Financial Modeling

Because of their explanatory or predictive power, certain types of financial models are used frequently to represent common financial scenarios.   Some of the most common financial modeling applications are:

• LBO (Leveraged Buyout) Model [Tutorial]
• DCF (Discounted Cash Flow) Model [Tutorial]
• Three Statement Model (Balance Sheet, Income Statement and Cash Flow Statement) [Tutorial]
• Merger Model (e.g. M&A, Accretion Dilution) [Tutorial]
• IPO Valuation Model [YouTube]
• Startup Valuation Model [YouTube]
• Dividend Discount Model [YouTube]

In addition, certain industries have distinct characteristics and drivers that necessitate the use of specific financial modeling tools and methods.

Some industries such as the Technology, Consumer and Retail categories operate along similar lines and can be analysed using conventional methods. 

Others such as Healthcare, Industrials and Utilities somewhat different.  

Then there are certain industries such as Financial Institutions, Oil, Gas & Mining, and Real Estate and REITs that are so different that specialized modeling methods are called for. 

Here’s a quick run-down of what you should know for these industries:

Real Estate Financial Modeling

In real estate financial modeling (REFM), you analyze a property from the perspective of an Equity Investor (owner) or Debt Investor (lender) in the property and determine whether or not the Equity or Debt Investor should invest, based on the risks and potential returns.

There are three main types of real estate financial modeling, including:

• Acquisition Modeling
• Renovation Modeling
• Development Modeling.

Bank and Financial Institution Modeling

Unlike “normal companies” that sell products to customers, banks and financial institutions primarily sell money. 

They get money from customers (deposits), pay out a certain interest rate on it, and then take that same cash and loan it out to other customers, businesses, and large companies at a higher interest rate. 

As a result, bank and financial institution modeling is a whole different league, which we cover in this article on Bank and Insurance Modeling 101.

Oil and Gas Modeling

Oil & gas, mining, and other natural resource companies have a simple business model: find and extract valuable stuff from the ground, turn it into something useful, and then sell it to customers.

But there’s a twist: market prices are generally outside the control of a single supplier, which introduces some interesting complexities. We explore some of the nuances of in our article on Oil & Gas Modeling 101.

Financial modeling skills are sought-after in a number of high-paying and prestigious careers, including:

Investment Banking

Investment Bankers assist companies in raising capital and executing transactions such as mergers and acquisitions (M&A).

Private Equity

Private equity firms raise capital from outside investors then use this capital to buy, operate and improve companies before selling them at a profit.

Venture Capital

Venture capital firms raise capital that is invested in early-stage, high-growth companies with a view to exiting via acquisition or IPO.

Hedge Funds

Hedge fund managers raise capital from institutional investors and accredited investors and invest it in financial assets.

Corporate Banking

Corporate bankers aim to win and retain clients who hire the bank for M&A deals, debt and equity issuances, and other transactions with higher fees.

Corporate Development

Corporate Development focuses on acquisitions, divestitures, joint venture (JV) deals, and partnerships internally at a company.

Equity Research

Equity research relates to the sell-side role at investment banks where you make Buy, Sell, and Hold recommendations on public stocks.

It’s difficult to pinpoint salaries and bonuses for professionals with financial modeling skills
because they vary widely – and titles sometimes differ between different companies and industries, making exact comparisons difficult.

So, these are very rough, broad ranges based on what you might earn at a large company in a major financial center.

Learning financial modeling is practically a requirement for professions desiring a career in investment banking, private equity or hedge funds. 

We have a wealth of tutorials available on the M&I YouTube Channel and in our Premium Financial Modeling Courses that will teach you exactly how to build a financial model.

However, if you’re looking for an introduction to the field, here are some great ways to start:

PROJECTING THE 3 FINANCIAL STATEMENTS

• What’s in a Growth Equity Case Study?

VALUATION MODELS

• Private Company Valuation, Part 1: Are You in the Meth Business or the Money Business?
• Private Company Valuation, Part 2: Could You Be in the Meth Business *and* the Empire Business?
• Uber Valuation: The Most Overhyped Company Ever?

LBO MODELS

• The Dell Leveraged Buyout, Part 1: Dangerous Dealings, or Slam-Dunk Success?
• The Dell Leveraged Buyout, Part 2: Declining Growth and Margins, or “Robust Earnings Growth”?
• The Dell Leveraged Buyout, Part 3: Debt Schedules and Interest Expense Calculations – Got MAX/MIN?
• The Dell Leveraged Buyout, Part 4: Post-Buyout Add-On Acquisitions – A Value-Adding Pipe Dream?
• Your Own Private Equity Case Study Interview Template (The Dell LBO, Part 5 – Case Study Presentation)

Having a strong knowledge of financial modeling is a prerequisite to break into fields such as investment banking, private equity and hedge funds.

Organisations have shifted from “hiring raw graduates and training them on the job” to expecting new hires to be able to add value from day one.

That’s why many aspiring professionals invest in specialized financial modeling training to help them get noticed, get hired, and get promoted.

Some of the financial modeling courses offered by Mergers & Inquisitions and Breaking Into Wall Street include:

• Excel & Financial Modeling Fundamentals
• BIWS Premium – Ultra-advanced Excel and Financial Modeling training, including 10+ global case studies of real deals
• Bank & Financial Institution Modeling
• Oil & Gas Financial Modeling
• Real Estate & REIT Modeling
• BIWS Platinum – Our entire collection of courses for a deep discount off the regular price.

Completing these courses will help you win interviews and job offers for roles that pay $150K+ and provide you with a prestigious and lucrative career path.