FINANCIAL ANALYSIS

SGN

AND MODELLING USING

EXCEL
FN203
INTRODUCTION
What is A Financial Model ??

■ Calculation
■ X+Y=Z

■ Series of Calculations
■ 2X+3Y+3Z+4P+5G = k

■ Simple or Complex
■ A Series of calculations (Simple or complex) structured in a particular
fashion so that it is comprehensible.
Decisions and Financial Modelling

■ Baseline for Management’s adoption of measures :

■ Increase marketing efforts / Streamline Revenues / Cost Rationalization efforts.
■ Scale down / prioritize CAPEX plans. Or determine additional funding.
■ Undertake Production cut to manage the inventory buildup
■ Financial model go a long way to help management coup up with uncertainity and focus
on value creation process for stakeholders.
Model
Financial Modelling : Art or Science ?
Financial Modelling : Art or Science ?

■ Financial Model is Fluid , Creative Activity and many ways to build a model.
■ As a book may be good or bad, a financial model can also be a good or bad

■ Model is professional art or a form of professional expression.

■ Model goes to various revisions to improve its imperfections.

■ Financial Model is Part of Art and a part of Science.

■ Needs Mathematical Skills as well as Creativitity

■ Ultimate Objective – Simple to Understand.

Definition of Financial Model

■ Model is Simplified Mathematical description of a business or process.

■ Model is representation of reality.
■ Model is simplified representation of company performance of both Past and Future
Performance
■ Financial modeling is a task of building an abstract representation fo a financial decision
making situation.
■ A mathematical model is designed to represent the anticipated performance of a financial
asset or a portfolio of a business, a project, or any other form of financial investment.
■ A typical financial model would enable simulation of cost and revenue relations to support
business decisions.
Key Terminologies :

■ Revenue:
The channels from which your business generates revenue and how much from
each stream
■ Cost of Goods (COGS):
The cost of selling your product or service
■ Operational Expenditures (OPEX)
How much your business spends in order to sustain the scale of its day to day
operations
Key Terminologies…. Contd..
■ Income Statement
How much net profits or losses your business will incur during a period of time
■ Cash Flow
How much cash your business generates and uses during a given time period
■ Capital Expenditures (CAPEX)
Money spent acquiring or upgrad- ing physical assets that is, property
■ Balance Sheet:
Summary of a company’s assets, liabilities and share-holders equity at a given time
period
■ Working Capital:
How well a company manages its current assets vs. current liabilities?
The Three Financial Statements

■ BALANCE SHEET
■ INCOME STATEMENT
■ CASH FLOW STATEMENT