Benefits of Financial Modeling: A Practical Approach

Financial modeling is one of the most sought-after skills in today’s corporate world. The demand for expert financial modeling analysts is increasing day by day.  Since financial modeling is essential to every business, leading companies often choose to avail financial modeling and analysis services. In fact, financial modeling applications are vital to offering vision, garner early-stage investors, and provide stakeholders with relevant information.

Why Use a Financial Model?

So, why do you, as a business person, consider financial modeling applications? The answer may vary depending on the needs of your organization, but can include:

•    Identifying financial risk and strategy

•    Managing cash flows

•    Analyzing quality of earnings

•    Examining EBITDA (earnings before interest, tax, depreciation and amortization)

Like most companies, the human capital stretches. No matter whether you are a CEO, marketing, sales or purchasing executive, financial modeling will play a key role in making decisions.

In addition to that, external stakeholders, such as investors, bankers, private equity firms, and vendors demand financial, as proof of adequately fund an organization’s growth. You will also see businesspeople opting to sell side research services.

A Practical Example of Financial Modeling Benefit

Consider Private Equity or Venture Capital Firm

Private Equity and Venture Capital firms are watchful towards the financial health of their operating companies. Their fundamental question- what is the ROI (return on investment)? To reply to this question, they will need a rigorous budgeting process that includes financial modeling. They may choose to see the financial impact of the need to invest money in marketing, product development etc. Or, maybe the operating company may opt to cut expenses for profitability. The result of these decisions will need providing metrics such as breakeven analysis and EBITDA. These metrics will help management in making the right decisions to manage the company profitably.

The End Result

A financial model needs to be flexible and live. As the company grows, product lines enhance and external forces impact its direction; therefore, financial models must be able to monitor these significant changes.

Models will often generate an actual vs. forecast analysis, forecasting cash flow, and produce KPIs and other analytics. This data is crucial for the major stakeholders to calculate ROI and manage the business.

In the end, financial models capture the future operating, financing and investing activities that determine financial position, future profitability, and risk.

If you are looking for effective financial modeling or buy side research services, Penterra Analytics can be a one-stop company for you.