial modeling cover, but are not limited to, the following:
Projected Financial Statements
Presenting a company’s historical and forecasted income statement, balance sheet, and cash flow statement.
Presenting the key operating ratios of a company such as gross profit, operating profit, and net income margins. Sector-specific ratios can also be determined.
Assessing how different values of an independent variable will impact a particular dependent variable under a given set of assumptions. This technique is used within specific boundaries that will depend on one or more input variables, such as the effect that changes in interest rates will have on a bond’s price.
Presenting an estimation of the revenue and expenses over a specified period of time.