What is Financial Modelling?

Analysts use a financial model to project the future performance of an organization. Financial modeling is the process conducted to create a financial representation of the entity. It is through this financial model that the financial analyst tries to forecast future earnings and performance of the company. The analysts use numerous forecast theories and valuations to recreate business operations. The financial model once completed, displays a mathematical depiction of the business events. The steps to create an accurate model are – studying historical results, assumptions, preparing income statements, balance sheets, schedules, and cash flow statements. Afterward, analysts do sensitivity analysis, stress tests and audits to verify the model.