347 647 9001+1 714 797 8196Request a Call
Call Me

Stairway to Financial Modeling Heaven

March 16, 2011
, , , , ,

What is financial modeling?

Financial modeling is creating a complete program/ structure, which helps you in coming to a decision regarding investment in a project/ company. Financial models are abstract representations of a financial decision making. Now these decisions can be derived on a simple piece of paper or in tools such as Excel, MATLAB or R. Most of the financial models used for equity valuation are built on Excel, which doesn’t ask for an extra effort to learn the tool itself.

Who does Financial Modeling?

Anybody dealing with any decision related to money. If you are involved in financial decision making/ planning related to large corporate, then you would definitely need financial modeling day in and day out. Financial modeling is a mandatory activity for investment bankers, bankers, project finance persons, equity research folks, PE & VCs.

Most importantly people who long to work in PE/IBs!!!

What are the steps in building a financial model?

Data collection

This is where the real front end banker works. She goes to the client, collects the data like revenue, growth, investments, need for money, etc.

Back of the envelope calculations

Now most of the corporate guys are very hunky dory about their business. They usually think that their idea is one of a kind and is going to generate loads of mullah. Banker would sanitize their thoughts and try to figure out, if the business makes sense. Initially the thinking and analysis is very simple,

  • Does the corporate guy look sober to me?
  • How soon can I get my investment back?
  • Is the revenue that he is projecting seems greater than the market size?

You usually need no industry knowledge for this. Just keep your eyes and ears open and put your thinking cap on!

Structured approach to thinking

Once the basic numbers seem reasonable (they make business sense and seem to be true as well), you have to dig deeper! This is where you need a complete financial model. And the first real step to doing that is to think of a structure of analysis. Thankfully finance has some basic theories in place and you can rely on them to proceed:

  • Cash is the king – The more cash is generated (from the operations of the business) the better is the business
  • Money today is better than money tomorrow – technically this can be called Time value of money. But it does not matter!

Practically these are the fundamental building blocks of analysis and you have to start thinking in these terms for the analysis

Stepping on the Stairway

Keeping all the above written points at the back of the mind you can put the first step on the stairway and then there’s no way back‼!

· All the steps to the modeling heaven are simple mechanical steps which anyone can master provided one puts sincere efforts in it.

· Every Wednesday we’ll master one step and by the end of 8th week we’ll be there at the modeling heaven.


About the Author

Anil Bains has developed end-to-end financial models for Real Estate, FMCG, Power, Roads and Telecom Sector and released them as Open Source. He has extensive experience in the financial services, analytics and training domain. Apart from making Financial Modeling simple and accessible for the masses, Anil loves playing volleyball and has a mean spike.


Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to and we will rectify it.

Popular Blogs: Whatsapp Revenue Model | CFA vs CPA | CMA vs CPA | ACCA vs CPA | CFA vs FRM

Post ID = 7101