What are the Financial Modeling Tools?
Financial modeling tools are the set of information or skills or any other factor element which helps an analyst evaluate the value of a company or a business segment or the viability of the project.
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- What are the Financial Modeling Tools?
Here, we discuss the top 10 tools an analyst possesses for this purpose.
#1 – Microsoft Excel
The first and foremost tool an analyst needs is Microsoft excel. Now why excel only and not any other software? Well, Microsoft Excel has many functions that ease the job of any scale around the globe.
#2 – Excel Knowledge
Just owning Microsoft Excel Software does not make you a pro. You need to know the inbuilt capacities of Microsoft excel. Unless you don’t know what Excel can do, you will never try those things.
#3 – Knowledge of Finance
The first step in financial modelingFinancial ModelingFinancial modeling refers to the use of excel-based models to reflect a company's projected financial performance. Such models represent the financial situation by taking into account risks and future assumptions, which are critical for making significant decisions in the future, such as raising capital or valuing a business, and interpreting their impact. is to gain an intermediate knowledge of finance. Finance is the crux of financial modelling. There are three levels for any knowledge: basic, intermediate, and expert. Expert knowledge is required for suggesting or decision-making based on information available. Intermediate knowledge lets you work on the ground. Basic knowledge is what traditional financial bankers do when you keep a time depositTime DepositTime deposit, also known as term deposit, refers to the deposit account with fixed maturity and interest rate. with them.
To start with financial modelling, you at least need an intermediate level of financial knowledge.
#4 – Knowledge of Accounting
You don’t need to possess expert knowledge of accounting. Basic accountingBasic AccountingAccounting is the formal process through which a company attempts to present its financial information in a way that is both auditable and usable by the general public. knowledge or accounting norms are required for financial modelling.
#5 – Knowledge about Economy
It would help if you had your opinion about the current scenario of the economy. Your opinion defines the level of your knowledge of the economy. Again at least basic knowledge about the economy is expected. If you can’t decide the direction of price levels by observing the demand and supply, then you need to develop a perspective.
#6 – Mindset
Problem-solving mindset is necessary for financial modelling. You have to start from a scattered type of information & reach a goal. So, the approach and the right mindset are essential.
#7 – Presentation Skills
Your presentation skills define you. Here, we are talking about the Powerpoint PPT. It does not mean using too many colors or making a fancy type of PPT. You are a professional & hence high quality is expected in the presentation.
#8 – Colour Formatting Knowledge
Essential parameters of color formatting in excel are consistency, efficiency & clarity. The lack of any of these generally does not serve the purpose of the financial model. To incorporate these things into a model, you need to develop these things within your habits.
#9 – Decision Making Skill Set
Decision-making is the result of a financial model. Every work prepared for financial modelling should be relevant for decision-making. If something is not necessary for decision-making, such information is ideally hidden.
#10 – Critical Thinking Skill
Critical thinking means the approach of thought-process should be towards achieving the end purpose. An open mind of critical & rational thinking is required to decide on various parameters in the financial model. This tool is necessary to be developed if one does not possess it.
This has been a guide to Financial Modeling Tools. Here we discuss the list of top 10 tools, including excel knowledge, knowledge of finance, mindest, and presentation skills. You can learn more about it from the following articles –