How to brush up your financial analysis and modelling skills
The financial world is changing. Understanding and modeling data is key to success in all industries, and companies that don't invest in the right tools will fall behind their competition. The good news is that you can build solid financial modeling and analysis skillset without leaving your desk with these tips:
A solid understanding of accounting
First, it's important to understand accounting principles. Accounting is recording financial transactions on a company's books and reporting them in its annual reports. You must also know how to read a balance sheet (a list of a company's assets), an income statement, and an operating statement (an overview). You should also be able to interpret figures from these statements without having someone explain them first - understanding what each column represents and whether specific numbers make sense!
Understanding how to build a forecast
A forecast is simply an estimate based on past performance. A projection is an updated version of the exact calculation based on new information—this happens after you've already built your model and run it through some testing. A plan is what you'd do with this information if your company were about to go out of business tomorrow (or next month), so it has nothing in common with what we're talking about here!
Attention to detail
Attention to detail is essential to good financial modeling. The best way to do this is by being aware of the process and ensuring you follow it correctly.
- Ensure you've got your assumptions correct: You can't go through a complete analysis until you've checked that your assumptions are correct, so don't skip this step!
- Don't rely on spreadsheets alone: Spreadsheets are great for showing data. Still, they aren't always enough by themselves—you may have missed something important in your calculations.
Identify opportunities to automate the financial modeling process.
Automation can save time and money, improve quality, and make the process more accurate and efficient - all the while making it easier for you to get things done!
Start by identifying what kind of outputs you want from your automated financial modeling system. Do they need to be static (like reports) or dynamic (like simulations)? Do they need input from multiple sources?
An eye for design and esthetics
A good design is the first step to making your model look professional. Think about how you want people who use it—from accountants to managers and executives—to feel when they look at it: do they want it to be easy? Do they want something to help them get their job done effectively? Are there any areas where there could be an improvement in aesthetics?
You can take your financial modeling and analysis to the next level with the right skills and an appropriate knowledge base.
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