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Financial Modeling Definition and Quiz

Which is more widely practiced? Granular company-specific financial modeling or more broad and risk-encompassing investment modeling? It's hard to say.
  1. Define - Define financial modeling.
  2. Context - Use financial modeling in a sentence.
  3. Quiz - Test yourself.
face pic by Paul Alan Davis, CFA
Updated: February 17, 2021
Every financial statement looks different and financial modeling is well-suited for customized analysis. See what's missing below.

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Understanding financial modeling


Financial modeling is the process of developing financial projections for a company, typically in a spreadsheet. It can be performed for both public and private companies, and is one component of fundamental analysis. See also investment modeling.

Synonym: pro-forma model

For context, it's safe to say that nearly all financial analysts have a comfort level with building financial models in Excel. The ability to create reports quickly is one advantage over a programming language. Common uses include developing financial projections, building pro-forma financial models, and downloading and populating data from service providers.

Spreadsheets for financial analysis offer the following advantages:

Commonly cited disadvantages of spreadsheets include:

In a Sentence

Pam:  Did you hear that sell-side analyst on the call grill the Ford CEO on SG&A guidance?
Eve:  Yep, another example of the blame game. His financial model of EPS missed by a penny.


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Which of the following is not typically analyzed when financial modeling? | Cash Flows or Capital Expenditures or Stock Correlations

Stock Correlations

Which is not a drawback associated with financial modeling in a spreadsheet? | Ability to handle big data, cell formula errors, software dependencies, or speed

Software dependencies. Unlike with programming, spreadsheets require less maintenance.

Questions or Comments?

Still unclear on Financial Modeling? Check out the deep-dive into Excel where we build advanced financial models for evaluating stocks with a free data set and 27 videos, in Quant 101.

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