Financial models represent the forthcoming performance of a business, abstracting a real world business situation.
It is about translating a set of hypotheses about the behaviour of a business and its markets into numerical predictions.
Common reasons of building a financial model is liquidity management and effective risk assessment:
- Being able to determine liquidity very important for a business continuity that more than 70 percent of businesses fail due to cash flow problems.
- Taking measured risk, or preventing unnecessary risks is a fundamental fact of business. Believing risks can be avoided without models would lead to danger zones.
Financial models are almost always company specific, hence it is spreadsheet-based.
The stories of modelling mistakes emphasise that better human judgment and intelligence with respect to basic economic principles are primary factors to avoid from errors rather than increased sophistication in analytical techniques. Therefore, a modeller’s abilities to structure models robustly, flexibly, accurately and transparently, analyse and forecast the business and industry, assess the uncertainty associated with future economic variables (demand, exchange rate, inflation, technology, etc.), perform risk analysis, and apply advanced spreadsheet techniques are very crucial.
Tun Consult LLC have done financial modelling for businesses from transport and logistics, infrastructure, banking and financial services, technology, agribusiness, manufacturing and FMCG distribution sectors for situations ranging from business management to strategic planning, restructuring, purchase/sell/M&A deals, investment proposal development and feasibility studies.
We are skilled at building different variations of financial models including corporate finance (M&A, leveraged buy-out, valuation, etc.), project finance and VC.