The Types OF Financial Models

In the world of Investment Banking, a financial model basically refers to a graphical representation of the financial situation of a firm. In other words, it is a mathematical mode, which is put together or designed by a professional, to highlight the performance of either, a financial asset, or any project or portfolio or a similar investment of the firm. These models are usually used so as to forecast the possible as well as potential changes, thoroughly financial in nature, for the company in question. It helps the firms make certain assumptions, about the performance of any particular project in the near future, like for instance what would the cash flow be like, of the said project. These models usually consist of calculations, analyzing and finally providing recommendations, all of which are based on the information gathered by the financial analyst.

These financial models are also said to involve a score of balance sheets, profit and loss statements apart from the process of the cash flow, with all its related schedules like the Depreciation schedule, Amortization Schedule, working capital management, debt schedule etc. These models not only summarize a number of specific events, for the convenience of the end user, but also provide alternatives if the project needs it. While there are a majority of models, which entirely focus on Valuation, some of these are also computed to predict and calculate, the various macroeconomic trends in the industry or the region.

Here a list of all the types of Financial Models, that are created for their respective purposes.

Discounted Cash Flow Model

Perhaps, one of the most important valuation technology, this model is usually used to measure the cash flow of any project. It basically utilizes all the free cash flows, that are projected and then discounts them, so as to derive the Net Present Value, which helps the investment bankers to figure out, how easily they can break even from the investment.

Leveraged Buyout Model

This model refers to the acquisition of a public or a private company, with results out of borrowing a significant amount of funds. These kind of models are usually used by leveraged finance firms, who have sponsors in Private Equity firms, who are usually focused on acquiring the companies, with an objective of selling them at a profit, in the near future.

Comparable Company Analysis Model

More popularly known by its abbreviation, that is CCA; a Comparable Company Analysis Model is basically a mode which compares. In the context of investment banking, this model evaluates the value of a firm, with the use of metrics, that have earlier been used by the businesses of a similar valuation. This is how, a majority of investors are able to compare any specific firm, to all of is contemporaries on a very relative basis.

Every professional working in the field of investment banking, is expected to have a broad idea about all the various types of financial models and their purposes. While all the degree courses, do provide one with the theoretical knowledge, they are entirely unable to supply real time, practical knowledge. This is the reason for the recent increase, in the demand for industry endorsed, certification training programs, in both investment banking and corporate finance, which are offered by institutes like Imarticus Learning 

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