Most common professions that build Financial Modeling
They routinely build up excel models to evaluate companies for mergers and acquisitions, capital increase, and consultancy.
Its customers are big public companies, private equity companies, private companies and government institutions worldwide. If you are an analyst in Investment banking, then most of your time will be to build complex financial models in excel.
If you are an analyst in Equity research, you will always be busy building financial models, analyzing the company’s performance and researching the industry. All this work comes together in the form of a report delivered to the bank’s customers who use this report so they can make a decision whether to invest in public securities or not.
Because specialists in Equity research spend a lot of time in analyzing companies, they spend a long-time building models which also requires excel skills.
Financial Planning and Analysis (FP&A)
Basically, you will find a department, in all large companies, that designates the group responsible for forecasting, planning and financial analysis of the company’s performance, comparing it to actual results and monitoring the cash flow of the business.
Analysts and managers should build the financial models and analysis of FP&A and financing the company professionally and the possibility of planning for the future.
Usually, there are some groups that only develop companies, and this exists in very large companies that are usually public.
The group is responsible for the company’s merger, acquisitions, liquidations, and capital increases. These groups usually work closely with investment bankers in transactions.
Specialists in corporate development need to have very good financial modeling skills and, in some cases, they rely on investment bankers to build the model. However, at many times they build the model themselves from scratch or by using the company model.
It refers to the buy side compared to the investment banking in the sell side, so they take over the business and keep it for a long time.
Equity specialists build up spreadsheets for LBO that requires a complex capital structure model. The concept here is the use of
leverage debt to increase the IRR of the transaction.
Investing in venture capital is usually in the early stages of the company’s growth, and sometimes it uses financial models to estimate the value of the business. Being in the very initial stage of growth, these companies don’t use the models a lot. They only need them to focus on market opportunities, revenue and cost, and often this type of financial modeling focuses on cash that the company has lost it in the short term.
Usually, investment banking specialists do not create a three-list model or a discounted cash flow model (DCF). They usually analyze the company’s debt service and allow credit and pledges to borrowers.
Professional excel skills are a must in commercial banking, but the job does not require a high degree of professionalism.
Real Estate Development
Real estate development specialists are required to build very detailed models to determine the profitability of the real estate development project. This requires building a cash flow analysis and IRR account for the project.
This analysis requires taking into account the high financial leverage and bank financing which is required to complete the development process. Therefore, the job requires strong skills in building financial models.
Mezzanine finance lenders provide us with capital which classifies as, debt and equity; their risk is higher than conventional lenders, but less than common equity investors.
To evaluate opportunities and deals, you must build an evaluation model that identifies the debt and equity advantages, for their investments.
Many Mezzanine finance companies have a guarantee that they can convert into shares.
Any person who runs a company, in its initial stages, should have a model that forecasts the company’s revenues, expenditures and cash flow in the future. As these companies spend a lot of cash in the first couple of years, it is very important to make sure that the company has enough cash to be able to proceed.
Making a financial model, in this case, is the responsibility of the founders or the CFO.