Chapter 1

Introducing Financial Modeling

IN THIS CHAPTER

check Exploring the who, what, and why of financial modeling

check Investigating different types of models

The demand for financial modeling skills has increased exponentially in recent years and many job listings for finance positions now include “financial modeling” as a core skill. If you’re reading this book, you’ve probably already discovered how important this skill is, and you know that learning financial modeling will increase your employability in finance or financially focused fields.

In this chapter, I define financial modeling — what it is, who uses it, and why it matters. I also show you some examples of financial models. If you’re brand-new to financial modeling, this chapter is a very good place to start.

Defining Financial Modeling

Before you dive into how to use Microsoft Excel to create financial models, you need to know what financial modeling is, who uses financial models, and why financial modeling matters. In this section, I fill you in.

What it is

When I teach a course on basic financial modeling, I always ask my students for their definitions of the term financial model. Most of them come up with long-winded descriptions using terms like forecast and cash flow and hypothetical outcomes. But I don’t think ...

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