Types of Financial Models
3 Statement Model
It is the very basic preparation for the financial models. In this model, you will link the data to the three financial statements (income, balance sheet, cash flow)
The aim is to prepare it in Excel to link all the accounts together and make a set of assumptions that can change the entire model.
Discounted Cash Flow Model
It is a 3-statement model for company evaluation, based on the net present value (NPV), of the future, of the business cash flow.
This model takes the cash flows from the 3-statement model and makes some necessary adjustments. After that, the NPV Function is used in the excel and they are deducted to that day at the average capital cost of the company.
This type is used in Equity research.
Acquisition and Merger Model (A&M)
This model is more developed, it is used to assess the accumulation and mitigation of mergers and acquisitions. It is used more in investment banking and corporate development.
Initial Public Offerings Model
Investment bankers and corporate development specialists build IPO models in Excel to assess their business before launching them at the IPO.
In this model, the company’s analysis is done, assuming the amount that the investors are willing to pay for the intended company.
Leverage Buyout Model (LBO)
LBO is a process that requires a creation of models for complex debt tables. It is considered one of the most detailed and challenging models of all types of financial models. This type of model is used more in private equity and investment banking.
Sum of the parts of the Model
This model is adopted by adding models together and after that any additional components that cannot be appropriate to analyze discounted cash flow (DCF), such as marketable securities that will be evaluated based on the market added to the business value
This model includes multiple business units added to one form. Usually, each unit has its own tag, with merging tag that summarizes other business units.
This form is used in planning and analysis, so we can get the budget of the coming years. This model is based on monthly or quarterly numbers and focuses on the income statement.
This model is used in financial planning and analysis to build forecasts and compare them to the budget model. These budget models and forecasts can be either combined or separated.
Option Pricing Model
This model has two main types, Binomial tree and Block Scholes.
These models are based on mathematical equations instead of objective criteria, as they are directly essential in Excel.