18.2. Budgeting and Financial Modeling
Basically, a financial model is used to build a comprehensive budget (i.e., projected financial statements, such as the income statement, balance sheet, and cash flow statement). Such a model can be called a budgeting model, since we are essentially developing a master budget with it. Applications and uses of the model, however, go beyond developing a budget. They include:
Financial forecasting and analysis
Capital expenditure analysis
Tax planning
Exchange rate analysis
Analysis for mergers and acquisitions
Labor contract negotiations
Capacity planning
Cost-volume-profit analysis
New venture analysis
Lease/purchase evaluation
Appraisal of performance by segments
Market analysis
New product analysis
Development of long-term strategy
Planning financial requirements
Risk analysis
Cash flow analysis
Cost and price projections
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