Financial Modelling

Financial Modelling

Definition of
Financial Modelling

Financial modeling is creating a financial model using spreadsheets, preparing and processing it with a tool such as Microsoft Excel, and it is used to predict the financial performance of a company or project in the future, financial modeling is used to guide financial planning and strategic decision-making.
Financial models provide a quantitative analysis based on data that analyzes the position of the company or project and its future trends or past historical performance, and it is considered the main basic element for making major business decisions in the corporate world, it is also considered the most valuable tool for implementing business options to obtain ideal solutions.

Future forecasting usually depend on the company’s past performance and some assumptions that are made for the future. This requires the preparation of a pro-forma income statement, a balance sheet, and a cash flow statement. Other more advanced economic models can also be prepared, such as the discounted cash flow analysis model.
Collecting and using correct data from reliable resources in financial modeling is crucial to the success of financial analysis for any company or organization. Financial modeling requires collecting and analyzing a lot of information and the data collection is a critical step in creating a financial model, the historical results and numbers achieved in the past by the company are the main entry points for preparing the three financial statements model, which is often the basis for preparing all other types of financial models.

Financial modeling uses
The outputs of financial modeling help in making decisions and conducting financial analysis, and the need for these models appears in many situations, including:

Valuing investments of all kinds and judging their quality.
Valuation of tangible and intangible assets for various purposes.
Analysis of the capital structure of the project or company.
Analysis and valuation of mergers and acquisitions deals.
Analyze the financial statements to measure the historical performance of the company or project.
Analyzing the company’s internal operations and setting budgets to measure performance.

Financial Modelling

Types of
Financial Models

Three statements models:

It is the basic form for most other financial models, and through this model, it is possible to link data between all three financial statements (income statement, balance sheet, cash flows).
In addition to setting some basic assumptions for changing the entire model, future forecasts are made in this model based on the historical performance of the company or project, in addition to a set of other assumptions specific to the financial performance that the project or company is expected to follow in the future for a specific number of years.
This type of model is used as the main part in many other types of models and forms the basis for most of them, and this includes all valuation models, which aim to evaluate companies for various purposes, starting from the valuation of shares to the valuation of acquisition deals and other models such as the budgets model and the cash forecasts models.
Discounted cash flow models:

It is a model based on the aforementioned three-statement model, and its aim is to evaluate the company based on the net present value method, This model works to establish some necessary adjustments to the cash flows in the three-statements model, and then the net present value of the future cash flows is calculated, often using the pre-calculated percentage of the weighted average cost of capital as the discount rate considered in the process of calculating the present value of cash flows. This model is used to evaluate tangible and intangible assets and is considered the standard method among all other valuation methods, the discounted cash flow model forms an essential part of many other types of models such as shares valuation models, corporate valuation models, mergers and acquisitions models, models for evaluating projects under construction, and others.

Mergers and acquisitions models:

These models are used to evaluate mergers and acquisitions deals that take place between two economic entities or companies. The merger model is an analysis process that studies and analyzes the steps of the merger of two companies that come together under mutual agreement to form a unified entity, while the acquisition occurs when one of the companies proposes to provide cash or offer its shares for acquisition and control of the other company, the steps of building the model include an in-depth analysis of both companies and then setting assumptions of the acquisition, and then evaluating both companies separately and making accounting adjustments for the differences in the valuation process, based on that analysis, the buyer increase or decrease the value of the transaction, the acquisition models include also the leverage buy out models, which is one of the detailed models that assumes that the purchase transaction will be funded by a large amount of loans, which will represent a large amount of debt or financial leverage as the main component of the capital used to finance the purchase.

Financial Modelling

The service of
Financial Modelling

The financial model is considered the most important tool in almost all operations in any institution or company since it facilitates the process of making important strategic decisions that have financial impacts on the company or institution.
The following is a set of important questions, and if you are unable to answer all of them with “yes” confidently, then you undoubtedly need our services in financial modeling:

  • Do you have powerful and reliable tools to conduct an accurate assessment and in-depth analysis of your business and opportunities, and to critically appraise the opportunity?
  • Is the financial model that you currently own is considered easy to understand, and is it possible to convert it into a sufficient tool for presentation to reflect the analysis of the company’s performance, the project or the deal metrics in front of senior management and decision-makers who are not specialized in the details of financial modeling?
  • Are your financial predictions in the financial model that you currently own based on fundamentals that truly reflect your business?
  • Does the current analysis based on your current financial models allow you to measure the effects of all operational, commercial, and financing variables and forecast them correctly, and measure sensitivities applicable to key stakeholders?
  • Does your model have good documentation so that someone else could operate it if your key modeller was unavailable?
  • Is it easy to update the financial model that you currently own, and is it possible to develop it to keep pace with the changes that occur in your business?
  • Have your financing arrangements been fully integrated into your financial model to enable sufficient cash and covenant analysis?
  • Does the financial model that you currently own measure the effects of all possible options that affect the results of your business independently of each other?
Features of the models we develop:
  • Clear construction of the model, independent design of both input data and the processing sheets, and output data.
  • The simplified formulation and the equations used are clear and logical.
  • There are no data processing problems while maintaining the flow and coherence of the model.
  • Include various testable approaches and scenarios in the model designed to measure the impact of various variables.
  • Use equations consistently in all parts of the model.
  • Include an independent data integrity review in all parts of the form.
  • A distinctive visual display of the results of the model and understandable to everyone who views it.
Our way of providing this service:

We work closely with our clients to plan and create bespoke financial models for them specifically using structured and practical designed rules for financial modeling so that they can achieve their goals. Our financial modeling services help decision-makers translate quantitative and qualitative information to accurately predict the financial results of their business.
The service provided includes either designing a fully customized financial model or reviewing and then improving and developing a financial model that already exists with the client.
The method of providing the service is simple. The customer sends us a description of the project with the special requirements in a specific manner, then after studying the requirements and as soon as possible we return to the customer with our proposal that includes a description of our approach to work on the project with regard to financial modeling, the estimated time to complete the work and the total cost of our completion of the work on the financial model.

Our eight-step consulting mission begins with the following:

1- Determine the needs
2- Examination and investigation
3- Designing the model
4- Development of the model
5- Test the model
6- Documentation and training
7- Submit the model
8- Continuous post-delivery updating

We work in a variety of flexible ways to help you, by designing, building, and reviewing the financial models, as well as helping you to understand the impact of various financial or business assumptions on your financial position, profits, and financing structure, analyze the business and financial drivers of the model, and comment on the reasonableness of the assumptions proposed therein, including Macroeconomic assumptions, profitability levels, working capital requirements, cost indicators, and economic feasibility compared to potential risks according to our knowledge and experience.
We also express our expert opinion on the future forecasts set in the model and the extent to which they are affected by the presence of other factors in the model such as financial obligations towards other parties, other capital expenditure requirements, interest expenses, and any other payments to the parties financing the project or company.
We work with you to develop a financial model that accurately fits your needs, and the model will be built to work in a consistent and logical manner in order to provide the user of the model with full details of all financial factors driving the project, we will be building a financial model with a very flexible structure that accommodates all options related to multiple sensitivity analysis that allows analyzing the effects of the various inputs and scenarios, and when we finish working on the model, we will provide you with all supporting documents and how it works, and ways to modify it in the future. We also train your employees on how to use it and deal with it.
We review and audit the financial models that you have and express our independent opinion on them and the extent of their soundness and their correct representation of your business or project, and we evaluate the quality and credibility of these models in terms of the comprehensiveness and correctness of the information used in them, and we review the extent to which the model accepts the introduction of various variables, and the extent of its impact on the model’s calculations, we also review the assumptions used in terms of their compliance with international accounting standards and other international standards.

All rights reserved, Kunooz for Financial and Economic Consultancy 2023

All rights reserved, Kunooz for Financial and Economic Consultancy 2023

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