Last updated on August 29th, 2024 at 02:19 pm
So, you are planning to join some financial modeling course but are unsure about the correct financial modelling syllabus. Before you decide to pursue any, its essential to understand the relevant financial modelling course syllabus in detail.
Introduction To Financial Modelling
To me, financial modeling is the process of simplifying a financial decision making process. This process involves using tools like excel, understanding of accounting, valuation techniques and decision making calculations.
My Own Practical Experience Examples
So let me list down a few applications of financial modelling that I have done myself over the years.
- Helped a client with deciding on starting a sugar cane factory.
- Created a 5 year revenue forecasting for an education company
- Tested a trading strategy using back tested data
- Created numerous Equity financial models to take decision on investing
- Used it to decide a real estate purchase
- Created a marketing model for optimum spent on Facebook
So, the point I want you take away from these examples, is that its tool which simplifies any decision making. But of course dealing with numbers.
Overview of Financial Modelling Course Syllabus
Financial modeling is broad and if you are new to learning this then chances are you will get over whelmed. So below are my broad coverage to look out for;
Syllabus should be Comprehensive
Think of financial modelling as a tower, which needs to be built on a good deep foundation. For example; it should have a deep coverage of financial statements(accounting mechanics), Excel from modelling perspective, Template creation.
Importance of a well-rounded financial modelling syllabus.
The use cases used in financial modelling should be easy to understood. Financial models typically can get very complicated, when you begin. There are so many moving parts, look below and you understand that a lot of things are inter connected. So the models covered in a syllabus should be simple business’s to understand.
The following sectors should be avoided as a beginner: Oil & Gas, Banking, Chemicals, Pharama. Unless of course you have some background in such sectors.
What should you expect from a syllabus
It takes years to master this skills, because there are two parts to it. One is skill, the other is experience of sectors and business’s. While you might be great with the skill (Like template creation etc) but you need to spend business’s cycles with sectors to truly understand.
Nevertheless, below four outcomes should be targeted
- Understanding the linkages of income statement, balance sheet and cash flow statement.
- Have an understanding of how various business’s decisions and their financial impacts.
- Gain some insights how and to what extent can a financial plan predict future.
- Also gain understanding of the limitations of financial modelling and valuation.
What are the Four Major Components of Financial Modelling ?
There are four major components of financial modeling which are assumptions, financial statement analysis, valuation and sensitivity analysis. ;
- Assumptions are the most important since they are in the form of forecast of the future of the company.
- Financial statement analysis focuses on the ability of the firm to perform
- Valuation estimates the value of the firm in the market.
- Scenarios to gauge how they affect the model and its accuracy and reliability
Weightage of Topics in Financial Modelling Syllabus
With my own experience of using financial modelling skills and also teaching financial modelling to various types of students. Below is my recommended coverage;
Here’s a table outlining the weightage of these topics in a financial modeling syllabus for a beginner:
Topic Weightage (%)|
- Financial Statement Analysis | 25% |
- Excel | 20% |
- Financial Mathematics | 15% |
- Project Finance | 20% |
- Equity Valuation | 20% |
- The weightage which I have mentioned above is ideal especially for beginners trying to learn this skill.
Detailed Financial Modelling Syllabus
Here’s a well-formatted syllabus for a financial modeling course with detailed subtopics and exercises:
Financial Statement Analysis
- – Basic Accounting Mechanics
- – Understanding the accounting equation
- – Double-entry bookkeeping
- – Accrual vs. cash accounting
- – The Three Financial Statements
- – Income Statement
- – Balance Sheet
- – Cash Flow Statement
- Working capital calculation
- – Taxation Systems
- – Deferred tax assets and liabilities
- – Corporate tax structures
- – Tax planning and implications
Ratio Analysis
- – Liquidity Ratios (e.g., Current Ratio, Quick Ratio)
- – Profitability Ratios (e.g., ROE, ROA, Net Profit Margin)
- – Efficiency Ratios (e.g., Inventory Turnover, Receivables Turnover)
- – Solvency Ratios (e.g., Debt to Equity, Interest Coverage Ratio)
Exercises:
– Prepare and analyze a set of financial statements for a given company.
– Calculate and interpret key financial ratios.
– Conduct a comparative analysis of two companies based on their financial statements.
Excel Proficiency for Financial Modelling
Key Excel Functions and Tools for Financial Modelling
- – Lookup Functions
- – VLOOKUP, HLOOKUP, XLOOKUP
- – MATCH and INDEX functions
- – Pivot Tables
- – Creating and customizing pivot tables
- – Analyzing financial data using pivot tables
- – Data Tables
- – One-variable and two-variable data tables
- – Scenario analysis using data tables
- – Charts
- – Creating dynamic charts (e.g., bar, pie, waterfall)
- – Using charts for data visualization in financial reports
- – Goal Seek
- – Setting targets and back-calculating required inputs
- – Linking Multiple Sheets
- – Creating and managing interconnected financial models across multiple worksheets
Exercises
- – Create a financial model that links multiple sheets and incorporates dynamic charts.
- – Use goal seek to determine the necessary sales to achieve a target profit.
- – Build a pivot table to summarize a large dataset and extract key insights.
Financial Mathematics
Corporate Finance Concepts Essential for Financial Modelling
- – IRR (Internal Rate of Return)
- – Understanding IRR and its use in investment appraisal
- – Comparing IRR with hurdle rates
- – XIRR (Extended Internal Rate of Return)
- – Handling irregular cash flows using XIRR
- – PV (Present Value) and FV (Future Value)
- – Time value of money concepts
- – Discounting and compounding techniques
- – NPV (Net Present Value) and XNPV (Extended Net Present Value)
- – Calculating NPV for projects with regular and irregular cash flows
- – Sensitivity analysis on NPV calculations
Exercises:
– Calculate the IRR and NPV for various investment projects.
– Perform a sensitivity analysis on NPV by varying discount rates.
– Use XIRR to calculate the return on investments with irregular cash flows.
Project Finance
Understanding Project Finance in Financial Modelling
- – PPP (Public-Private Partnership) Structures
- – Overview of PPP models and their application in project finance
- – Risk allocation between public and private entities
- – Debt Schedules
- – Structuring debt for project finance
- – Understanding amortization schedules and balloon payments
- – Interest During Construction
- – Capitalizing interest during the construction phase of a project
– Asset Schedules
- – Tracking capital expenditures and depreciation
- – Project Risk Ratios (e.g., DSCR – Debt Service Coverage Ratio)
- – Calculating and interpreting DSCR
- – Using DSCR in evaluating project viability
Exercises & Case Studies
- – Build a financial model for a PPP project, including debt schedules and DSCR calculations.
- – Calculate interest during construction and its impact on project costs.
- – Develop an asset schedule and project depreciation over time.
Equity Valuation
The Role of Equity Valuation in Financial Modelling
- – Core Business Metrics
- – Identifying key drivers of business value (e.g., revenue growth, margins, capital efficiency)
- – Creating Models from Scratch
- – Building detailed financial models from raw data
- – Avoiding the use of templates to ensure custom model creation
- Basic idea of financial markets
- Time series analysis of business financials
- – Research Techniques
- – Conducting industry and company-specific research
- – Gathering and analyzing qualitative and quantitative data
- – Report Writing Equity Research
- – Structuring financial reports
- – Presenting model outputs in a clear and concise manner
- – Build a complete equity valuation model from scratch, including income statements, balance sheets, and cash flow projections.
- – Perform a valuation analysis using discounted cash flow (DCF) and comparable company analysis.
- – Write a comprehensive valuation report based on the model created.
Specialised Topics in Financial Modelling Syllabus
In my opinion these topics are optional and you should target to learn them only once you build some experience around this skill. But my recommendation is to keep this under very low priority when learning it for the first time;
- Mergers and Acquisition Modeling
- Leveraged Buy Out
- Start Up Modeling
- Real Estate Valuation
Usually as per my experience these types of models are only required when you are specifically applying for these roles
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FAQ’s Financial Modelling Course Syllabus
What is covered in a typical financial modelling course syllabus?
A typical financial modelling course syllabus curated for a beginner should include, excel , financial statement analysis, project finance, financial mathematics and equity valuation.
Why is financial statement analysis crucial in financial modelling?
90% of the aspiring financial analyst don’t get selected for the lack of understand of financial statement analysis. Financial statements is the primary source of information for any financial model, and that makes it non negoatiable
How is Mentor Me Careers’ syllabus different from others?
Simply put we focus on the following areas to teach you this skill.
- Solid foundation on financial statements,
- Deep understanding of business and its drivers
- High proficiency in essential excel
- Real life interview cases testing financial modelling.
What advanced topics are included in a comprehensive syllabus?
As I have mentioned earlier that advance topics include mergers and acquisition modeling, Leveraged buyout modeling, real estate valuation.
What are the four major components of financial modelling ?
So, the non negotiable four components of financial modelling syallbus are; project finance, financial statement analysis, excel and equity valuation
What is taught in financial modelling?
Since financial modelling is a decision making tool used in finance, the major things taught are excel, financial statement analysis, equity valuation and project finance
What are the 3 basic financial models?
The 3 basic financial models that every aspiring analyst should have an understanding of are ; .
Three-Statement Model
The three-statement model is the fundamental framework in financial modeling. It connects the income statement, balance sheet, and cash flow statement through dynamic formulas, allowing for an integrated analysis of a company’s financial performance. This model is essential for understanding how financial decisions impact all aspects of a business’s finances.
Discounted Cash Flow (DCF) Model
The DCF model is used to estimate the value of an investment based on its expected future cash flows. By discounting these cash flows to the present value using a required rate of return, the DCF model helps in assessing the profitability of an investment or a company.
Mergers and Acquisitions (M&A) Model
The M&A model is designed to evaluate the financial implications of a merger or acquisition. It combines the financial statements of the companies involved, projects synergies, and analyzes the impact on earnings per share (EPS), helping to determine whether the transaction will be accretive or dilutive.
Do you need CFA for financial modelling?
No. Although if you have done CFA then financial modelling learning should be fun. However, even if you have done any other relevant commerce qualification which has coverage of financial statement analysis then its not required.
What are the four components of financial statements?
The four components of financial statements are:
1. Income Statement
The income statement, also known as the profit and loss statement, shows a company’s revenues, expenses, and profits or losses over a specific period. It provides insight into the company’s operational efficiency and profitability.
2. Balance Sheet
The balance sheet presents a snapshot of a company’s financial position at a specific point in time. It lists the company’s assets, liabilities, and shareholders’ equity, demonstrating the company’s net worth and financial stability.
3. Cash Flow Statement
The cash flow statement tracks the flow of cash in and out of the business over a period. It is divided into three sections: operating activities, investing activities, and financing activities. This statement helps assess the company’s liquidity, cash generation, and financial health.
4. Statement of Shareholders’ Equity
The statement of shareholders’ equity outlines changes in the equity portion of the balance sheet over a period. It includes items such as retained earnings, stock issuance, dividends, and any other equity transactions. This statement provides insights into how a company’s equity has evolved.
