Financial modeling is a quantitative analysis that is used to make a decision or a forecast about a project generally in asset pricing model or corporate finance. Different hypothetical variables are used in a formula to ascertain what the future holds for a particular industry or for a particular project.
In simple terms, financial modeling means forecasting companies’ financial statements like Balance Sheets, Cash Flows, and Income statements. These forecasts are in turn used for company valuations and financial analysis. Financial modeling is useful because it helps companies and individuals make better decisions.
Financial modeling is not confined to only a company’s financial affairs. It can be used in any area of any department and even in individual cases.
Valuation is the process of determining the current worth of an asset or a company; there are many techniques used to determine value. An analyst placing a value on a company looks at the company’s management, the composition of its capital structure, the prospect of future earnings, and the market value of assets.