A financial model is a vital decision-making tool to determine and quantify the feasibility of the business venture or business initiative. It is the projection of a company’s expenses and earnings used to anticipate the financial feasibility of a future investment or business decision.
A financial model is merely a tool to forecast a given project impact in the business’ financial performance into the future. The forecast is typically based on the company’s historical performance, assumptions and financial projections about the future, typically an income statement, balance sheet, cash flow statement and supporting schedules. From there, more advanced types of models can be built with financial ratios, return on investment, discounted cash flow and internal rate of return analysis to determine the financial sustainability of a business model or business project. The “what if” scenarios are key to an informed decision before venturing into a new investment or business.
The scope of financial modeling applications is extensive as models are used for a wide range of decision making, including those related to mergers, acquisitions, capital raising, internal planning, budgeting, forecasting, investments, and valuation.
The output of a financial model is used for decision-making tool and performing economic analysis, whether for company’s management use or seeking to raise capital. Company’s executives will use financial models to make decisions about:
- Raising capital (debt and equity)
- Making acquisitions (businesses and/or assets)
- Growing the business organically (i.e., opening new stores, entering new markets, etc.)
- Selling or divesting assets and business units
- Budgeting and forecasting (strategic and operational planning for the years ahead)
- Capital allocation (priority of which projects to invest in)
- Valuing a business
Our professional consultants will analyze your case and draft a comprehensive financial model suited to your specific industry and business model. Contact us for more information.