Contact Us
×

Tag: financial modeling course

Financial Modelling Course: Multiple exercises to help you master financial modelling and Excel

Posted on by Imarticus Learning

Are you trying to focus on your financial modeling skills best? If so, this Financial Modelling Course is perfect for you! This course will provide multiple exercises to help you master financial modeling and Excel. 

Financial modeling is a process used to compile an overview of a company’s present financial situation and future performance expectations. A spreadsheet program like Microsoft Excel is the most popular tool for developing financial models. 

We know that practice makes perfect, so we want to allow you to practice as much as possible. These exercises help you apply what you learn in the course and improve your skills. We highly recommend completing these exercises regularly – the more practice you get, the better!

Exercise 1: Building a financial model for a company

In this exercise, you will build a financial model for a company. To create the model, you must use Excel and input all relevant data. Once you have finished the model, you can use it to predict the company’s future performance. It is an excellent method to learn how to build a financial model and to see how your predictions compare to actual results.

Exercise 2: Forecasting future performance with a financial model

This is an activity where you use your financial model to estimate a company’s future performance. You’ll need to put data in for different elements, like sales, costs, and income. Once you have inputted all the data, you will be able to see how your predictions compare to actual results.

Exercise 3: Analyzing financial statements

In this exercise, you will analyze a company’s financial statements. This will help you understand a company’s financial health and identify red flags. You must read and analyze balance sheets, income, and cash flow statements. It is a great way to learn how to read and interpret financial statements.

Exercise 4: Creating a valuation model

Various types of analysis, such as discounted cash flow (DCF) analysis, comparable trading multiples, precedent transactions, and ratios like vertical and horizontal analysis, can all be included in the term “valuation modeling” in Excel. Excel templates or models create various types of analyses from scratch. Many different types of finance professionals frequently carry out this kind of work.

Exercise 5: Develop a long-term financial plan

Projecting revenues, costs, and essential elements that impact the organization’s finances are all part of long-term financial planning. The finance officer can take proactive measures to address these problems by being aware of long-term trends and potential risk factors that could affect overall financial sustainability. 

A strategy for long-term investments is vital for a stable future. It guarantees that your money is secure and increasing at a healthy rate, whether the goal is to set up a retirement plan or to ensure comfortable savings.

We hope you find these exercises helpful and allow you to practice your financial modeling skills. Remember that your financial modeling skills will improve as you gain more experience.

Learn financial analysis course with Imarticus Learning

The financial planning and analysis course cover various topics, including financial statement analysis, modeling methodologies, and valuation procedures, allowing students to learn practical information and develop essential skills.

Course Benefits For Learners:

  • Additionally, learners will gain essential abilities to aid their employees in the financial industry.
  • Once you have mastered financial modeling, you can demonstrate your abilities to potential employers.
  • Through online financial analysis training, learners can acquire the knowledge and abilities required to become financial analysts.

Visit our training centers in Mumbai, Thane, Pune, Chennai, Bengaluru, Delhi, Gurgaon, or Ahmedabad, or get in touch via a chat support system.

Financial Modelling For Startups in 2023

Posted on by Imarticus Learning

It’s an exciting time for startups in 2023, with many of them leveraging the potential of financial modeling to drive their success. From securing capital to developing strategies that promote rapid growth and profitability, a strong understanding of the principles behind finance is essential for any budding entrepreneur who wants to get ahead. 

In this post, we will outline what you need to know about financial modeling so you can stay abreast of new developments. In addition, we will touch on the demand for financial modeling and how it can help startups.

What do you need to explore about Financial modeling? 

Financial modeling is simply a method of creating a financial representation that helps businesses make informed decisions. In other words, it’s a way of using data to make informed decisions about how to best use your money. 

Financial models help you predict future financial performance, which can give you insights into the most effective strategies for achieving your goals. In order to model effectively, you must have a foundation in accounting principles such as cash flow, balance sheets, income statements, and other key metrics. 

Demand for Financial Modelling Certification

Financial modeling is a rapidly growing field, with the demand for experts expected to rise in the coming years. Investing in a Financial Modelling certification course can help you stay ahead of the trends and provide you with the necessary skills to become a successful financial analyst. 

A Financial Modelling Certification course will give you hands-on experience in the principles and techniques of Financial Modelling. You can expect to learn topics such as Financial Statement Analysis, Financial Modelling Principles, Cash Flow Forecasting, Financial Valuation, and Risk Management. 

How is Financial modeling beneficial for startups? 

Financial modelling is especially beneficial for startups. 

Here are the top 5 reasons Financial modelling is important for new businesses:

  • Financial models provide a framework within which to make informed decisions about critical business operations, budgeting, and investments
    No doubt, Financial modeling provides a powerful tool for startups in making effective decisions. Financial models give startups insight into the validity of their business plans, help them plan for future growth, and identify potential risks and opportunities to take advantage of.
  • Financial models allow startups to benchmark performance against industry averages:
    Financial modeling allows startups to compare their current performance with competitors in the market. This is a great tool for startups to evaluate their current performance and strategize on ways to improve it.
  • Financial modeling can help startups secure capital financial modeling can provide investors with valuable data that shows how much money a startup needs and what areas of its business need investment. By demonstrating potential returns, Financial models can help startups secure the capital they need to get off the ground.
  • Financial models can help startups manage cash flow
    Financial modeling allows startups to track their finances and better manage their cash flow. It provides a framework for understanding how money is entering and leaving the business, helping them anticipate potential shortfalls or overestimates of expected revenue.

  • Financial models provide a way to evaluate the success of past investments

    Financial modeling allows startups to track their investments over time and understand how successful they were in achieving their desired results. This helps them make better decisions in the future and improve their financial performance.

Learn financial analyst course with Imarticus Learning

corporate leadership

Our financial analyst courses equip students with the knowledge, skills, and tools they need to become successful financial analysts. With hands-on learning opportunities, expert guidance from industry practitioners, and dynamic course materials, our Financial Analyst certification program provides graduates with the confidence and expertise to excel in the financial services sector.

 Course Benefits For Learners:

  • Financial statement analysis helps learners gain an understanding of financial statements, as well as a deep understanding of financial modeling.
  • Your future employers will be impressed by your financial modeling skills and what sets you apart from other job applicants.
  • Financial analyst online training can provide learners with the fundamental skills needed to pursue a career in finance.

 Visit our training centers in Mumbai, Thane, Pune, Chennai, Bengaluru, Delhi, Gurgaon, or Ahmedabad, or get in touch via a chat support system.

Become A Pro with This Financial Modelling course

Posted on by Imarticus Learning

Become A Pro with This Financial Modelling course

Do you want to take your financial modeling skills to the next level? This online course is perfect for you! You can create complex models in just a few weeks to help you make better business decisions.

The finance industry is a tough one to break into. You need a solid foundation and a solid understanding of the financial markets to get started in this career field. The great news is that you can learn everything about modeling financial transactions from a top-notch course.

A skill that is in demand is financial modeling. Financial modeling can forecast future business performance and compare how various factors will affect your revenue, regardless of whether you’re considering a career change, vying for a promotion, or have already launched your own business.

training and development

Whether a beginner or an experienced modeler, this course will teach you new techniques and strategies to help you excel in your career. Enroll today and become a financial modeling pro!

Introduction to Financial Modelling

Financial modeling is creating a mathematical model to represent a financial situation. This can be anything from a simple home budget to a complex corporate finance model. Individuals, businesses, and organizations use financial modeling to make informed decisions about allocating resources and managing risks.

Most models use spreadsheet software such as Microsoft Excel. Financial modelers use various techniques to develop their models, including financial analysis, statistical analysis, and mathematical modeling.

Creating a financial model can be complicated and time-consuming, but it is essential for anyone looking to make informed financial decisions. This course will teach everything you need about financial modeling, from the basics of Excel to more advanced techniques used by professional analysts.

Why Should You Enroll in a Financial Modeling Course?

A financial modeling course can be the key to success in finance. It provides essential skills and knowledge to help you thrive in this competitive industry. The course can help you understand financial statements, models, and valuation methods. It can also teach you how to use Excel to create financial models.

With a financial modeling course, you will be able to:

  • Understand financial statements and models
  • Build Excel-based financial models
  • Valuate companies using different methods
  • Understand the impact of different economic scenarios on businesses
  • Make informed decisions about investments
  • Get a job in finance or become a consultant

Enrolling in a financial modeling course is the best decision you can make for your career in finance. The skills and knowledge you will gain from the course will help you succeed in your role and advance your career.

A good financial model can help you make better business decisions, raise capital more efficiently, and track the performance of your business. In addition, a well-built financial model can be a valuable tool for communicating your business plans to potential investors.

 However, perhaps the most crucial reason to enroll in a financial modeling course is that it can help you avoid making costly mistakes. You will learn how to build reliable and accurate models with the right training. Therefore, you will be able to make sound financial decisions that will help your business prosper.

Learn financial analysis course with Imarticus Learning

The ratio analysis course covers various topics, including financial statement analysis, modeling methodologies, and valuation procedures, allowing students to learn practical information and develop important skills.

Course Benefits For Learners:

  • Additionally, learners will gain essential abilities to aid their employees in the financial industry.
  • Once you have mastered financial modeling, you can demonstrate your abilities to potential employers.
  • Through online financial analyst training, learners can acquire the knowledge and abilities required to become a financial analyst.

Visit our training centers in Mumbai, Thane, Pune, Chennai, Bengaluru, Delhi, Gurgaon, or Ahmedabad, or get in touch via a chat support system.

The Crypto Takeover: Are Crypto asset markets moving too fast for clear regulation?

Posted on by Imarticus Learning

Cryptocurrency is a type of payment that may be swapped for products and services online. A lot of firms have built their own currencies, known as tokens. They can be swapped for the goods or services offered by the firm. Crypto assets are digital assets that use cryptography techniques to generate a financial transaction medium of exchange. Crypto assets include cryptocurrencies, utility coins, and security tokens. To have access to the good or service, you must first swap actual dollars for cryptocurrency.

Cryptocurrencies use blockchain technology to function. Blockchain is a distributed technology that manages and records transactions across multiple computers. This technology’s security is what distinguishes it. Financial modeling courses on cryptocurrency, such as a chartered financial analyst course will help one gain deeper insights into it.

Cryptoassets mark a profound transformation in financial markets and have gained prominence in recent years. Cryptoasset technical innovations have come a long way and have the potential to upset the financial system. Central banking institutions and other banking institutions can help shape this landscape.

This worldwide phenomenon is causing uncertainty in numerous ways, including how individual crypto assets differ from one another and the role of the major participants in the crypto-asset ecosystem. With the hype surrounding bitcoin, altcoins, cryptocurrencies, and tokens, an entirely new financial environment has emerged.

Why is regulation required?

Regulation is one of the most critical variables influencing the price of bitcoin. Every time a government cracked the policy whip, the cryptocurrency’s rise was halted, with countries taking varied approaches to bitcoin regulation.

AML standards have been improved as authorities and financial institutions get a better knowledge of these illicit operations. However, these adjustments have been mainly reactive and trial-and-error in nature.

To resolve these concerns of the rapidly expanding blockchain ecosystem, the European Union has begun implementing more strict financial laws that strengthen the regulatory structure and improve authorization models. Many member states currently regulate crypto assets on an individual basis, with Germany leading the way as the first to do so.

These individual regulations outline the conditions for acquiring and keeping a financial license from the government, clearly prescribing the road for crypto firms. Compliance, by definition, improves investor confidence and safeguards them.

Different governments have taken various ways to regulate cryptocurrencies. Digital currencies have been banned in Vietnam, Bangladesh, Kyrgyzstan, Bolivia, Ecuador, etc.  Russia and China are on the threshold of outlawing them.

Cryptocurrencies are unregulated in India, the United Kingdom, and Brazil. However, these are regulated and lawful in nations such as France, Finland, and Germany. Individuals are permitted to use bitcoin in their transactions in China, but organizations and banks are not permitted to do so. It is prohibited in Iceland to buy or sell bitcoins, but they can be produced.

There is currently no distinct law in India dealing with cryptocurrency concerns and it is unregulated. As a result, all pertinent departments and law enforcement agencies, such as the Reserve Bank of India (RBI), Enforcement Directorate (ED), and income tax authorities take appropriate measures in accordance with current laws. Similarly, the Indian Penal Code is enforced by the police and the courts. In addition, there are a number of other vulnerabilities and threats involved with bitcoin.

Conclusion:

It is a pressing need to regulate cryptocurrencies as well as recognize them as legal cash, with adequate safety and surveillance measures in place. This is essential in third-world countries where the majority of citizens are not technologically or financially competent. This is largely attributable to the fact that India’s economy only opened up a little more than a quarter-century ago.

Financial modeling courses such as a chartered financial analyst course might be the right boost for a flourishing career in this field.

Financial Modelling & Types of Financial Models!

Posted on by Imarticus Learning

Financial models are a vital part of the business decision-making process. They help executives in evaluating a business’s financial health and predict its future performance.

Financial models allow companies to make data-driven decisions by providing them with valuable insights. That is why the demand for a skilled chartered financial analyst is very high among companies. Organizations require their expertise to enhance their financial decisions. 

In the following sections, we will discuss financial modeling and its different types. So, read on… 

Financial Modelling courseWhat is Financial Modelling?

Financial modeling refers to using financial models to forecast a business’s financial performance. You use the company’s historical data to forecast its future performance. 

Financial modeling requires you to prepare an income statement, cash flow statement, balance sheet, and other supporting schedules. As your model gets more advanced, you will have to use more data such as SWOT analysis, ratio analysis, and discounted cash flow analysis. 

Further, financial models help you in making various crucial decisions related to investments. They will help your decision-making process during acquisitions, raising capital, planning business growth, budgeting, and selling or divesting business units. 

What are the Different Types of Financial Models?

Financial models are primarily of 10 types:

  1. Option pricing model
  2. Forecasting model
  3. Budget model
  4. Consolidation model
  5. Sum of the parts model
  6. Leveraged buyout model (LBO)
  7. Initial public offering model (IPO)
  8. Merger model (M&A)
  9. Discounted cash flow model (DCF)
  10. Three statement model 

Each of these models has unique applications. The one you pick and use depends on the requirement. For example, the DCF model uses cash flows to find the net present value and the internal rate of return. Similarly, the budget model helps in planning the financial blueprint of the company and focuses particularly on the income statement. 

How to Learn Financial Modelling?

There are many ways to learn financial modeling. However, the most effective way to do so is by taking up financial modeling courses. Enrolling in financial modeling courses would help you learn important concepts such as ratio analysis, SWOT analysis, cash flow analysis, and financial statement preparation, through industry experts in a structured manner. Also, these courses provide you with a proper curriculum so you learn every concept step-by-step. 

Moreover, a financial analyst course teaches you the latest in-demand skills so you are up to date with market standards. Notably, Imarticus offers its Financial Analysis Prodegree program in collaboration with KPMG.

Financial Analysis courseWhile picking a financial analyst course, it would be best to check the financial analytics course syllabus first. This would help you understand what skills it teaches you, and what you can expect from it. You can learn more about a financial analytics course syllabus here.

Financial modeling is certainly one of the most important aspects of business decision-making. Learning this skill can help you pursue an in-demand career much easier. If you are interested in becoming a chartered financial analyst, then you will have to acquire this skill. 

How Do You Prepare For A Financial Analyst Intern Interview?

Posted on by Imarticus Learning

An internship is an important experience for any student. It helps the student get clarity on what the field is about, and also gives a little experience before a full-time job. If you are a student of finance, internships can help shape your preferences. There are many options when it comes to finance-related internships since finance is the backbone of any business. You can get an edge on recent graduates, based on the internship you choose. Keep in mind the following factors before you apply and sit for a financial analyst intern interview.

Choosing the right company
If you do not have prior work experience, applying for an internship can be difficult at a reputed company. But do not worry. The company will not expect you to demonstrate an expert knowledge. However, they will expect you to know something about the company’s finances and business models. You can prepare for the interview by learning about the company properly beforehand.

Look for company analyst reports, along with the latest quarterly and annual reports. Check for any public information on the company as well, such as press releases and economic news articles. You can also check how the stock has performed in the last year, and whether it is making a profit or not.

Keep a track on the company heads and important financial staff, including the CEO of the company. You can also prepare some questions to ask the interviewer, which can help build a good opinion for you.

Trends in the finance industry
It is important to know about the industry in which you are thinking of making a career. Read up on the latest industry trends. Stay informed on the performance of the company, as compared to its competitors. It may be useful to follow up on the brand image of the company due to its advertisement campaigns. There may be some important technologies or recent trends which the company works on, and are interesting for you.

Mention your experience with the finances and technologies that you may have worked on in the past. Remember companies are always on the lookout for people who fit well into its system. This may help you to land a full-time job after your internship with the same company.

Prepare for the interview
Be ready to explain why you are interested in an internship with the company. You may also be asked why you are interested in a career in finance, about your specific interests, and how the internship can help further your career. Explain how you always have been interested in the field. Talk about stocks and bond markets and their basics. You can also take up a Financial Analyst Course and brush up the relevant concepts.

The financial analyst certification would definitely help you in the long run in your career. You can also check the price of the company’s stock on the day of the interview.

On the day of the interview, make sure to be on time. Preferably, you should reach some time before the interview. Maintain personal grooming and dress accordingly to the dress code that is being followed in the company. Most financial companies have a formal dress code usually but do check with the HR or receptionist before going for the interview. During the interview, try to answer the questions as precisely and directly as possible.

What do you need to learn to become a Financial Analyst?

Posted on by Imarticus Learning

At the onset of your career as a junior analyst, you will need to enhance your proficiency in database usage, spreadsheets, presentations in PowerPoint, other relevant software applications and Microsoft Excel. Senior analysts will, however, have to work on the crucial aspects of presentation skills, long working hours, mentoring juniors effectively, and building interpersonal relationships.

A financial analyst career requires long working hours, preparation and a flair for financial analysis. Other than job-satisfaction, the career provides excellent payouts and a horde of opportunities.

Essential Skills: 
Foundational graduation in Finance, economics, statistics, etc would be very desirable. Most courses provide boot camps for those who do not have a finance background. Based on your plans, specialization choices, eligibility, and resources various courses provide certification.

The most coveted of these is the CFA certification. You could also take up the Series 63 and 7 exams for accounting practices and investment terms in the US known as SIE certification (Securities Industry Essentials).

One will require non-technical and non-transferable skills like:

finance certification

  • Good quantitative skills.
  • Great problem-solving skills.
  • Grasp on use of inferential logic and an innovative approach.
  • Good presentation skills.
  • Above average reporting and data skills.
  • Great communicative ability and Interpersonal skills.
  • Team skills that are both collaborative and communicative.
  • Ability to sustain when working long hours under demands, pressure, and ambiguity.
  • Integrity and discipline.
  • A quick absorptive learner for financial interpretations without SOPs.

Technical skills:

  • Microsoft Excel and VB Macros
  • Use of data analysis techniques and manipulations in software
  • Fundamental accounting concepts
  • Financial statements analysis with forecasting, inferences, and valuation
  • Use and creating financial models and tools like bar graphs, charts, etc
  • Presentation capacity in Excel with data visualization charts
  • Preparing accounting statements like cash flow, balance sheets, income, and working capital statements.
  • Ratio analysis interpretation and preparation.
  • Frameworks for comparative multiple-companies performance analysis.
  • Forward financial models, ratios, and integrated statements
  • SWOT analysis
  • Techniques of Discounted-Cash-Flow valuation
  • Best practices in valuation applied to real-time  multiple databases of company data
  • SQL and PowerPoint

Types of Analysts:

The financial analysis field offers many career routes and titles. The main areas are in: 

  • Investment banks
  • Investment firms on buy-side.
  • Real estate sector
  • Firms on the Sell-side
  • Insurance companies
  • Companies that are data-driven
  • Brokerage firms

Average Salary:
Financial Analysts draw an average pay-band of 65k to 110k$ in the US according to Indeed.
In conclusion, if you have a flair for financial analysis then the financial analyst courses can get you the coveted financial analyst certification. 

The Imarticus course teaches you the best tools and such courses are particularly advantageous to your career because of the global robust curriculum, hands-on practice on popular tools, an industry-relevant project involving real-time live data, and excellent mentorship provided which makes you industry-ready from day one.

Also Read: How Do You Prepare For Financial Intern Interview

Confused Between Model Building Approach Historical Simulation? Things To Consider!

Posted on by Imarticus Learning

If you consider Basel II, there are two ways of calculating Market Risks VAR:
• Historical Simulation Approach
• Model Building Approach

What makes them different?

Historical Simulation approach is most frequently used by organisations. As the name suggests, we consider daily changes in past/historical values to compute the likelihood of the variations in values of current portfolio between given time frame. The other advanced version of this model places more emphasis on recent observations. The key assumption in historical simulation is that the set of possible future outcomes is fully represented by what occurred in a definite historical time frame/window.

On the other side, model-building approach involves assumptions about the joint probability distributions of the returns on the market variables. This model is also known as variance-covariance approach.

This is more apt for portfolios which has short as well as long positions in their bucket. This consists of commodities, bonds, equities, etc. in the portfolio. Here, the mean and standard deviation are computed from the distribution of the underlying assets returns and the correlation between them.

Daily returns on the investments are normally assumed to be multivariate normal which can be the models biggest drawback. Hence, model-building approach makes it easy to calculate Var.

Model Building approach assumes two things:
• The daily change in the value of a portfolio is linearly related to the daily returns from market variables
• The returns from the market variables are normally distributed

Shortcomings of Historical Simulations
Over reliance on past data can fail to serve the purpose as markets change every moment. The momentum can be gradual or sudden, but does not remain static.

Large number of factors like Technology, regulatory changes, economic conditions, seasonal patterns, etc. influence market and in such scenarios manager who are using historical simulation can face unfavorable situation.

Shortcomings of Model Building Approach
Also this approach is much more complex to use when a portfolio comprises of nonlinear products such as options. It is also a grim task to relax the assumption that returns are normal without a significant increase in totaling time.

When to use? Model building vs. Historical simulation.
Depending on the situation, appropriate model should be adopted by the organisation. While both of them have pros and cons, it is important to list down the objectives of risk model before adopting either of them.

Model building approach producer quicker results and can be used in conjunction with volatility and other correlation procedures.

The advantage of the historical simulation approach is that the joint probability distribution of the market variables is determined by historical data. This approach may not be very complicated however, it is little slow for computation. However, the methodology used in historical simulation is in line the risk factor and does not involve any estimation of variances or covariance’s which are statistical parameters.

One should use historical simulation model only when they have data on all risk factors over a justified historical period if they want the model to depict strong representation of the outcome in future.

To know more about model building join Imarticus Learning’s Financial Modeling Certification Courses, which will help you understanding opportunities in the Investment Banking, Private Equity, Budgeting and Financial Control space.

 

Fundamentals of Forecasting – Basic Modeling Hygiene – III

Posted on by Imarticus Learning

By Reshma Krishnan
We are continuing to understand the Fundamentals of Forecasting. Please click here for Part 1 and Part 2.
Many aspiring candidates ask us what is so special about the FMVC program at Imarticus Learning. After all, shouldn’t an MBA suffice? The problem with MBA’s, regardless of which school you go to, is that they don’t teach you role specific issues. For instance, they don’t have specific modeling modules. They will have a forecasting module but they won’t teach you how to model or how to forecast step by step. In the Financial Modelling and Valuation Course (FMVC), India’s leading Forecasting and Financial Modeling program, we teach you the minutae and we go into specifics. One such specific is modeling and forecasting hygiene.
Hard Coding- the model users bane.
This is the first thing I teach in modeling class. Hard Coding is essentially a stand alone number in a cell, which has no back up. It says nothing about the number. You must never hard code a forecasted number because the forecast is always done on the back of an assumption, which has to be modeled in. Hard coded numbers are usually past data, actual data that has been verified and been the result of auditing. A forecasted number should always be a linked number from an assumption.
Colour Coding
Staying with hard coded numbers, it always helps to colour code. In fact, in my class, I mark an assignment zero if it is not colour coded. Red hardcoded number tells me that the forecaster had no option but to hard code. All actuals should be in a different colour to forecasts and all delta numbers, that is the variable you are using to arrive at a forecast needs to also be in a different number.
Give the delta its own cell
Let’s say you want to increase the sale of pencils in 2017 by 10% from 2016. You have two ways to do it.
=(2016 revenue cell) x 10% +(2016 revenue cell) = 2017 revenue.
Or
You create a special cell for 10%
= ((2016 revenue cell) x (10% cell) )+(2016 revenue cell) = 2017 revenue.
Here I am assuming that revenue is growing by 10% . This helps me change the delta as I see fit which then changes my model. The delta is the rational for my model. If you hide it within a formula, I have to constantly look at formulas to find my assumptions.
Learn more about Forecasting by joining our course, FMVC,Financial Modeling and Valuation Course, India’s leading program in Financial Modeling and Valuation and focused on improving your chances on having a career in Investment Banking or Equity Research.

Fundamentals of Forecasting – the Basic Premise of Forecasting – II

Posted on by Imarticus Learning

By Reshma Krishnan
We are continuing to understand the Fundamentals of Forecasting. Please click here
The fewer the assumptions, the stronger the forecast – at least in the beginning when you are learning how to model. Most investment Banking models end up running into 40 assumption sheets, each linked to another. While you might believe such minutiae makes a difference, it’s almost always just to make yourself feel better. Yes, your ability to understand every cost element is good, but its futile if your understanding of the industry works or its cost structure is weak. Key assumptions built into the forecast can also be lost, like trees in a forest. Links can be very hard to find. A simple forecast on the other hand helps you understand what drives basic line items while giving you the ability change basic assumptions. So for instance if you are forecasting the cost of a cup of tea, you break the cup of tea into its major elements, milk, tea, sugar. Three basic drivers, but if you decide to link the price of tea not to the retail rate but to an auction rate that is further linked to an auction house pricing, there are many chances your Financial Analyst coursemodel will be faulty for no tangible benefit.

Forecasting is hard- if it wasn’t, financial modeling and forecasting would not be the number one skill required in financial services, especially Equity Research, or the most popular program in Financial Services Education. It requires patience and a deep thorough understanding of the industry. Forecasting is what Equity Research Analysts do all the time which is why Equity Research Analysts are industry specialists. You won’t find an analyst doing both steel and retail e-commerce. If you are not detail oriented, you are not going to be great at forecasting.
Your forecast is as good as your data, or your weakest link- using solid numbers always feels like an attractive proposition. Investment Bankers love to receive solid data from the clients. Equity Research analysts love to receive solid numbers from the industry or a company but what data do you trust. How often do you use that data? Can you remove the bias in the data. Data you receive from clients will almost always be optimistic, same with industry. Data you receive from Private Equity will almost always be pessimistic. There is bias in every data and your job is to remove bias.
Learn more about Forecasting by joining our course, FMVC, Financial Modeling and Valuation Course, India’s leading program in Financial Modeling and Valuation and focused on improving your chances on having a career in Investment Banking or Equity Research.